Dear Fellow Stakeholder
It gives me great pleasure to welcome you all to the 20th Annual GeneralMeeting of your Company.
Its always a pleasure to speak with you to reflect on the performance of yourCompany in the year that went by and share with you our aspiration for the future as wecomplete shifting our registered office to Mumbai and the corporate office to New Delhi.
I would like to place on record my sincere gratitude to you our valued shareholdersfor having given me this privilege. It has been a momentous journey in shaping one ofIndias most admired Infrastructure developer and operator group. Your unstintedsupport has made this voyage deeply fulfilling.
One thing happening with amazing certainty is that the World is increasingly becominguncertain and volatile or to say so VUCA (Volatility Uncertainty Complexity Ambiguity)is at its peak. Growth of the global economy has been revised down from 2.9 to 2.4 .China the Worlds economic engine is growing at the slowest pace with its GDPgrowth of last year falling to a quarter-century low of 6.9 and has kept declining in2016.
Within global policy circles it is widely recognised that the China needs a majorstructural change to its economy. Growth rates have precipitously collapsed massivesurplus capacity exists in the heavy industrial sector non-performing loans arethreatening to bankrupt many provincial State owned
firms and domestic financial markets are dangerously volatile without repeatedinterventions from State Regulators. Besides all these serious challenges in the Chineseeconomy Eurozone has emerged as the biggest uncertainty for the world recently. Theoutlook for the Eurozone has taken the largest hit following Britains vote to leavethe European Union (EU). Italys banking system is particularly weak and is nowlooking even more fragile. And crisis threatens the Eurozones governing of financialfirms across the bloc which could end up in an increasingly fragmented or balkanisedsystem. Balkanisation of EU finance comes at a time of financial fragility in the Eurozonebanking system which has added to the financial pressure on some of the largest Europeanbanks and the whole banking sector in Italy. As a consequence growth in the Eurozone isrevised down from 1.7 to 1.3 per cent in 2017. At the same time investors fear centralbanks dont have enough ammunition to tackle another financial crisis. Japan has beenanother economic experiment. To save the Japanese economy from stagnating they need toreflate it and reform it. However Abenomics has fallen short of its targets and itsoverblown rhetoric. Russia since last year has been into recession and its economy hasbeen contracting triggered by the low oil prices which pummelled public financesprompting spending cutbacks by the government and forcing the central bank to allow theRuble to trade freely. There is a cry for structural reforms and measures to improve thebusiness climate to accelerate the Russian economy. Similarly Turkey is under severeeconomic stress. The main economic driver of the country Tourism has taken asevere beating because of so much uncertainty in the country.
As of now the only economy with some promise is India. India is the only safe havenfor the world to put its money in. Globally across the market trillions of dollars withnear zero or negative yield and interest rates are languishing. Eventually we hope thiswill flow to India through FDI or other ways of investments. Therefore we should see moreand more investments coming to India across the sectors. The platform for this has alreadybeen laid by the present Government and its initiatives for reviving the economy keepingin mind the inclusive growth. Over the past two years the Governments economicagenda has had three pillars: infrastructure ease of doing business and liberalisationthrough FDI.
The biggest positive is that policy focus has not been based on populism or onboosting cyclical growth through fiscal and monetary stimuli but rather on improving thetrend growth by repairing the system and initiating structural reforms wherever possible.
I am very confident that India is well on its growth trajectory and is emerging as themost investor friendly country. Going ahead with further improvements in ease of doingbusiness India will be seen as a major investment destination for the global economy.
However for India to continue its robust growth with the foreign investments flowingin the Country it has to aggressively work on developing the world class Infrastructure.India needs Rs 31 trillion (USD 454.83 billion) to be spent on infrastructure developmentover the next five years with 70 per cent of funds needed for power roads and urbaninfrastructure segments. Hence opportunities for your Company are significant.
I am pleased to state that the Government of India is taking every possible initiativeto boost the infrastructure sector. Few of the important initiatives taken are as follows:
New hybrid-annuity model for allocating contracts under the Public PrivatePartnership (PPP) projects in Highways which will help overcome the challenges faced byprivate developers in the Build-Operate-Transfer (BOT) - Toll and BOT-Annuity models.
