vipul ltd share price Management discussions

OUTLOOK & OVERVIEW OF THE ECONOMY

It has been a near-normal year after two years of pandemic induced challenges but the global economy continues to face head winds of rising inflation and tapered growth. According to The World Economic Outlook (WEO) update, the world economic output growth slowed down to 3.4% in CY2022, after growing by 6.0% in CY2021. The rise incentral bank rates to fight inflation and Russias war in Ukraine continue to weigh on economic activity with its impact likely to spill over to CY2023 as well. The rapid spread of COVID-19 in China also dampened growth in CY2022, but the reopening has paved the way for are covery. Stronger-than-expected private consumptionand investment amid tight labor markets and greater-than anticipated fiscal support helped the major economies.

The IMF expects growth in CY2023 to be 2.8% with a gradual pick-up in CY2024. The economic activity is expected to remain sluggish mainly due to slow down in advanced economies. For advanced economies, growth is projected to decline sharply from 2.7% in CY2022 to 1.2%in CY2023 amid financial sector turmoil, high inflation, ongoing effects of Russias invasion of Ukraine, and three years of COVID. For emerging market and developing economies, growthis projected to rise modestly, from 3.9% in CY2022 to 4.0% in 2023. Growth in emerging and developing Asiais expected to rise in CY2023 to 5.3% after the deeper-than-expected slowdown in CY2022 to 4.3% attributable to Chinas economy. Growth in China is projected to rise reflecting rapidly improving mobility and full reopening.

Indias economy on the other hand, will slow down from 6.8% in CY2022 to 5.9% in CY2023 as per world economic outlook, impacted by rising global inflation and the resultant interest rate hikes.

The Indian economy continued to exhibit a resilient performance despite global uncertainties. The Reserve Bank of India (RBI) expects the Indian economy to be amongst the fastest growing economies in FY 2023-24 led by improving macro economic fundamentals and sustained momentum in domestic economy.

As per IMF reports, the GDP forecast for India has been revised to 6.3% for FY 2023-24 from 6.6% earlier. The primary reason was attributed to slower consumption growth and challenging external conditions.

The Indian economy continues to remain fairly resilient in the last year despite the global headwinds. However, it will see a moderation in growth in FY24 to 5.9-6.3% as per various estimates as against 6.9% in FY23. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures. Despite this, India will remain one of the fastest growing economies in a challenging global environment.

Indias GDP grew by 6.9% in FY23 due to stead fast domestic demand, governments unwavering focus on infrastructure spending and low base effect. Volatile commodity prices have impacted profitability, particularly of MSMEs, while export-oriented sectors face headwinds from a slowdown in their major markets. The headwinds of higher input cost and challenging global environment will continue in FY24 also.

The increase in reporate by RBI by 250 bps since the beginning of FY2023 to contain inflation is expected to slow down the growth rate as the full effect of rate hikes will be felt in FY2024. RBI though is expected to continue its accommodative stance to growth as seen in its April 2023 Monetary Policy Committee meeting where rates were maintained. Indias banking system has been largely insulated from recent failures of certain banks globally. Interest rate risk, the root cause of stress at some banks in the US, is relatively lower for Indian banks. Loans which form about 70% of asset book of banks in India are largely floating in nature. Also, the base interest rates in India are higher than global peers, making the sensitivity of investments to mark-to-market losses relatively lower.

Consumer inflation is expected to moderate from 6.8% in FY23 to 5.2% in FY24, owing to a high-base effect. A good rabi harvest would help cool food inflation and a slowing economy to moderate core inflation.

The World Bank expects the government to meet its fiscal deficit target of 5.9% of GDP in FY24 and narrow the current account deficit to 2.1% from an estimated 3% in FY23 on the back of robust service exports and an arrowing merchandise trade deficit.

While the short-term outlook seems to be challenging given the rising interest rates, external supply shocks and geopolitical tension, we do believe the government is doing the right things to ensure a sustainable growth

path for the country. The union budget presented this year was very supportive of the long-term growth of the real estate sector in India through its focus on urban infrastructure and the digital economy. The governments sharply expanded capital expenditure target for the year is expected to createjob opportunities and higher economic activity.

INDUSTRY STRUCTURE AND DEVELOPMENTS

The post-pandemic picture for real estate sector is aparadigm shift from before. The pandemic has reinstated the importance of home ownership and the attitude of customers towards residential properties has seen a substantial shift. Preference for larger sized apartments, inclination towards reputed developers and a rising demand for townships projects are just some of the emerging trends.

