MANAGEMENT DISCUSSION AND ANALYSIS Vascon Engineers Ltd with a strong track record of 29 years in EPC and Real Estate operations has created a number of projects of eminence and splendor on a timely basis. EPC operations span on diverse areas like pharma, hospitals, factory buildings, educational institutional buildings, Government buildings, MES (Military Engineering Services Building), hospitality building etc. On other hand Real Estate wing is embossing its mark with projects of residential and commercial complexes as well as shopping malls, multiplexes, hospitality properties and IT parks MACRO ECONOMIC REVIEW The Indian GDP grew at 7.3% in FY15 as against 6.9% in FY14 Industry growth increased to 5.9% and services sector growth increased to 10.6% in FY15. Agricultural sector growth slipped to 1.1% mainly on account of erratic monsoon. Private consumption recorded a growth of 7.1%. Declining oil prices, weakening food inflation, improved job prospects, and a stable currency helped to lift the consumer confidence. The growth in capital formation was increased from 3.0% in FY 14 to 4.1% in FY15. Overall, the macroeconomic situation in India improved during FY15. Also, in view of the Government‘s commitment to reforms, the economic outlook for FY16 looks positive and a GDP growth of over 8% is expected in FY16 as per the projections of the Government. INDIA?S INFRASTRUCTURE AND CONSTRUCTION SECTOR The infrastructure and construction sector remained stressed in FY15 and struggled to deal with structural issues and macro economic factors. Issues such as delays in land acquisition, delays in approvals, delays in payments, delays in settlement of claims, long working capital cycle etc., affected the progress of the projects and Companies. Most Companies have been struggling with liquidity crunch and with their highly leveraged balance sheets. In FY15, the tone of companies across the sector was to deleverage their balance sheets and regain financial strength. Several Companies raised funds through asset monetization, stake sale in subsidiaries, rights issues and Qualified Institutional Placements. Despite the tough ride in FY15, the sector is likely to gradually emerge out of the difficult phase partly on account of the gradual economic recovery expected in FY16 and partly because of the initiatives taken by the new Government. The new Government rolled out initiatives including easing of FDI norms for Construction, Railways, and Defense, liberalization of ECB policy, and providing incentives to promote Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). REAL ESTATE During the past few years, the Indian real estate sector had to confront tough times; difficult economic and business environment and high inflation that affected all stakeholders- investors, developers and buyers. AS a result, significant unsold inventory and execution delays were brvalent in almost all real estate classes. The year 2014 was a mixed year for the Real Estate Sector as though the sector registered subdued sales; it was quite fruitful in terms of business sentiment, mostly due to the formation of new Government as it boosted the investor and business confidence in the Indian economy. The policy makers have taken several initiatives to revive the real estate sector and improve investor and buyer confidence. A number of regulatory changes and policy measures have been initiated and are likely to bear a positive impact on the Indian real estate sector. Some of them include relaxation of FDI rules, establishment & rationalization of REITs, redefining affordable housing, Housing for all by 2022, tax incentive on home loans, Smart City projects and setting up of National Industrial Corridor Authority. FDI inflow in construction development sector has been depleting in the last couple of years. To help attract foreign funds in construction of townships, hospitals and hotels, the Government has relaxed the FDI policy for this sector by easing exit norms and reducing built-up area and capital needs. India allows 100% FDI in the sector through the automatic route. The new policy has done away with the three-year lock in period for repatriation of investment. The investor can exit on completion of the project or after development of trunk infrastructure, that is, roads, water supply, street lighting, drainage and sewerage. Under the new policy, the minimum floor area requirement has been reduced to 20,000 sq. mts from 50,000 sq. mts earlier. It also brought down the minimum capital requirement to USD 5 million from USD 10 million. To boost the development of affordable homes, Government has exempted the conditions of minimum floor area as well as capital requirement if an investee / joint venture companies commit at least 30% of the total project cost for low-cost housing. All these measures are likely to result in enhanced inflows into the construction development sector and creation of much needed low cost affordable housing in the country and development of smart cities. One factor consistently contributing to tepid enduser and investor interest in realty offerings has been the high interest rate regimen. With inflation dropping to record lows in recent months, the RBI had cut the