Government has plans to award Highway projects worth Rs 100000 Crore inFY17.
Budgetary allocation for Roads and Railways in the Union Budget 2016 has beenincreased to Rs 218000 Crore (USD 31.98 billion) with an aim to boost the privateinvestment cycle.
Steps to weed out the problems faced by projects stuck under PPP mode worth Rs 4lakh Crore (USD 58.69 billion) in the past few months.
Launch of National Infrastructure Investment Fund (NIIF) with an initial corpusof atleast Rs 40000 Crore (USD 5.87 billion).
New Civil Aviation Policy (NCAP 2016) launched recently is extremely prodevelopment with focus on boosting regional connectivity. Indian airport system which islikely to be third largest aviation market is poised to handle 336 million domestic and 85million international passengers by 2020 (current level of 137 million domestic and 50million international) with projected investment of USD 120 billion.
New Tariff policy for Energy sector provides clarity on CERC being tariffsetting authority for multi-State sales. The policy also promotes renewable generationsources and hydroelectric power generation including pumped storage projects efficiencyin operations and improvement in quality and reliability of power supply.
Renewable policy is targeting 20000 MW of solar power installed capacity.
OntheotherpolicydecisionstakenbytheGovernment E-Auction of coal blocks andRegassified Liquified
Natural Gas (RLNG) are noteworthy. The future coal supply scenario is also expected toimprove over a period of time in view of the Union Government setting Coal India Limited(CIL) an ambitious target of One Billion Tonne (BTs) by 2019-20.
The Government has also come out with Ujwal Discom Assurance Yojana (UDAY)scheme to address financial and operational issues of State Distribution Companies. GoIhas allowed coal swaps from inefficient plants to efficient plants and from plantssituated away from mines to pithead plants to minimize cost of coal transportation.
Your Company is a pioneer in infrastructure development and operations with a provenrecord of success it is well placed to leverage the growing home economy by participatingin Indias infrastructure development. However for such ambitious infrastructuredevelopment of the Country cost effective and long term financing is the lifeline. I amglad that the Government and RBI has been working to resolve financing issues of theinfrastructure sector by launching various schemes and policies as follows:
Strategic Debt Restructuring (SDR)
Scheme for Sustainable Structuring of Stressed Assets (S4A)
Investment Trust Guidelines by SEBI
Continuation of past schemes like JLR and 5/25
Liberalized ECB approach
I believe that the Government and RBI are further formulating new mechanisms to raiselong term cheaper finance in order to fuel the growth of infrastructure sector.
Your Company has done well in the last financial year in terms of business growthoperational performance finance raising cost optimization and institutionalizingprocesses and policies. The hard work of our employees is very visible in the financialimprovement of the Company with EBITDA margin growing from 28 in FY15 to 39 inFY16. I would like to mention some highlights of the each business sectors.
Delhi International Airport Private Limited (DIAL)
Delhi Airport (DIAL) surpassed the 48 million passenger mark in FY 2015-16 witnessinga growth of 18 in traffic over previous year. Strong growth in domestic cargo segmentpropelled DIAL to retain its number one position in cargo traffic in India with a 4overall growth in FY 2015-16 over the previous year.
The non-aeronautical revenues grew by 19 over last year led by growth in commercialnon-aero sales. DIAL has initiated its second phase of land monetization last year andplans to complete this year which is one of the key value driver for the Airport.
DIAL has very successfully launched the dollar bond and raised USD 288 million at avery attractive coupon rate last year.
Existing solar power plant capacity of 2.14 MW is increased to 7.84 MW withcommissioning of additional 5.70 MW capacity last year. The additional capacity isexpected to generate 8.5 million units of electricity per annum leading to savings of Rs3.0 - Rs 3.5 Crore per annum. Some of the Awards and Accolades received in FY 2015-16:
IGIA became No. 1 Airport as per Airports Council International (ACI) AirportService Quality (ASQ) ranking for 2015 in the 25 to 40 million passenger category secondyear in a Row.