Fiscal 2023 was a milestone year for the Indian Real estate sector with all-time high sales. The sector showed healthy growth on the back of a high base achieved in fiscal 2022.The demand pick-up seen in the second half of fiscal 2021 has continued into fiscal 2023 and is expected to continue in fiscal 2024.

While the residential segment witnessed strong performance, commercial office sector continues to remain sluggish with demand not yet reaching the pre-pandemic levels. The challenges to office space demand has been the work from home trend and slowdown in global economic growth. The global slowdown directly impacts sectors like IT/ITeS which is the major occupier of office space in India. Retail real estate sector though, is back to full swing with consumption recovering beyond pre-pandemic levels and should continue the momentum.

The residential market has sustained the momentum seen in the latter half of fiscal 2022. The robust performance of the sector during last year signifies the strength of the underlying demand for property. The demand is driven by healthy economic recovery post pandemic, healthy affordability compared to historic levels and other favorable macro economic factors. The industry though faced head winds of steep rise in raw material costs, consumer inflation and a sharp increase in borrowing costs.

Heightened savings during the lockdowns, relatively little income disruption in the mid and high-income categories and a comparatively strong economic growth outlook have sustained demand in the Indian residential market.

BUDGET 2023 - TAKEAWAYS

The union budget presented this year was supportive of the long-term growth of the real estate sector in India through its focus on urban infrastructure and the digital economy.The Governments rising focus on infrastructure capex will create a backdrop of opportunity for the real estate sector. Some of the key measures include:

Housing for All

The Government allocated ?79,000 Crore, 66% higher than last years allocation, under the Pradhan Mantri Awas Yojna (PMAY) initiative which will be used for both urban and rural markets. The government plans to complete its target of over 4 Crore houses across both urban and rural markets, which will be allocated to persons eligible under the scheme. In addition, it plans to make the land and construction approval process more efficient.

Urban Development Plan

The National Housing Bank (NHB) will oversee the proposed Urban Infrastructure Development Fund (UIDF). Five centres of excellence for urban planning have been proposed, which will provide the sector with a channel to hire trained professionals. A committee of urban planners, economists, and institutions will be formed to make recommendations on urban sector policies, capacity building, planning, implementation and governance.

Municipal Bonds

The budget also proposed property tax reforms to providecities with incentives to improve their credit ratings for municipal bonds. These bonds have the potential to alleviate urban infrastructure woes while also improving real estate sentiment in these areas.

BUDGET 2023 - KEY TAKEAWAYS FOR CLIMATECHANGE

The Union Budget FY 2023-24 promises sustained economic growth through its vision for the Amrit Kaal Blueprint for an empowered and inclusive economy. The focus is on sustainable growth for continued recovery from the global economic slowdown, caused due to the COVID-19 pandemic and the Russia- Ukraine war. The multi-pronged approach adopted by the Budget includes targeted capital investment, with a thrust on green infrastructure, to help facilitate GDP growth. There is a 33% increase in capital investment outlay, and an estimated GDP growth of 5.9-6.2% fore casted for FY2023-24. The thrust on the infrastructure sector to drive

growth is also evident in the 66% increase in the outlays for the Pradhan Mantri Awas Yojna (PMAY), setting up of the Urban Infrastructure Development Fund (UIDF), and many other sector-linked initiatives.

COMPANY STRENGTHS

Promoters and senior management continues to put efforts to focus on Project Planning and Execution for delivering present-day design and quality construction.

The Project management team comprises of experienced, highly qualified experts with vast experience in their functional areas. The team drives the organization through their contribution. The organizational framework has been designed to manage the design, engineering, procurement and execution of concurrent, multi-site projects keeping a focus on delivery of developments of International standards.

Your Company continues to capitalize on the marketopportunities by leveraging its key strengths.

These include:

1. Brand Reputation: Enjoys higher recall and influencesthe buying decision of the customer. Strong customerconnects further results in higher premium realizations.

2. Execution: Possesses a successful track record of qualityexecution of projects with contemporary architecture.

3. Strong cash flows: Has built a business model thatensures continuous cash flows from their investment and development properties ensuring a steady cash flow even during the adverse business cycles.

4. Significant leveraging opportunity: Follows conservative debt practice coupled with enough cash balance which provides a significant leveraging opportunity for further expansions.

5. Outsourcing: Operates an outsourcing model of appointing globally renowned architects/contractors that allows scalability and emphasizes contemporary design and quality construction - a key factor of success.