benchmark repo rate in two installments of 25 basis points each to 7.5%, we expect more reduction in interest rate in near future. These developments will arouse buyer interest and trigger better sales in residential units compared to brvious years. COMPANY PERFORMANCE: During the 2014-15, the total turnover on consolidated basis was Rs. 637.06 crores as against Rs. 643.24 crores in 2013-14 resulting in reduction of turnover and profitability due to overall market scenario. The Company is taking concrete steps for a healthier EPC order book and new launches in the existing Real Estate projects to improve overall revenue and profitability of the company. EPC Last year is yet another year of a slow down for EPC operations which contributed Rs. 227.38 crores as against Rs. 236.72 crores in brvious year. Company exited some contracts and had to reverse the revenue recognized in earlier years to the extent of Rs 72 crores, this also resulted in net loss in P&L a/c to that extent. With this, almost all the past non remunerative contracts have been completely dealt with and Company is having new contracts with good profitability. Our EPC order inflow during the year amounted to Rs. 74.14 crores, Order book as on 31st March 2015 is Rs 710.04 crores. REAL ESTATE During the year, total revenue from Real Estate was Rs 153.35 crores against 165.56 crores in brvious year. ONGOING PROJECTS: Xotech: Xotech is situated at Hinjewadi, Pune, which is IT and BT Hub of Pune. Total saleable area of the project is 0.12 msft . The project comprises of smart 2 and 3 BHk apartment, which intends to provide modest and quality solutions to its buyers. The project is surrounded by a number of IT/BT companies, famous restaurants and hang-out places, colleges, bank and Hotels. The project has latest amenities like club house , landscaped garden with children play zones, swimming pool , rain water harvesting, solar water heating, garbage chute , sewage treatment plant, etc. ELA: The residential project is in Hadapsar, a most rapidly developing area of Pune. The total saleable area of the project is 0.12 msft. The project comprises of 2 and 2.5 BHK with sizes ranging from 1115 Sq to 1595 Sq.ft of lavish apartments. The project has features latest amenities like club house which includes gymnasium, carom/card room / play station well designed landscaped garden with kids play area and swimming pool, solar water heating, sewage treatment plant, rain water harvesting .etc WINDERMERE: Windermere a thoughtfully designed, brmium quality home at Koregaon Park, Pune. The total area of the site is 4.75 acres and will be developed in 2 phases. The project has total saleable area of around 0.46 msft, which will be developed in phases. The saleable area of phase 1 of the project is of 0.38 msft The quality apartment comprises apartments of 3000 Sq.ft, 3800 Sq.ft & 8500 sq. ft with its own private swimming pool. The project has latest amenities such as renewable energy system, architectural design that ensure good ventilation and maximum natural light, water, conservation through maximum recycling organic waste management, rain water harvesting, etc. The Project is certified as platinum rating project from by =The Indian green building council‘ (ICBG) green home the project is designed as a five star rated Eco – housing project FOREST COUNTY (PHASE I & II) This is a mixed development project located in the most rapidly developing area of Pune – Kharadi. The total area of the site is 51.34 acres and will be developed in phases. The total saleable area of the project is 3.03 msft .The saleable area of phase I & II of the project is 1.36 msft comprises of 2 and 3 BHK apartments with sizes ranging from 1215 Sq.ft to 2720 Sq.ft. The Project is one of the brmium projects of the Company with all the latest amenities like well designed landscape, green belt with water body , spacious and fully furnished club house , dedicated children play area , water fall , amphitheatre , senior citizen area , jogging track , water foundation etc and incorporates environmental consideration at every stage of building construction. WILLOWS – PHASE II The residential project is located in one of the most sought after locations in Pune – Baner which is home to Pune new elite. The total saleable area of the willows ph II project is 0.16 msft comprises of 2,3 BHK and Duplex apartment with sizes ranging from 1228 Sq.ft to 4021 Sq.ft . The project houses three sides open eco friendly homes with latest amenities like 2 level car park area ,cool blue swimming pool , multi activity club house , gym, landscape garden, children play area, fire fighting systems , sewage treatment plant , rain water harvesting etc. TULIP PHASE II The project is the tallest brmium residential project in one of the most sought location of Coimbatore- Avinashi road. The project has saleable area of 0.13 msft, comprise of lavish 2, 3 and 4 with sizes BHK ranging from 1270 Sq.ft to 2250 Sq.ft . The project has features latest amenities like club house with pool table , card / caram room , cool blue swimming pool , fully equipped gym , multipurpose hall , coffee , lounge , children play area , sewage treatment plant , rain water harvesting etc. It is expected