IGI Airport was awarded ACI Director Generals Roll of Excellence 2015 forbeing ranked in top 5 airports in its category in the last five years.
Best Airport Staff in India and Central Asia in 2016 SKYTRAX WorldAirport Award for second year in a row.
IGIA won International Safety Award in Distinction Category fromBritish Safety Council with an overall score of 60 (on 60 Point scale) for the year 2016.
Golden Peacock Award for Sustainability in the Aviation Sector for2015.
GMR Hyderabad International Airport Limited (GHIAL)
GHIAL continued to record strong traffic growth in its 8th year ofoperation. Passenger traffic touched 12.5 million registering a growth of 19 Y-o-Y.Similarly Cargo also registered impressive growth to reach 113000 MT a growth of 10Y-o-Y.
Adding another green milestone to GMRs clean energy journey GHIAL hascommissioned a 5 MW Solar Power Plant for its captive consumption to meet theAirports peak power demand. Some of the Awards and Accolades received in FY 2015-16:
Worlds 3rd Best Airport 2015 in ASQ Rating by ACI in 5 to 15million passenger category.
Awarded the Best Regional Airport in India and Central Asia at the SKYTRAX WorldAirport Awards a web based survey voted directly by passengers.
Won the prestigious Emerging Cargo Airport of the Year Region Indiaawarded by STAT Times International Award for the second time in a row.
Won the prestigious CII Award for "Excellent Energy Efficient Unit"for a second year in a row.
GMR Megawide Cebu Airport Corporation (GMCAC)
GMCAC has experienced international traffic grow by 18.5 whereas domestic traffic hasalso grown at 9.6 . The construction of the new terminal is well under its way and shallbe completed as per the timelines in year 2018. Some of the Awards and Accolades receivedin FY 2015-16:
Asia-Pacific Transport Deal of the Year.
Best Project Finance deal award by Triple A Asia Infrastructure awards.
TANGEDCO PPA of your GWEL (Warora Power Plant) was fully operationalized duringthe year.
For GKEL (Kamalanga power plant) from December 2015 onwards supplies from ECLhave been transferred to MCL leading to a cost savings of Rs 80 Crore per year.
GKEL received favourable order from CERC on GRIDCO tariff with claim of Rs 234Crore of arrears from FY14-16 and for Change in Law petition against HaryanaDiscoms with claim of Rs 115 Crore of arrears from FY14-16.
GKEL successfully closed the flexible structuring of its existing loans alongwith the new facility of Rs 400 Crore against the regulatory receivables.
GCEL (Chhattisgarh power plant) both the units have been commissioned.
Talabira coal block started production from August 2015 onwards and GCEL hasbeen receiving coal for its operations.
Gas based VPGL (Vemagiri power plant) and GREL (Rajamundry power plant)commenced operations on roster basis beginning August 2015 and November 2015 respectivelyunder E-RLNG scheme.
Further we have already completed the Strategic Debt Restructuring (SDR) forGREL.
Transportation and Urban Infrastructure Sector
Design mobilization and execution of DFCC (Dedicated Freight Corridor) Rs 5080Crore project is well under way.
In June 2016 we also won 221 km DFCC project in partnership with Tata.
Divested stakes in Ulunderpet Highway and Hungund Hospet Highway to createliquidity.
Kishangarh Udaipur Ahmedabad (KUA) project has been surrendered to NHAI.
In Kakinada Special Investment Region (SIR) the entire SEZ area spread in over5000 acres was announced as operational SEZ; Pals Plush (a global toy manufacturer)commenced commercial operations; and the Rural BPO in association with TATA BusinessSupport Solutions was operationalized.
In Krishnagiri SIR we are taking up development of Phase 1A of the projectspread over 275 acres.
Your Company has been able to successfully achieve various finance raising anddivestments under challenging economic and market conditions following being a few:
Raised USD 300 million (~ Rs 2000 Crore) through 60 years FCCB from KuwaitInvestment Authority.
