I would like to present this years' annual report with a lot of optimism. Although thepast few years have been very tough and had a great toll on the Indian Economy includingyour company I assure you that the worst seems to be over and there is a great ray ofhope in the coming future.
India has long been viewed as a potential economic tiger that is yet to achieve itspotential. Innumerable regulations and the intricate federal structure of the governmentinhibited business growth and held India back from achieving its expected economicpotential. However that appears to be changing gradually. The state governments alongwith the support of the central government have unveiled several reforms and changes thathave made it comparatively easier to do business in India than ever before.
The Indian economy has shown resilience in the face of global downturns and has stoodup to be one of the fastest growing economies in the world by posting a robust growth of7.2% in FY 2015 and 7.6% in FY 2016. The World Bank also predicted that India would be thefastest-growing economy in the world in the next three years.
Also Government of India has launched various proactive policy reforms along withseveral campaigns and initiatives such as Make in India Digital India Skill IndiaStart-up India and Swachh Bharat Abhiyan (Clean India Mission) which are likely totransform the extent and the Quality of rural and urban infrastructure. Some of theinfrastructure plans are trans-national and would help India economically integrate morefirmly and rapidly withthe regional economies.
While cities and urban areas show a progressive rise in the average per capitaspending proactive measures directed towards benefitting rural India to help increase itsincome opportunities would contribute towards increasing total domestic consumption inIndia. In this context large rural infrastructure projects such as interlinking theriversand building rural roads would ensure less dependence on the monsoons for theagricultural output and a more efficient farm to fork supply chain. This in turnshallhelp ensure a broader consumption pattern.
On the other hand the rising efficiency of the cities through Smart City initiativeis expected to allow higher productivity leading to increased wages and disposableincomescontributing to the growth of domestic consumption.
India's macro story is expected to continue to become more attractive. Reform measuresinitiated by the government has underpinned India's long-term growth potential while thereduction in the current account deficit on the back offalling oil prices enabled the RBIto increase foreign exchange reserves which could act as a cushion against externalshocks.
Inflation has remained benign and inflation expectations are likely to be anchored bythe inflation targeting mechanism. Turning to the fiscal policy the government iscommitted to bringing the fiscal deficit to 3 percent by FY2017-18 in compliance with theFRBM Act.
The implementation GST bill should be a good boost towards simplified tax regime in thecountry.
These steps are expected to bring forth some investment opportunities. For example theinitial corpus of USD 6.2 billion by the National Investment and Infrastructure Fund(NIIF) is expected to bridge the investment gap in infrastructure which would beaddressed by FDI and private investments. In a scenario where the nominal GDP is expectedto reach USD 3.4 trillion by FY 2019-20 and further to USD 7 trillion by FY 2024-25 thestakes for the return on investments is expected to be significantly high.
In addition India has embarked on a process of increasing connectivity to itsneighbouring economies thus integrating more tightly with these economies. By connectingits roads highways and industrial corridors such as the Amritsar-Kolkata IndustrialCorridor (AKIC) Bengaluru-Mumbai Economic Corridor (BMEC) Chennai- Bangalore IndustrialCorridor (CBIC) and Delhi-Mumbai Industrial Corridor (DMIC) to the neighbouring SouthAsian and South-East Asian economies India shall become the epicentre of a large economy.
The process of tighter economic integration with neighbouring economies has started ofwith initiatives such as South Asian Association for Regional Cooperation (SAARC)Bangladesh Bhutan India and Nepal (BBIN) initiative BBIN- Motor Vehicle AgreementKolkata-Dhaka-Agartala bus service transnational inland waterways with Bangladesh roadagreements with Association of Southeast Asian Nations (ASEAN). Also 6 of the 9 AsianHighway (AH) projects pass through India - a befitting case in point to leverage India'sstrategic location as an economic hub. Furthermore India's coastline infrastructure isbeing further strengthened to support regional coastal shipping.
The legacy of payments outstanding with clients under various claims even after receiptof arbitration awards continued to be the largest hurdle in the construction sectorleading to huge liquidity concerns and strain on the balance sheet of every prominentplayer in the industry.
To overcome the same the government has taken a few positive steps
Firstly they amended the Arbitration Act to facilitate completion of all arbitrationsfaster and in a timebound manner a common international practice but was missing in ourcountry.
