It gives me immense pleasure to share that FY 2016-17 was a year of strong performanceby your company. "We take pride to be a pioneer in Greenfield BOT projects inIndia and have been contributing towards building nation's infrastructure for around 40years. These four decades of huge and rich experience enabled your company to wade throughthe recent challenges in the infrastructure sector. Your company has exhibited a strongturnaround in the year on the back of its internal strength and strong executioncapabilities and thereby is on the cusp of entering into a phase of exponentialgrowth."
The financial year gone by was relatively better for the infrastructure spaceprimarily due to improving macroeconomic environment simpler guidelines and adequatepolicy support from the Statutory Authorities. Your company struggled against the odds andproved its mettle despite going through a financial restructuring in the year 2014-15 dueto factors beyond its control. I am pleased to share that during FY 2016-17 your companyhas acquired EPC work amounting to ' 1150 Crores for 6-laning of Shamlaji-Chiloda stretchin Gujarat financial closure for which is in advanced stage. It is a Hybrid Annuity Model(HAM) based project and will be completed in 2 years from date of commencement. Project inPunjab has achieved the Project Commercial Operation Date (PCOD) and toll collectioncommenced in Nov-2016. Moran-Bypass project in Assam has started and is gaining pace. Yourcompany is also executing few small ticket EPC works at few other places. Thus with anorder book of around ' 17 billion on hand we ended the FY 2016-17 on healthy note againstthe previous fiscal with around ' 6 billion worth of order book. In real estate firstphase of Atlanta Enclave at Thane is completed and the company intends to start Phase IIof the project in Oct-2017 which is expected to be completed by Dec-2020. Though the realestate is part of noncore activity the company is keen to leverage its existing resourcesto exploit the opportunities in the fast growing affordable housing space.
Your company is working with an objective of having a strong and diversified portfolioof high margin projects. As part of its program to deleverage the balance sheet thecompany is primarily focusing on EPC/Operate Maintain Transfer (OMT)/Hybrid Annuityprojects since the equity requirement is low. Your company is very particular inproject identification and biding for only those projects where EBITDA margins are atleast 20%-25%. Going forward your company shall be executing orders more than ' 1600Crores in next 2.5 years. The company aims to add ' 1000-1500 Crores worth of projects inthe order book for the next 3 years from hereon.
The highlights offinancial and operational performance during the year 2016-17 are:
- Total income of ' 224.5 Crores
- Net Profit afterTax of' 82.4 Crores
- Earnings Per Share of ' 10.12
- Cash Earnings Per Share of ' 13.32
- Net worth of ' 458.7 Crores (over US$ 70 million)
Sharp rise in Total Income and corresponding manifold jump in Net Profit in yourcompany is attributed to increasing pace in project execution and arbitration awardsreceived from the past projects. This led to exceptional rise in the EBITDA margin to 60%;and it is going to be above 20% in the next 2-3 years based on current order bookposition. Your company realised ' 95 Crore and ' 63 Crore of arbitration awards fromLucknow-Bypass project and Mumbra-Bypass project respectively. In addition it isexpected to realise around ' 375 Crores of arbitration awards by FY 19; out of remaining '1250 Crores Award amount. With timely inflow of these award amounts your company islikely to be debt free by FY 2018-19.
With GDP growth of 7.1% in FY 2016-17 India continues to be the fastest growingeconomy in the world driven by the improving business and policy environment in thecountry. India is likely to grow at a faster pace in the years to come as fullimplementation of GST can potentially add around 2% to the current growth rate.
The Roads and Highways space has been one of the prime beneficiaries of thegovernment's efforts to provide adequate thrust to the overall domestic infrastructuresector.
In FY 2016-17 National Highways Authority of India (NHAI) awarded around 3000 kms ofroad projects under the Build Operate Transfer (BOT) Hybrid Annuity Model (HAM) andEngineering Procurement Construction (EPC) models. NHAI together with The Ministry of RoadTransport and Highways (MoRTH) awarded around 9700 kms of project during April-February2017. The government built around 22 kms of roads per day in the fiscal year andaugmenting its policies and regulatory structure to accelerate the construction rate toambitious 41 kms per day.
There was notable improvement on regulatory and funding front to encourage moreparticipation from private players. In fact the project award mix over the five yearperiod has changed with HAM based projects finding greater weightage and BOT projectsdeclining due to sector's preference for debt light model.
NHAI Project Awards
|Financial Year / Project Type ||FY13 ||FY14 ||FY15 ||FY16 ||FY17E |
|HAM ||0% ||0% ||0% ||8% ||56% |
|EPC ||0% ||80% ||79% ||72% ||34% |
|BOT ||100% ||20% ||21% ||20% ||10% |
Stable regulatory regime easier funding norms less bureaucracy and increasingco-ordination across concerned authorities; are among the other effective measuresundertaken by the Government for providing thrust to India's infrastructure sector.
On the policy front in order to revive construction sector and to ease the liquidityconstraint faced mainly due to receivables from Govt Agencies Niti Aayog and CCEA haveduring the year come out with following measures:
i) In cases where Arbitration Award has been announced in favour of concessionaire andthe same has been challenged by Govt agencies 75% of the award amount can be withdrawnimmediately by giving bank guarantee with zero margin
ii) In order to expedite the arbitrations an Amended Arbitration Act has been put inplace whereby the award is to be announced within one year Further the Arbitration awardshall have decretal power
Both these initiatives are likely to ease the operating environment in constructionsector and lead to faster resolutions of disputes.
Your company is qualified to bid for individual project worth ' 1500 Crores. StateGovernment eligibility criteria are much relaxed as compared to NHAI and hence the companycan bid for much higher cost State awarded projects.
The Company ensures potential for huge profitability and cashflows by pursuing policyof investments in land parcels near road project sites. Post completion and at theopportune time these land parcels are developed into commercial and residential property.Development of roads not only ensures multiple rises in land value but also createsadequate demand for commercial and residential property. Consistent cash flows from suchprojects not only help the Company to repay costly debt but also provide growth capitalfor future expansion. Mumbra bypass is one such example where the Company is developingResidential Complexes. Over 0.2 mn sq. ft. out of total 1.2 mn sq. ft. of the project iscompleted and second phase is under development. With a view to grow in a collaborativemanner the Company is working into JVs model with third-party developers for developingvarious commercial and residential projects with over 1 mn sq. ft. of saleable area. Thisasset light model helps your company to effectively use its capital while boosting thebottom line. Introduction of Real Estate Regulation Act (RERA) will bring transparency andconsumer confidence in the real estate market. This coupled with low interest rateenvironment will boost the affordable housing demand in the years to come.
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 the stakeholders for reposing confidence in our abilities and endeavoursand expect to receive full support in taking the Company to newer heights.