Induction of Strategic Partner in GMR Energy: GMR has signed an agreement withTenaga Nasional Berhad Malaysia for investment of USD 300 million (~ Rs 2000 Crore) inGMR Energy Limited (GEL) for 30 equity stake in GEL.
Divestment of Road project: Stake divestment in Hungund Hospet Highway reducedRs 1078 Crore of Debt at Group level and created liquidity of Rs 85 Crore.
SDR for Rajahmundry Gas Power Plant: Of the total outstanding debt (includingoverdue interest) of Rs 3780 Crore de t to the extent of Rs 1414 Crore gotconverted into equity by which the consortium lenders would have 55 shareholding andbalance 45 would be held by GMR.
Divestment of Transmission Assets: Successfully divested 74 stake in MaruTransmission and 49 stake in Aravali Transmission. The total value realizable from thetransactions would be Rs 220 Crore.
Corporate Services and Institution Building
Your Company is well aware of the extremely volatile and complex socio-economicenvironment. To be ready for tomorrows uncertainty we need to be very agile createliquidity and robust systems. Hence we have been focusing on the following:
Cash Conservativeness or Frugality This year we completed shifting of ourregistered office to Mumbai and headquarters to Delhi. This has helped a great deal inconsolidating the office spaces thus saving costs directly and indirectly.
Also at a Group level we are creating the culture of Frugality branded asAnushista. We have launched Small Group Activities as a part ofAnusishta following cost consciousness rationalisation and bringing in"Frugality" as a part of our work culture. Over the last 6 months we haveundertaken 105 projects across the Group involving about 440 employees with a savings ofabout Rs 16 Crore. Employees are trained in various tools and techniques required to carryout these projects with the help of internal resources.
Agility Your Company believes that agility and adaptability goes hand inhand. We decided to have an outsiders perspective and expert advisory to keep checksand balances for any course correction if required. We have formulated several advisorybodies as follows - Group Performance Advisory Council (GPAC) Information TechnologyAdvisory Council and HR Advisory Council. All these councils consist of very eminentpersonalities from the corporate world bringing in fresh outside perspective on presentbusiness models technology operations processes and policies. They continuously provideideas and feedback to help us to proactively adapt ourselves to the changingsocio-economic conditions.
Institutional Framework Your Company guided by its Vision of creating anInstitution in Perpetuity continues to focus on strengthening the four pillars of theinstitutional framework viz. People Process Technology and Governance. On the Peopleside we strive to create robust leadership pipeline and young leadership talent programs.On the process side we have a dedicated Business Excellence team at the corporate leveland several business excellence teams at the asset level working on several processimprovement projects. Just to share some numbers during last year 60 ContinuousImprovement Projects were completed with in-house audited savings of more than Rs 95Crore. Another 95 projects are also at various stages of completion.
On the technology side we have been proactively learning and implementing newertechnologies whether it is Cloud Data analytics or cyber threats.
Values and Beliefs Your Companys formation has been on a very strongplatform of seven values and beliefs. There are continuous training and renewal sessionsfor senior management and employees at regular intervals. The Board also keeps onre-visiting these values and beliefs.
Your Company believes in increasing the human consciousness and spirituality andpursues Inner Excellence. Several programs are conducted for our senior leadership team.We also have developed one of its kind Inner Excellence mobile app which isavailable to all the employees of the Group.
GMR Varalakshmi Foundation (GMRVF)
Your Company has always believed in inclusive growth and takes responsibility of givingback to the society. GMR Varalakshmi Foundation an associate of your Company works withextraordinary commitment for the weaker sections of the society.
All the educational institutions under GMRVF have performed exceedingly well during thelast year. GMRIT (GMR Institute of Technology) continues to earn good ranking among theengineering colleges in the country including being among the top 65 engineering collegesin the country and among the top five private engineering colleges in Andhra Pradesh.GMRIT also received Outstanding Engineering Institute-South Award and Best College inEngineering in Andhra Pradesh Award. GMR CARE Hospital continues to serve increasingnumber of people from under-served areas with high quality care including specializationslike Neurosurgery and
Nephrology. Diabetology department has also started during this year.
