It gives me immense pleasure to share with you the highlights of our Company'sperformance during the year 2015-16.
The year 2015-16 has been a tough year for Infrastructure sector. It is aptly said thatwhen going gets tough tough gets going. The mettle of your Company has been tested and wehave come out with flying colours. I had informed in my last years letter that theState Government of Maharashtra prematurely took over Mumbra Bypass Toll Facility inSeptember 2014 and we terminated Bihar DBFOT project from Mohania to Ara (total length of117 Kms) due to continuing defaults of the Authority and this resulted in severedisruption of cashflow due to which the Company had to go for restructuring of debt withBanks. Banks supported us by promptly restructuring the facility. We simultaneouslyapplied to High Court pressing for compensation of Rs 160 Crores awarded by the Tribunaland upheld by High Court. The Govt of Maharashtra in the matter of Mumbra Bypass partlydeposited Rs 58 Crores as per the orders of Bombay High Court. This entire fund was usedto pre-pay the Term Loan of the Company thereby reducing the leverage of the Company.Balance claim amount will also be directed by the High Court for payment. In Biharproject again Honble Patna High Court has ordered the State Govt to deposit thetermination payment amounting to Rs 610 Crores plus applicable interest as per the termsof Concession Agreement by September 2016. On receipt of amount of these damages /compensation the Company and its subsidiaries will be totally debt free.
The Company for the time being has decided not to bid for BOT or Annuity projects andto focus primarily on EPC/OMT/ Hybrid Annuity contracts as the equity requirement is low.The Company has along acquired Rs 252 Crores Moran Bypass project in Assam on EPC basis.Further the Company has an OMT project of 205 Kms from Guwahati to Nagaon to Lanka in theState of Assam which is to be commercially operational by September 2016. The Company isalso bidding for new EPC / OMT / Hybrid Annuity Projects to augment its order book. YourCompany is very selective in project identification and biding for only those projectswhere EBITDA is above 25%. Your Company plans to acquire at least Rs 900 Crores projectsin FY17 and Rs 1000 Crores projects in FY18.
The highlights of our financial and operational performance during the year 2015-16are:
- Total Income of Rs 137 Crores
- Net Profit After Tax of' 3.40 Crores
- Earnings Per Share of '0.3
- Cash Earnings Per Share of '0.94
- Net Worth of Rs 379 Crores ( over US$ 58 million).
The reduction in Total Income and corresponding decrease in Net profit was due to takeover / termination of above two projects. The Company has acquired new projects and plansto build its order book to more than Rs 1000 Crores in FY 17. The Income from new projectsshall be visible in FY17 and subsequent years. The Company is targeting Income of Rs 400Crores in FY17 and Rs 650 Crores in FY18 from the new projects maintaining EBITDA ofabove 25%. The Company's policy of keeping its leverage minimum shall help it in regainingits top and bottom- line at the earliest.
Outlook on Road sector
Road sector is one bright spot in the current gloomy economic scenario of industrialgrowth. The Road and surface transport ministry under the able leadership of HonbleMinister Mr. Nitin Gadkari has increased its target of road building from 22 Kms per dayto 30 Kms per day. This means close to 70000 Kms road shall be built in FY17. Out ofthese NHAI is targeting completion of 15000 Kms of National Highways in FY17. As perNHAI Chairman Mr. Raghav Chandra NHAI may award 97 projects covering 6631 Kms worth Rsone lakh Crores during the current financial year.
PPP project on BOT / Annuity model has suffered a set back due to a mix of factors likechallenges in land acquisition environmental
clearances delay in project completion and aggressive bidding leading to a dip in theinvestor sentiment. With leveraged balance sheets and lower revenue trends the sectorremains dependent on financial relief and Government orders. The Government has taken amulti-pronged approach to kick-start the activity by targeting resolution of key issuesincluding revival of stalled projects expediting new project awards and exploring a gamutof financing avenues for infra projects.
The Government has understood the importance of getting the PPP format right if privateinvestments are to be attracted for public assets in a sustainable manner. The Governmenthas realized the importance of partnership between the private and public sector forfinancing the creation of infrastructure assets but is yet not conceived &implemented. The current PPP format has gaps in the definition and understanding of rolesand responsibilities of the parties to the PPP model. Hence a panel is formed torevitalize the PPP model with an agenda of rebalancing project risk with the sovereignbearing a significant proportion is a positive development. The panel has submitted itsrecommendations. Initiatives such as decentralization of project clearances by theenvironment ministry awarding projects after acquiring 90% land and requisite approvalsunder the plug and play model amendment to the arbitration law to set fixed timelines fordispute resolution will help attract private sector participation. The Government ofIndia has approved the hybrid annuity model (HAM) to increase the pace of award andconstruction of national highways apart from de-risking the developers and lenders frominherent shortcomings associated with conventional toll and annuity based DBFOT model.
Exit policy framework permitting concessionaires to get out of road projects two yearsafter completion and one-time financial assistance from the National Highways Authority ofIndia for the completion of road projects held up in advanced stages are steps in theright direction for revitalizing the road sector. More regulatory teeth for the roadsministry for amending the model concession agreement and providing approvals in certaincases without reference to interministerial committee or cabinet is also a welcome move.