to be completed by 2014. CLEAN ROOM PARTITION & BMS BUSINESS: As a part of backward integration the Company has acquired GMP technical solutions, a Integrated provider of Engineering services, in August 2010. GMP is one of the largest manufacturers of Clean Room Partitioning Systems and Turnkey Solution Provider within the Indian subcontinent. GMP is also specialized in Turnkey Jobs & has expertise in giving one window solution to the clientele in the fields such as: ? Project Management ? HVAC (Design, Supply & Installation) ? Integrated Building Management System (IBMS) ? Clean room Validation Services GMP had a CAGR of over 25% percent growth in the top line in the years after our acquisition. However, the bottom line in the company has not seen a growth in these years. This is due to increase expansion of the company and the failure of the wooden business to take off. In the last year and the current year, we are refocusing on improving the bottom line. We expect that the momentum of growth shall pick up in the coming years. STRENGTH, OPPORTUNITIES, STRATEGY Optimise business mix of two verticals of business operations viz: EPC and Real Estate wherein the Company intends to take advantage of the significant growth opportunities in the Indian economy by not only diversifying into new locations for real estate development but also by optimising EPC operations and resources . Capital Light Model for Real Estate Business whereby the company enters in to Joint Development Agreement with land owners to acquire development rights against brdetermined percentage in revenue. This model brings along capital efficiency and allows the company to rapidly grow the business without blocking large amounts of capital in land purchases. This model helps the company de-risking itself from cyclical down turn in business. The Company intends to continue to focus on performance and quality and timely project execution. It has built up a team mainly of engineers who are backed up by highly qualified specialists from various fields of management, for activities from planning and procurement to testing and execution which follows well-documented system and procedures in order to seek to maximise customer satisfaction in both our EPC operations and real estate development businesses. The current land bank of the Company comprises of 31.87 msft of developable area under various stages of planning or construction across various cities and of 29.37 msft yet to be developed. Unlocking this portfolio in future will add significant value to our real-estate business segment. THREATS, RISKS, CONCERNS In EPC business delay in projects execution, stall of projects due to non payment by developers, steep cost escalation in inputs affects the execution of project and results in significant cost overrun. In Real Estate business financing, uncertainty on monetary and fiscal policy, changes in government regulations, foreign direct investments, approval processes, environment clearances and legal hassles & proceedings affects the execution project and results in significant cost overrun. HUMAN RESOURCES There has been a strenuous effort at right sizing the organisation and creating a lean workforce. This leads us to a promotion of efficient processes, emphasising on reduction in duplication of roles and enhancing the efficiencies of each role. Finally, it has been imperative to have appropriate persons for each role for their contribution to the organisation is maximised. INTERNAL CONTROL SYSTEM The Company‘s internal control procedures ensure compliance with various policies, practices and statutes in keeping with the organisation‘s pace of growth and increasing complexity of operations. The extensive audits are carried out throughout the year, across all functional areas and reports to the Audit Committee of the Board of Directors. RISK MANAGEMENT The Company has developed a robust risk management framework. It has been identified as one of key enablers to achieve the company‘s objectives. Increased competition, brssures on cost and deliveries, forex & commodity price variations, impact of recessionary trends on the award of jobs and manpower attrition are some of the major risks faced by the Industry. The Company has however adopted risk mitigation steps right from br-bid stage covering technical, procurement and financial risks. The measures such as advanced quantitative tools, global sourcing, standard operating procedures, and operational excellence initiatives have been implemented so as to protect the profitability of the business. FINANCIAL HIGHLIGHTS ON A. STANDALONE BASIS ? During the year 2014-15, the Company reported income of Rs. 310.32 crores ? Loss before Interest, Debrciation and Tax stood at Rs. 103.88 crores ? Loss before tax from ordinary activities reported at Rs 141.61 crores ? Net Loss stood at Rs 144.69 crores ? Net Debt to Equity stood at 0.61 times B. CONSOLIDATED BASIS ? During the year 2014-15, the Company reported income of Rs. 637.06 crores ? Loss before Interest, Debrciation and Tax stood at Rs. 84.40 crores ? Loss before tax from ordinary activities reported at Rs 136.41 crores ? Net Loss stood at Rs 144.05 crores ? Net Debt to Equity stood at 0.64 times . |