Greetings from C&C Constructions Ltd.
The financial year 2016-17 was a little tough year especially first half for C&Cfamily because of the volatile unfavorable factors and policy related decisions.
The last four years of the previous government the major problem that faced allconstruction companies was the legacy of stalled infrastructure projects. The size wasimmense. As an example on February 01 2016 there were 304 stalled projects involvinginvestments of ' 1275877 crore.
Such stalled projects completely destroyed the financial viability of privateinfrastructure developers and construction companies. These enterprises had used sizeableworking capital to mobilize material labour etc. and deploy expensive plant and machineryat various project sites.
With the stalling and inordinate delays of these projects the obvious consequenceswere massive cost over-runs and huge financial strains. Matters significantly worsenedwith government and quasi-government execution agencies holding back payments againstcontractor claims. Even when independent arbitrators in dispute resolution favouredconstruction companies the executing agencies invariably delayed the payment process byappealing to a higher judiciary.
Thus all construction majors in the infrastructure sector faced a terrible situationof burgeoning receivables on their balance sheets inadequate cash inflows and hugeinterest payment on large working capital exposures. Though your company was able to endthe financial year in profit but the cash flow position has remained very tight.
For a sample of listed construction companies interest cost as a percentage of totalincome soared from 6% in 2008-09 to above 14% in 2016-17 when the debt-equity ratio hadbloated to over 8. Simply put for even the better construction majors such as yourCompany the business was not financially sustainable.
After suffering lost momentum over several years the infra especially the road sectorhad a hope of revival as several new initiatives were launched and policy was revamped.However the situation remains challenging as there are many long-standing issues. Quite afew projects remain stalled; awards have been slow and construction continues to crawl.Road developers continue to struggle with stressed balance sheets.
Order intake remains sluggish since many of the stalled projects are yet to bekick-started. Projects already awarded are generally progressing slow due to variouscontinuing problems on ground which remain unresolved over the years leading to costescalations and time overrun which remain unpaid. All these factors combined have led toa vicious cycle culminating in a pile up of debt leading into Corporate Debt Restructuring(CDR) for many including your company and high consequential costs for the constructionindustry.
The financing scenario in the road sector continued to look grim in the past year. Thesector is witnessing increasing number of non-performing assets (NPAs) and an assetliability mismatch has emerged over the years. Lenders have lost their appetite as aresult of host of NPAs with banks. Funding is difficult to access and expensive. The ratecuts have not transmitted through the system to this sector yet and banks have hit theirlending limits.
Projects financing patterns have clearly changed with developers reluctant to acceptthe risks of PPP. Most of recent contracts have been awarded on EPC basis. Efforts topopularize hybrid annuity model have almost failed.
The government of India builds a new road map in terms of the current Five Year planit is increasingly evident that spending in the infrastructure sector is going to hit anew high in terms of GDP allocation. Further the Ministry of Road Transport and Highwayshas been empowered with more approval power of the projects and it is also striving forgreater inter-ministry coordination to speed up clearances.
Year under review
The EPI-C & C JV has been awarded a project by Govt. of India for construction oftwo lane road on NH Specifications from Paletwa to India-Myanmar Border
(Zorinpui) from Km. 0.00 to Km. 109.02 in Chin State of Myanmar on EPC Mode. The shareof C & C in this JV is 60%. The total contract value of the project is ' 1518.00crores. The project will be governed as per the terms and conditions set forth in theRFP documents.
Your Company's turnover on a standalone basis stood at ' 933.22 crore for the financialyear ended on 31st March 2017 as compared to the Turnover of ' 767.33 crore for theprevious period (Nine Months) ended on 31st March 2016. The Company posted aNet Profit of ' 34.17 for the FY under review as against a Net Loss of ' 19.29 crore forthe previous period on nine months. The order book in hand of the Company as on March312017 was ' 3929 crore.
We are streamlining our business processes reinforcing our project management skillstrimming our structure costs disposing our non-core assets improving our operationalefficiencies and working capital cycle.
Efforts of the Company will be towards capacity building of various stakeholdersincluding employees and contractors for effective delivery. Going forward we want to be avery lean and thin organization and want to utilize our resources in an optimum manner.
I personally believe that this government has pointed the compass in the rightdirection and we should see some bold reforms coupled with strong implementation comingout in due course that would revive the slowed activity in construction sector.
India will be back on the path of growth in near future. The dark clouds seem to havedissipated. But not entirely. Bureaucrats are still not taking timely decisions for fearof being charged with corruption. For the same reason some do not act expeditiously oneven orders coming from the Union Cabinet. The administration of contracts by governmentagencies is still tardy suffering from excessive dissecting to find reasons why not toact. And when action is forthcoming it is often in violation of the contractualconditions. Contract administration needs reform. This needs support from the Central andState governments if these are to be executed on time and with least cost overruns.
The banking sector is in a crisis of its own. The new Banking Ordinance and the latestRBI regulatory order in the wake of the ordinance are encouraging. But the confidence ofbankers to make them work is still to be tested. They too are fearful of being chargedwith corruption even though the Ordinance and the RBI orders give them adequate teeth totake tough decisions. They need to be left alone and operate without the fear to makecommercial decisions.
It is under these circumstances that we have to move forward to deliver performance.The year 2017-18 therefore will be a year of consolidation and laying the foundation fora growth path. The GOI''s determination to remove the obstacles to economic growth isencouraging. Let us pray for a burst of consistent growth that our country needs growthdriven by the government's purposeful drive to build infrastructure and with itbetter times for C & C.
I place on record my appreciation for undaunted trust and support of our employeescustomers shareholders vendors and specially the bankers/lenders shown towards thecompany. I would like to thank all of you for your constant and esteemed presence andgarnered interest in the Company.
Gurjeet Singh Johar