6. Transparency: Follows a strong culture of corporate governance and ensures transparency and high levels of business ethics.

7. Highly qualified execution team: Employs experienced, capable and highly qualified design and project management teams who oversee and execute all aspects of project development.

OPPORTUNITY: The growth opportunity in the Real Estate Sector is far from over. It will continue to play out over the medium term. Large number of unorganized players have exited the market leaving more opportunities for the serious players.

As India awaits policy reforms to pick up speed, your Company firmly believes that the demand for Real Estate in a country like India should remain strong in the medium to long term. Your Companys well accepted brand, contemporary architecture,well designed projects in strategic locations, strong balance sheet and stable financial performance even in testing times make it a preferred choice for customers and shareholders. Your Company is ideally placed to further strengthen its development potential by acquiring new land parcels.

Housing Demand

The pandemic has nudged a lot of fence-sitters to convert into first-time home buyers and existing ones to upgrade to larger homes by re-establishing the security that home ownership offers, resulting in rising housing demand across segments. An expected economic recovery alongwith the belief of housing prices bottoming out amongst consumers and rising income levels are some of the factors which will drive the housing demand going a head. Hybrid working models will also continue to drive demand for larger homes. Employers are expected to continue to offer flexibility to their employees in order to attract and retaintalent.

Sector Consolidation

The highly fragmented Indian real estate sector has been in a prolonged consolidation phase from the past few years and the pandemic has been one important factor pushing weaker players out of business. The disruptions in the real estate sector have ensured that no new player has an easy entry into the sector. As the sector moves towards fewer big players in each region, the consolidation presents alucrative opportunity for the existing real estate developers to cater to the rising housing demand.

Affordable housing

Affordable housing continues to remain a significant opportunity for developers and key focus area of the government. While the tax benefit for first-time home buyers and tax holiday for developers in affordable housing segment was rolled back in Budget 2022, we believe it will not deter home buyers decision of purchasing homes

and demand will continue to be strong in affordable housing segment. Interestingly, the share of launches in the affordable segment across the top 7 cities of India,has dropped from 26% in CY2021 to 20% in CY2022, according to ANAROCK Research. The affordable housing segment could see a meaningful uptick in demand with an expected economic recovery and rising income levels.

Digital Real Estate Sales

Digital marketing has emerged as an important tool for real estate developers for their sales and customer outreach. Post-pandemic, the marketing activities are not just limited to tap new customers or brand recognition, but establishing a personal touch through digital means.With the tech-enabled tools to close real estate purchases online, developers have been able to record healthy sales even during the lockdown. Digital collaboration tools can be leveraged by the developers to interact with potential customers, show case project brochures, facilitate virtualsite tours, and focus on NRIs to propel the sales. Emerging tools such as virtual reality, augmented reality, AI-powered chatbots are being extensively used to establish personalized services with prospective customers. Going ahead,it will be imperative for the developers to adapt to a tech-savvy future and the proportion of real estate business generated online is expected to only rise further.

THREAT: Even as the demand in the Real Estate Sector is increasing gradually, the squeezed financial scenario and NBFC issue has let to major liquidity challenges and increased borrowing costs.

Huge inventory pile up and delayed projects have affected the confidence of residential end use customers as well as the investor community.

Regulatory Hurdles

The real estate sector is a highly regulated sector and any unfavorable changes in government policies and the regulatory environment can adversely impact the performance of the sector. There are substantial procedural delays with regards to land acquisition, land use, project launches and construction approvals. Retrospective policy changes and regulatory bottlenecks may impact profitability and affect the attractiveness of the sector and companies operating within the sector.

Monetary Tightening and Funding Issues

There has been a contrasting trend in real estate lending over the past few years wherein reputed, low leveraged developers continued to enjoy easy access to liquidityas lenders remained selective and weaker developers struggled with limited sources of capital. Real estate sector performance is closely linked to economic recovery and its monetary policies. The Reserve Bank of India has so far maintained accommodative stance as it tries to support economic recovery. However, going ahead we expect to see monetary tightening as the central bank tries to control inflation in the country. A nascent economic recovery along with rising interest rates could impact the real estate sector in the near term as cost of housing loans shoots upwith rise in the cost of funding for the developers, who are already facing margin pressure due to commodity cost inflation.

