MANAGEMENT DISCUSSION AND ANALYSIS

Industry Structure and Development

India has always been a resilient market with great fundamentals for real estate and springing back positively. By virtue of the strong and increasing demand due to our large population base, this sector has grown continually and is ex­pected to stay steady for long. They are under a strong influence of crisis factors from the financial sector which are inte­grated in the real estate market system. Property markets in India respond dif­ferently to a crisis situation. Even when the world economy was reeling from the aftershock of the huge recession that hit hard even some of the largest and lead­ing economy, the Indian real estate mar­ket remained immune to the downturn in spite of non-linear relationships be­tween prices and hedonic variables. The real estate sector witnessed and is still getting investment from a large number of investors of both India and abroad. It has been a golden harvest even in this turbulent financial market. For most in­vestors, real estate has been a refuge from the burn most bear due to the downturn in almost every other sector.

India today is a fast growing econo­my and almost 50% of the population comprises of the young, dynamic gen­eration. As they establish themselves in the society, their requirements also in­crease. The high income younger gener­ation today is their primary target. Thus, demand for real estate is also on the rise. While the rise can be seen in all the parts of India, but the major towns and metro cities are most in demand. Land is now a scarce commodity and invest­ing in a prime location is an opportunity not to be passed up.

The key factor that affects the value of real estate is the overall health of the economy. This is generally measured by economic indicators such as the GDP, employment data, manufacturing ac­tivity, the prices of goods, etc. Broadly speaking Real Estate Sector contrib­utes approximately 6% to India's GDP growth. Real estate contribution to India's gross domestic product (GDP) is estimated to increase to about 13 per cent by 2028, on the back of increas­ing industrial activity, improving income level and urbanization.

According to the National Housing Bank (NHB) Residex Index, residential prop­erty prices show an upward trend in the second half of 2014. First half had seen property prices dip, as the weak rupee and high inflation had a neg­ative impact on spending. The year 2014 has also seen delays in approvals, project clearances and targets, apart from debt commitment on property and government spending less in this area and a huge delay in finishing proj­ects. Needless to mention that 2015 will largely be about recovery. The RBI will most likely cut interest rates and this will see more spending in the residen­tial real estate segment. The Ministry of Statistics Program and Implementation and PwC Analysis brdict a growth of 8 to 9 per cent. Added to this, the intro­duction of REITs, improved market sen­timent and more efforts by the govern­ment to reduce project loopholes and bottlenecks in transactions will go a long way in clearing the way for positive trends in 2015.

Foray Into Sports

Based on our belief that sports is an integral part of India story, we are very happy to inform that after winning the inaugural edition of Indian Badminton League in 2013 with our team Hyderabad Hotshots, we were runners up in the inaugural edition of Indian Super League (ISL) in December 2014 with our club Kerala Blasters FC. This will certainly compliment us as a corpo­rate in the landscape of Sports activities apart from Cricket. Non-cricket sports in India usually have a long gestation period before they start generating re­turns, however we feel that in the long run the fundamentals of ISL look robust and strong.

Opportunities and Threats

The major demand drivers for India's real estate market have been sustained economic growth, large scale urbanisa­tion, expansion in India's services indus­try, increased disposable income levels of the middle class consumers, tax sav­ings on home Loan products as well as real estate being considered a conven­tional class of investment asset. This has been further supplemented with easier and flexible financing options from in­creasing number of private players in this field.

With the Indian economy reviving post the general elections of May 2014, the real estate sector is warming up to the possibility of a new investment cycle. On the other hand, barring the US, the glob­al economy continues to remain vulner­able to uncertainties, and this makes India's position more lucrative. The rul­ing government's action in addressing concerns of stakeholders through re­forms (in the Land Acquisition Act, the

Real Estate Regulatory bill, relaxation of FDI rules, etc.) is helping sentiments in the realty space.

The residential segment which contrib­utes about 80 percent to the real estate sector is expected to grow significant­ly over the next few decades. Especially with the RBI cutting repo rates three times in 2015 encourages the potential buyers to invest more in residential seg­ment. It is estimated that India Cities need to develop at least two million houses annually for growing popula­tion. The actual number could be much higher as it does not include push in de­mand from re-development and shrink­ing size of households. Further, there was a housing shortage of about 18.7 million Thus India needs to develop al­most 45-50 million housing units by 2028. (KPMG in India Analysis)

India has huge potential to attract large foreign investments into real estate. With real estate reaching a point of sat­uration in developed countries and the demand and prices falling, global real estate players are looking at emerg­ing economies such as India for tap­ping opportunities in real estate. Indian real estate will stay attractive due to its strong economic fundamentals and de­mographic factors. Moreover, there is a high level of global uncertainty loom­ing over the developed and developing nations of the world. While developed economies are still struggling to regain their growth momentum, developing countries including India and China are expected to grow at a reasonably high rate. Investments in Indian real estate will fetch higher returns for investors as compared to other global markets. In the coming years, the opportunities in the real estate sector will attract more global players to India and hence will help the industry to mature, become more transparent, improve manage­ment and adopt advanced construction techniques.

The Indian Real Estate industry has been on a roller coaster ride since 2005. Consequent to the government's policy to allow Foreign Direct Investment (FDI) in this sector, there was a boom in in­vestment and developmental activities. The sector not only witnessed the en­try of many new domestic realty players but also the arrival of many foreign real estate investment companies includ­ing private equity funds, pension funds and development companies entered the sector lured by the high returns on investments. The real estate sector has been riding through many highs and lows since then. The industry achieved new heights during 2007 and early 2008, characterised by a growth in de­mand, substantial development and in­creased foreign investments. However, since then, the effects of the global economic slowdown were evident here too, and the industry took a 'U' turn. FDI inflow into real estate dropped signifi­cantly and what had emerged as one of the most promising markets for foreign investments experienced a downturn.