Secondly the introduction of special commercial courts at the district and high courtlevel to deal with all commercial disputes over a threshold of ' 1 crore. This act wouldenable all appeals related to arbitration awards in these specialized courts and may notget piled up with other matters in the courts; this is another step towards speeding upthe settlement of claims.
Thirdly the decision of the government as per Niti Aayog to release 75% of thearbitration awards challenged in courts against submission of Bank Guarantees is one oftheboldest decision which would enable companies like us to generate much-neededliquidity and to retire a major chunk of our debt with the said cash flows.
These new steps introduced would take some time to be implemented at ground level butwe are hopeful that "Good days will come" sooner and we shall see things movingwithin next 12-18 months.
Now let me take you through the current condition of our company. Our company has beensustaining through the turmoil in the last few years where we have seen many largecompanies going down. Although the government has introduced great measures there isatleast another 12-18 months for the same to be implemented and result in bearing theexpected fruits for companies like us regarding real liquidity.
The delay in decision making mainly due to elections and other political unrest instates like Jammu & Kashmir has also taken a toll on the company where the companywas earlier declared L1 for one of the largest hydropower projects 1000 MW PakalDul HEProject. We were declared L1 for the same in 2014. However the project was not awardeddue to various local concerns including political chaos etc. which largely affected thefuture plans of the company as it would have given a revenue of more than ' 7500 croresover 4-5 years starting FY 16 if commenced in time as per original schedule.
The performance of the company's operations out of its core engineering &construction business reflected in standalone results were as follows:- The Revenue fromOperations increased by 5.8% to ' 2614.95 crore in FY 2015-16 from ' 2472.81 crore in FY2014-15.
- The Company reported a Net loss of ' 18.68 crore in FY 2015-16 as against a NetProfit of ' 11.89 crore in FY 2014-15.
- The Order book of the Company as on March 31 2016with positive signs stood atRs.10175 crore.
The main constraints faced by the company remain to be Slowdown in order inflowincluding conversion of L1 to Letter of Awards delays in settlement of claims andrealisation of receivables for work done corresponding increase in debt and hencecontinuous increase in interest burden which the company is finding it difficult to meetout of its reduced cash flows.
Hence to overcome the same and to get the much needed time of 12-18 months to generatecash flows the Company finally and prudentially agreed and lenders took a decision toinvoke Strategic Debt Restructuring (SDR) under which the consortium of lenders wouldconvert part of debt into equity to hold at least 51% of the equity post conversionwhich will give a breather to the company with a moratorium of 18 months from thereference date viz. May 26 2016 for repayment of all dues to lenders. The company expectsthat within the said period it would be possible to revive with various reform measuresbeing taken by the government give time to generate adequate liquidity required formeeting the liabilities of the lenders and the existing cash flows of the projects can beutilised for the operations of the company without the strain of stretching the existingcash flows to service a large level debt.
During the said period of 18 months the Company has plans to undertake variousmeasures to sell its non-core assets and concentrate on the core E & C business evenif it means to undertake harsh steps to keep all investments in Asset ownership businessalso on hold.
As a result the Company has already initiated steps like
- We have also undertaken steps to enter into Joint Development Agreements withprominent developers to derisk from initial investments to commence advertise theprojects and also generate upfront cashflows to reduce debt.
- Signed Share Purchase Agreement (SPA) to sell its stake in 2 Annuity Projects KNT - 1& AP - 7 to reduce the liability to repay debt.
- Started the process of identifying a buyer to hive off SDR invoked Bellona EstateDevelopers Ltd. a SPV formed for developing a mall in Electronic City Bangalore.
- The Thermal Projects which were kept on hold earlier and which continues to remainso would be hived off at a right time.
- not to undertake any further investments for mining rights in Indonesia &Mozambique and to recognise the impairment of the value of majority of investments madetherein.
The Consolidated Performance of the Company has taken a hit -
The Revenues from Operations increased by 18.5% from Rs.3415.38 crore to Rs.4046.35crore. However due to the impact of the impairment mentioned above provisions andincrease in Finance Cost from Rs.516.95 crore to Rs.593.06 crore the Company reported anet loss of Rs.186.63 crore as against a Net Profit of Rs.8.46 crore in FY 2014-15.
As the MD of the company the future now looks bright and together with the support ofthe shareholders and the lenders the Company which has seen various up and down's in thelast seven decades we shall be up again and roaring in the years to come.
Thank you all for your much needed support and co-operation.