Shortage of Manpower & Technology

As the second largest employer in the country, the real estate sector is heavily dependent on manual labour. During the pandemic, the sector was badly hit due to labour availability issues which affected project completion timelines. Hence, there is a need for development of technologically less labour intensive alternative methods of construction.

RISKS AND CONCERNS

Vipul s risk management approach focuses on mitigating the adverse impact of external risks on its business objectives. The framework comprises a combination of centrally issued policies and divisionally-evolved procedures that are regularly reviewed for their alignment with sectoral dynamics and evolving trends.

The Company has a Risk Management Committee which is entrusted with the responsibility of establishing polices to monitor and evaluate the risk management systems of the Company.

The Company aims at continuous improvement of the processes which inter-alia include, reporting methodology of the legal matters, efficient engagement of high quality panel of third party lawyers, standardization of key documents and strengthening internal guidelines and processes on documentation, legal matters and their reporting.

The Company is exposed to a number of risks suchas economic, regulatory, taxation and environmental risks as well as sectoral investment outlook. Some risks that may arise in the normal course of business and could impact their ability to address future developments, comprise credit risk, liquidity risk, counter party risk, regulatory risk, commodity inflation risk and market risk. . The Companys strategy of focusing on key products and geographical segments is exposed to economic and market conditions.

The Company continues to implement robust risk management policies that set-out the tolerance for risk management and the requisite mitigation plans.

Industry Cyclicality

The real estate market is in herently a cyclical market and is affected by macro economic conditions, changes in applicable governmental schemes, changes in supply and demand for projects, availability of consumer financing and illiquidity. Your Company has attempted to hedge against the inherent risks through a business model comprising owned projects, joint ventures, residential platforms, and development management through a pan-India presence. However, any future significant downturn in the industry and the overall investment climate may adversely impact business.

Statutory Approvals

The real estate sector in India is heavily regulated by the central, state and local governments. Real estate developers are required to comply with a number of laws and regulations, including policies and procedures established and implemented by local authorities in relation to land acquisition, transfer of property, registration and use of land. These laws often vary from state to state. Several of your Companys projects are in preliminary stages of planning and any delay in obtaining approvals could warrant revised scheduling of project timelines.

Climate Change- Threats and Challenges forReal Estate Sector

The sector faces some pertinent challenges on the front of climate change. These challenges or risks can be classified broadly into two categories, physical and transitional. The former is on account of acute and chronic physical effects of climate change such as damage to infrastructure at construction sites or building projects, damages to logistics routes, reduced efficiency of work force due to heat waves, etc. The latter i.e., transitional risks arise on account of transitioning to a low-carbon economy. Such risks can be broadly classified into four categories namely, reputational,market, technology and policy.

In addition to the risks, climate change also offers some opportunities for the real estate sector.

• Reduced water usage and consumption: Water isa critical component in the construction and use phase. Erratic and reduced precipitation compounded with unsustainable extraction of ground water has a significant impact construction activities and customer preference. Incorporating rain water harvesting, and encouraging the useof curing compound instead of water saves large volumes of water and reduces its procurement cost. Moreover, reduction in water usage alsoreduces waste water treatment and corresponding energy usage.

• Local energy generation and storage: Real-estate firmscan use their premises to generate and store energy. For example, property developers have been outfitting buildings with solar arrays and batteries, helping to stabilize energy grids and reduce the costs associated with clean energy.

• Green buildings to attract more customers: Developers and property managers can invest in developing green buildings or retro fitting older buildings to make them green to meet the growing appetite for sustainable workplaces and homes. Energy efficient solutions both in the design and use phase can help save large quantity of energy for customers. The efficiency measures help mitigate climate impacts

• Extra services on-site: Firms can introduce newrevenue streams, including vehicle charging, green facilities management, and other on-site services that enable occupants sustainable preferences.

• Differentiated capital attraction: Given the volume of capital that has already been committed to achievingnet zero, real-estate firms that are able to decarbonizes will have an advantage in attracting capital.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Companys internal control systems are commensurate with the nature of its business and the size and complexity of its operations. These are routinely tested and verified by Statutory as well as Internal Auditors. The Companys internal control system is commensurate with the nature, size and complexities of operations. The internal control system ensures compliance with all applicable laws, regulations and facilitates optimum utilisation of available resourcesand protects the interests of all stakeholders.

The Company has a robust and well embedded system of internal financial controls. This ensures that all assets are safe guarded and protected against loss from unauthorized use or disposition and all transactions are authorised, recorded and reported correctly. An extensiverisk based programme of internal audit and management reviews provides assurance on the effectiveness of internal financial controls, which are continuously monitored through

management reviews, self-assessment, functional experts as well as by the Statutory/Internal Auditors during the course of their audits.