Financial Performance

[CONSOLIDATED BASIS]

1. Capital Structure There is no change in the capital structure during the period under report.

2. Reserves and Surplus The decrease in Reserves and Surplus has been  contributed by the significant in­crease in cost of sales coupled with reduction in revenue and amortiza­tion of goodwill during the year.

3. Borrowings The decrease in Long Term Borrowings is due to repay­ment of borrowings from other body corporate.

4. Non- Current Investments

Investments done in various com­panies both listed and unlisted con­sidering the business objectives and long term revenue generations from those investments.

5. Long Term and Short Term Loans

and Advances This indicates var­ious other advances given by the Company in its regular course of business operations.

6. Revenue from Operations The con­solidated revenue decreased to Rs.53.36 crores from Rs.63.47 crores during the brvious year.

7. Cost of Sales This indicates to ex­penditure incurred by the Company towards its sports operations.

8. Employee Benefit Expenses The

minimal increase in employee ben­efit expenses is due to increase in provision made for retirement ben­efits and other perquisites extended to employees.

9. Other Expenditure The decrease in the other expenditure was main­ly due reduction of administrative expenditures.

10. Exceptional Items The decrease in ex­ceptional items was due to write back of provisions which are no longer required.

11. Net Profit The consolidated net loss for the year was Rs. 25.41 crores as against a net profit of Rs.2.81 crores during the brvious year. Increase of loss mainly constributed by the ac­tivities of sports.

Outlook

The real estate market in India is yet in a nascent stage and the scope is simply unlimited. It does not resemble a bub­ble that will burst. The Industry is on more strong footing than it has been for quite some time. An unhindered growth for the next twenty years is almost sure. Emergence of nuclear families and growing urbanisation have given rise to several townships.

The Indian real estate sector has tradi­tionally been an unorganised sector but it is slowly evolving into a more organ­ised one. The sector is embracing pro­fessional standards and transparency with open arms. Especially with the in­troduction of Real Estate Investment Trust (REIT) which will be instrumental in bringing in more transparency as well as accountability in the sector.

Market sentiment relating to real estate moved from subdued in the first half of 2014 to a phase where global inves­tors were seen firming up plans to in­ject funds into India. Fund raising ac­tivities picked up, and this momentum is likely to continue in 2015. The mar­ket has begun showing signs of transi­tion from one-way investments towards an increase in investor-developer part­nerships. Joint venture and club funding is gaining brference in India, and inves­tors are likely to look beyond the top three destinations - Mumbai, Bangalore  and NCR and move down south towards Chennai and Hyderabad for develop­ment opportunities. As a result, we will see Grade-A commercial and residential properties in tier-II and tier-III cities ben­efiting. Attractively-priced and well-lo­cated residential projects will continue to lure investments in 2015.

The reduction in repo rate by RBI will help gain momentum in real estate in­dustry. It would have a direct effect in reduction of home loans by banks thereby encouraging credible buyers to invest in real estate property.

Risks and Concerns

Market instability and uncertainty may create a slight flutter in this industry. The Current economic outlook, though not dire, seems bleak and can hamper the industry growth. Soaring numbers of corruption allegation cases across various State Governments and govern­ment officials shows India in poor light and can create a cascading effect in at­tracting further investments. Further, Continuous change in policies will tend to affect investment as well. Moreover, restrictive laws governing Foreign Direct Investment into real estate make it difficult for foreign investors to look at India.

High inflation rate has been pushing construction costs up and this, com­bined with the high cost of capital will lead to steep pricing. Frivolous litiga­tions and unclear land titles has plagued this industry. Lack of transparency has hampered further investments in this field with investors focusing on other secure markets.

The Real Estate demand otherwise contin­ues to remain subdued, reeling under the brssure of weak consumer senti­ment, low affordability levels and gen­eral economic uncertainty. This in-turn has resulted in a significant increase in unsold inventory across markets. Given the high unsold inventory levels, the fo­cus of developers shifted to offloading existing stock as opposed to launch of new projects, which in turn has result­ed in a decline in new launches across micro markets. The delays in execu­tion, on account of factors like shortage of labour and material as well as pauci­ty of funds has adversely impacted the cash inflows for the developers since customers advances are linked to the construction progress achieved. The li­quidity position of developers is further aggravated by the increasing difficulty in accessing bank funding and high in­terest rates.

Internal Control System and their adequacy

The internal audit and other internal checks implemented in the Company are adequate and commensurate with the size and nature of operations providing sufficient assurance and safe guarding all assets, authorizing transactions and its recording and timely reporting.

Human Resources and Industrial Relations

Industrial relations are harmonious. The company recognizes the importance and contribution of the human resources for its growth and development.

Cautionary Statements

Statements in this Management Discussion and Analysis may contain forward-looking statements, which may be identified by their use of words like 'plans', 'expects', 'will', 'an­ticipates', 'believes', 'intends', 'projects', 'es­timates' or other words of similar meaning. These statements are based on certain as­sumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company's actual re­sults, performance or achievements could thus differ materially from those projected in any such forward-looking statements. The Company assumes no responsibility to public­ly amend, modify or revise any forward look­ing statements, on the basis of any subse­quent developments, information or events. Important developments that could affect the company's operations include a downtrend in media and entertainment sector, significant changes in political and economic environ­ment in India or key financial markets abroad, tax laws, litigations, exchange rate fluctua­tions, interest and other costs. The term "Real Estate" wherever used by the Company in­cludes Development of Real Estate Projects.