Let me start by sharing my views on the challenges the infrastructure industry isfacing today before penning various developments. The Indian macroeconomic environment haslooked turbulent during the past years consequent to a deceleration in global economicgrowth. Indias GDP growth rate has slowed down to a decadal low partly due toglobal factors but more on account of slow reforms and delays in implementation ofprojects in the country.
Over the last quarter the Government has taken various initiatives to boostdevelopment of infrastructure in the country. These include setting up of infrastructuretargets for various sectors putting in place an institutional mechanism to monitor andhasten the progress of PPP projects at the Central and state levels and facilitating landtransfer between government agencies for PPP projects etc.
However the initiatives taken are not comprehensive and there are still multiple roadblocks that adversely affect infrastructure development.
Further it has been a year since the BJP-led National Democratic Alliance (NDA)government under Prime Minister Mr. Narendra Modi has come into power. India has certainlywitnessed positive developments on the economic front. It is clear now that it will takelonger for the economy to return to good health. The new Government has done well to startthe process of laying a solid foundation for economic growth.
The world had forgotten India and is once again looking forward to India playing a bigrole and is hopeful of the Indian economy once again growing fast. Inflation seems to beunder control. The consumer price index (CPI) inflation was at 5.2% in March 2015. In thecontext of a benign inflationary outlook a comfortable current account situation and thefact that the Government of India maintained the tight fiscal deficit target that it hadset for itself for FY 2015 many of us expected the Reserve Bank of India (RBI) tosignificantly ease up on interest rates. While the RBI has cut the benchmark repo rate of25 basis points to 7.25% from 7.5% it could have done more. I along with others invarious industries believe that it is time for the RBI as well as the commercial banks tofurther cut interest rates at least by 200 to 400 basis points without which it will bedifficult to increase the rate of growth of infrastructure and thus the economy. At thepresent interest rates projects must earn IRRs of at least 20%. Projects with such highearnings are too few. It must be understood that the IRR requirement of any project/ newinvestment must come down to 14% for evincing a robust response from entrepreneurs andinvestors.
Let me now turn to the performance of your Company. In a year that continued to littlegrowth in infrastructure and deep financial distress of construction enterprises yourCompany has performed quite creditably. Here are some key facts for FY 2015: - The orderbook as on 31st March 2015 is more than Rs 2000 crores.
- Turnover of Rs 655 crores.
- EBITDA is Rs212 crore in FY 2015 an increase of 6.3 % over the previous year. - PATwas Rs6.22 crore.
- EPS (basic) in the FY 2014-15 is Rs 4.19 as against Rs 1.12 in the previous year.
As you know ARSS had availed a Corporate Debt Restructuring (CDR) package with aconsortium of its bankers during FY 2012 while there were some delays due to challengingmarket conditions.
Let me now dwell upon something that I wish to share with you which affects not justyour Company but every player in the construction sector. This is about claims settlement.Throughout the world most if not all construction contracts involve changes ofspecifications scope variations and delays that are often on account of the clients andnot the contractors. In such instances the contractors place claims upon the clients torecover the additional costs.
In most parts of the world either these claims are more or less accepted and settledby the clients or else these go to the arbitration. Usually such matters are reallycontroversial and arbitrations take years. Almost every claims dispute that involves agovernment or public sector client is referred to a third party for decision- making. Ifthat decision goes in favour of the contractor the client appeals against it in court.Today there are thousands of crores worth of awards languishing in courts.
Consider the case of ARSS. After going to CDR your Company has filed for claims overRs 4000 crores due to various project related disputes. Of these some claims has beenawarded to ARSS through arbitration. But unfortunately these arbitration awards have beenfurther disputed by clients. Thus several awards that were positive to your Company havebeen taken to the judiciary.
What does this mean for a contracting firm. It has already incurred such additionalcosts as are being claimed which have been typically met by additional borrowings frombanks. Without the awards being settled the borrowing has burgeoned along with interestcosts. As this continues the debt so large as to make it financially impossible for thecontractors to meet the interest and principal repayment dues. This is the case of almostall contracting firms in India.
The only solution to this problem is to change the laws and regulations to make themmore equitable for the contractors than these currently are. The present Government isaware of the problem and wants to settle this issue in a sensible and time-bound manner. Ican only hope that we in the construction industry will see such a resolution by financialyear 2016. I believe that financial year 2016 will see somewhat higher growth thanfinancial year 2015.
I am cautiously optimistic about your Companys prospects in financial year2016. Your Company will have to continue focusing as before on maximising productivitywith an unwavering attention to controlling costs and systematically monetizing itsnon-key assets. We cannot afford to take our eyes off these fundamental drivers. Cautiousof the rate of growth of the top-line and the number of new and significant projects thatwill be tendered. Your company believes in responsible growth and hence will continue towork hard for the betterment of the society and to make sure that people of our countryhas better future and a better world to live in.
We have turned the corner from the dark days of loss-making. The CDR taught us veryimportant lessons. Today more than ever before a leaner more productive and focusedARSS is back on the path of profitable growth. May this journey continue. With thesethoughts and feelings I would like to take this opportunity to wholeheartedly thank theCentral and State Governments Shareholders Investors Bankers Financial InstitutionsRegulators Suppliers Media and Customers for their consistent and constant support. Iwish to express appreciation to my colleagues on the Board and our employees for theirthought Leadership dedication and commitment. I am indeed grateful to you all for yourcooperation and the trust you have reposed in us.
With warm and very best regards