Proactive governance and timely implementation (Pragati) launched by the centre toaddress stalled projects has helped revive nearly $60 billion in central and stateprojects in the first half of the fiscal year. The Government also plans to give financialassistance to kick start the half completed projects. It is critical that the incompleteprojects are helped so that the invested capacity can turn productive improving thereturn potential to the capital providers.
Thus private sector will surely get opportunities to grow the Road sector leading tooverall economic growth of our country. Road sector contributes to 5-6% growth in GDP andthus vital for revival of economic growth. Road project awards will rise in 2016 as theGovernment puts infrastructure creation at the top of its agenda. Some of the Initiativestaken are:
Ministry for Road Transport and Highways (MORTH) has announced that the targetfor laying out new roads in India will be increased to 150000 Kms per year from 2016compared to existing 96000 Kms
Ministry for Road Transport and Highways (MORTH) has informed that theGovernment has launched major initiatives to upgrade and strengthen 54478 Kms of NationalHighways (NH) in the country
MORTH showcased revival of 34 projects worth more than Rs 26000 Crores (US$ 3.9billion) in its latest presentation on infrastructure targets saying that the projectsspanning over 4084 Kms are being restructured or converted from public- privatepartnership to engineering procurement and construction (EPC) mode to get them going
The Special Accelerated Road Development Program - North East is aimed atdeveloping road connectivity between remote areas in the North East with state capitalsand district headquarters. The program is vested with the development of NHs of about4798 Kms and double laning and improvement of about 5343 Kms of state roads. The totallength approved under
this program was 388 Kms; out of which 104 Kms has already been 4/6 laned and thebalance road length is at various stages of implementation. (Source: NHAI April 2015)
The Government has approved a Road Requirement Plan (RRP) for improvement ofroad connectivity in Left Wing Extremism (LWE) affected areas of 34 Districts in 8 Statescovering 5477 Kms of which 3471 Kms of roads has been constructed as on February2015.
One of the biggest constraints for infrastructure projects is the availability of longterm capital. Apart from higher budgetary allocation for 2015-16 the Government isexploring avenues to generate financing options for infra projects. Funding bymultilateral institutions and the easing of foreign direct investment norms will help fundprojects with foreign capital. Initiatives like business trusts if swiftly brought tofruition have the potential to unlock new growth capital for the sector from both retailand institutional investors. Flexibility in refinancing infra projects (5/25 scheme)CRR/SLR exemptions to banks with respect to infra bonds proposed liberalization ofexternal commercial borrowings policy and transmission of rate cuts by the Reserve Bank ofIndia are likely to help the concessionaires ease the burden of project borrowings.
The Company has been pioneer in the BOT and EPC roads space for more than 35 years. TheCompanys superior execution skills and focus on profitability (as against merely onincreasing sales) while looking for growth has helped the Company to be careful whilebidding projects. This prudent approach to achieve sustainable growth has helped theCompany during current tough time where many major players have faltered and are bleeding.In keeping with the changing environment the Company has decided to focus on EPC /OMT /Hybrid Annuity model projects for future growth.
Your Company is qualified to bid for individual project worth Rs 1500 Crores. StateGovernment eligibility criterias are much relaxed as compared to NHAI and hence theCompany can bid for much higher cost State awarded projects. Last 5 years average of ourbid success ratio has been 23%. Your Company has been executing individual project worthmore than Rs 1000 Crores each for the last 4 years.
The manpower and machinery of Bihar project (EPC value - Rs 1064 Crores) is currentlyavailable. Besides this manpower and machinery of Ropar project (EPC value - Rs 240Crores) and Nagpur project (EPC value - Rs 207 Crores) would be available in the currentfinancial year as these projects are nearing completion. Thus the Company is positionedwell to take up new orders and carry out expeditious execution of new projects.
The Company has ensured potential of huge profitability and cashflows by pursuingpolicy of investments in land parcels near BOT project sites. Once these roads are readythe Company develops those land parcels into commercial and residential property.Development of roads ensures not only increase in the value of land parcels manifold butalso creates adequate demand for the commercial and residential property. The profits andcash flow from such projects help the Company not only to repay costly debt but alsoprovides growth capital for its sustainable growth. The Company has already started onesuch project of a Residential Complex of over 6 lakh sq. ft. near its Mumbra Bypass. Witha view to grow in a collaborative manner the Company has entered into JVs withthird-party developers for developing various commercial and residential projects withover 1 million sq. ft. of saleable area. This asset light model helps us to effectivelyuse our capital while boosting our bottom line.
We believe in proactively preparing ourselves for achieving sustainable rapid growth byensuring timely availability of necessary resources - be it human resources financetechnology equipments infrastructure systems etc.
In the area of Corporate Governance your Company is committed to the highest standardsof probity transparency sustainability and corporate social responsibility.
I thank all our stakeholders for reposing confidence in our abilities and endeavoursand expect to receive full support in taking the Company to newer heights.