The internal control is supplemented by extensive programme of internal audits, review by Audit Committee and Board of the Company. The system has been designed to ensure that financial and other records are reliable for preparing financial information and for maintaining accountability of assets. All financial and audit control systems are also reviewed by the Audit Committee of the Board of Directors of the Company.

Significant audit observations, if any and follow up actions thereon are reported to the Audit Committee. Further to maintain its objectives and independence, the Internal Auditors reports to the Chairman of the Audit Committee.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

You Company continues to focus its business strategy on its core markets; reduce debt and improve the quality of debt; rationalize costs and capital expenditure. Your Company continues to focus on delivering and completing projects in a timely manner with complete focus on quality.

Here are some key facts for FY 2023 as compared to FY 2022-: (Rs. in Lakhs)

Particular	Financial Year Ended 31.03.2023	Financial Year Ended 31.03.2022
Revenue from operations	3,793.69	12,230.69
Other Income	902.35	927.36
Total Income	4,696.04	13,158.05
Total Expenses	14,711.55	16,649.56
Profit/(Loss) before Tax & exceptional item	(10,015.51)	(3,491.51)
Exceptional Item	9,463.15	-
Profit/(Loss) before Tax & after exceptional item	(19,478.66)	(3,491.51)
Less: Tax Expense:
(i) Current Year	-	-
(ii) Deferred tax	-	(705.54)
Profit / (Loss) of the year	(19,478.66)	(2,785.97)
Other Comprehensive Income
A. (i) Items that will not be reclassified to profit or loss	40.77	66.36
(ii) Income tax relating to items that will not be reclassified to profit or loss	10.60	17.25
B. (i) Items that will be reclassified to profit or loss	-	-
(ii) lncome tax relating to items that will be reclassified to profit or loss	-	-
Total Comprehensive Income	(19,448.49)	(2,736.86)

 

HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS

Vipul firmly believes that its intellectual capital plays a fundamental role in sustaining profitable business growth. In keeping with this conviction, the Company continues to invest in dedicated programs for its people to nurture skill and build capabilities that will help them in addressing current and future business needs.

The focus of human resource function is not only to improve employee productivity, skill sets and knowledge but also to improve employee empowerment and welfare. All the process and policies of Human Resources function are tuned to support the overall business needs, people strategy and organization goals.

The above ensures that a pool of ably skilled workforce is available to the company to choose from. Before becoming a member of Vipul family, he or she goes through a stringent evaluation process that resonates well with Vipuls work culture.

We give high priority to the health and safety of our employees. An effective way of ensuring this is building a safety culture, where safety is the responsibility of each and every employee.

As on March 31, 2023, the total strength of your Companys employees stood at 73.

SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

In accordance with SEBI (Listing Obligations and Disclosure requirements 2018) (Amendment) Regulations 2018, the Company is required to give details of significant changes (Change of 25% or more as compared to the immediately previous financial year) in key sector specific financial ratios.

SI. No.	Particulars	FY 2022-23	FY 2021-22	Change (%)	Explanations
1.	Debtors Turnover	0.15	0.31	-52.48%	Decrease in Sales during the year
2.	Inventory Turnover	0.08	0.20	-61.60%	Decrease in Sales during the year
3.	Net Profit Margin (%)	-512.65%	-22.78%	2150.60%	Substantial Increase in loss due to exceptional items and loan write off/ Provision for diminution of Investment in a subsidiary
4.	Return on Capital Employed (%)	-45.89%	-1.33%	3348.16%	Substantial increase in loss and corresponding erosion of net worth during the year
5.	Debt Service Coverage Ratio	(0.44)	(0.33)	35.10%	Substantial increase in loss during the year

 

CAUTIONARY STATEMENT

Statements in this report on Management Discussions and Analysis describing the Companys objectives, estimates and expectations may be forward looking statements based on certain assumptions and expectations of future events. Actual results might differ substantially or materially from those expressed or implied. The Company assumes no responsibility nor is under any obligation to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events. This report should be read in conjunction with the financial statements included herein and the notes thereto.

	Place: Delhi For & on behalf of the Board of Vipul Limited
Place: Gurugram Date: August 11, 2023	sd/- Punit Beriwala Managing Director, CEO & CFO DIN : 00231682	sd/- Vikram Kochhar Director DIN : 03098195