GMRVF helped the Group companies and several JVs to fulfil their CSR obligationsthrough grass root development initiatives around the GMR businesses. Three new vocationaltraining centres were inaugurated this year enabling GMRVF to contribute more to thenational mission of Skilling India through training over 5000 unemployed youth per year.Several innovative courses such as Dry wall and False ceiling technicians FacilityManagement and Quality checker were introduced. In the area of Health Foundation hasintroduced more Mobile Medical Units to serve under-served communities. As part of SwachhBharat GMRVF built more community toilets catering to about 3000 users per day and alsocontributed towards building of Individual Sanitary facilities and school toilets.
As a recognition for its corporate social responsibility initiatives GMRVF hasreceived the following awards:
PHD Chamber of Commerce Award for Outstanding Contribution to Social Welfare2015-16
Viswakarma Award for Social Impact and Development 2016 from ConstructionIndustry Development Council
The only way for growth of India is to have a World class Infrastructure in placeespecially Roads Railways Airports and Energy. Your Company over the time hasbuilt strong competencies and today is the leading player in all these sectors. Thereforeyour Company has ample opportunities ahead.
Your Company is keenly scouting for new airport opportunities in Philippines andhas qualified for the 5 regional airports in Philippines.
Actively participating in the bid for development of the Greenfield Airport atMopa Goa as well as Navi Mumbai Airport. Nagpur Airport and Bhogapuram (AP State) Airportare also on the horizon.
In line with our Asset light strategy your Company is actively scouting foradvisory services in the field of concession management and IT in the Middle East andSouth East Asia.
Transportation and Urban Infrastructure
Government has plans to award Highway projects worth Rs 100000 Crore inFY17. Most of these projects are expected to be awarded in EPC and Hybrid AnnuityModel (HAM) modes. We will bid for the right projects in both EPC and HAM modes ofbidding.
Your Company has entered Railway business in FY14 by winning 2 RVNLprojects. We made a big leap into Railway projects in FY15 when we were awarded 2packages on the eastern DFCC in the State of Uttar Pradesh worth Rs 5080 Crore. Governmenthas announced 3 new Dedicated Freight Corridors during the current budget and we willactively pursue these opportunities.
Apart from freight corridors we are also pursuing railway station developmentprojects which the Government has decided to take up on PPP mode.
Though there are opportunities galore we need to be very cautious of the presentvolatile and uncertain environment and need to make very cautious decisions which addsvalue to all the stakeholders. To successfully sail through these VUCA times your Companyis trying to foster a culture of innovation be agile and adaptable to technologicalchanges explore new business models focus on collaboration and create right talent tolead. Your Company is privileged to be able to pursue a path less travelled to createmultiple drivers of growth supported by creating some of the world class national assetsand an abiding vision to put Country before Corporation. It is our collective aspirationthat your Company should be one such world class infrastructure developer and operator ofthe Nation.
Before I conclude I would like to place on record my deepest appreciation of thetireless efforts of all my colleagues past and present who have travelled with me in thisjourney lending their shoulder to build this great organization. I draw solace that withsuch a world class team of professionals at the group at all levels our shared aspirationis surely within reach. Here I would like to express my special gratitude to all theemployees who have shifted their locations from Bengaluru to New Delhi Mumbai andHyderabad. I am aware that living all the years at one place and that too in a city likeBengaluru it is not easy to shift along with families. I am really thankful for theircooperation and support.
I would also like to thank the Members of the Group Performance Advisory Committee fortheir contribution and unwavering support over the years. I extend my sincere gratitude tothe Members of the Board for the richness of their counsel encouragement due-diligencein supervision and commitment to the Values and Visions of the GMR Group. And finally aspecial word of thanks to you our valued shareholders for your unstinted support andencouragement. I know team GMR can continue to look to you for your goodwill in the yearsahead.
G M Rao
Group Chairman GMR Group