Madhucon Projects Ltd Management Discussions

I. Industry Structure and Developments:

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling Indias overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development. India has the second-largest road network in the world, spanning over 5.8 million kms. Over 64.5% of all goods in the country are transported through roads, while 90% of the total passenger traffic uses road network to commute.

Under the Union Budget 2022-23, the Government of India has allocated Rs.1,99,107.71 crore (US$ 26.04 billion) to the Ministry of Road Transport and Highways. In the Union Budget of 2022-23, the increase in Budget was a whopping 68% compared to the last year. In the Union Budget of 2022-23, the government plans to complete 25,000 kilometres of National highways.

The Government of India has allocated Rs. 111 lakh crore (US$ 13.14 billion) under the National Infrastructure Pipeline for FY 2019- 25. The Roads sector is expected to account for 18% capital expenditure over FY 2019-25. Measures in three thrust areas to increase funding for NIP by (i) creation of institutional structures-set up and capitalize a Development Financial Institution (DFI), (ii) big thrust on monetizing assets, (iii) enhancing the share of capital expenditure, is the strong outlay.

Highway construction in India increased at 17.00% CAGR between FY16-FY21. Despite pandemic and lockdown, India has constructed 13,298 km of highways in FY21. In FY21, 13,298 kms of highway was constructed across India. The National Investment and Infrastructure Fund (NIIF) is making progress towards integrating its road and highway portfolio.

With regard to Railway Infrastructure (i) National Rail Plan for India (2030) to create a future ready Railway system by 2030. (ii) 2000 Km of network to be brought under Project Kavach, (iii) Multimodal Logistics Parks at four locations through PPP mode, (iv) 100 PM Gatishakti Cargo Terminals for multimodal logistics facilities to be developed in next three years, (v) 400 new generation Vande Bharat trains to be developed - (a) aesthetically designed vista dome linke Hoffman busch (LHB) coach on tourist routes for better travel, (b) High density network and highly utilized network routes to have an indigenously developed automatic train protection system, eliminating train collision due to human error. Besides urban infrastructure include (a) Expansion of metro rail network and augmentation of city bus service, (b) Metrolife and Metroneo technologies will be used to provide metro rail systems at much lesser cost with similar experience.

The Government has set up Development Financial Institution (DFI) to act as a provider, enabler and catalyst for infrastructure financing wherein lending portfolio will be created underthe proposed DFI in three years.

Overall, the infrastructure sector is the winner in this years Budget. However, its success lies in its effective implementation and focusing on projects with quick turnaround time.

II. Opportunities and Strengths:

The Government of India is taking every possible initiative to boost the infrastructure sector and is expected to invest highly in the infrastructure sector, mainly highways. Many steps have been taken to improve funding avenues to the infrastructure sector. There are huge opportunities for the industry in the future. Your Company is having opportunities and strengths with an order book position of Rs. 5301 Crores.

Segment-wise performance:

1. Transportation Division:

Your Company has completed 11,258 lane kms of road projects across India till date. Besides, work amounting Rs. 1330.24 Crore was done till March, 2022 out of the total work amounting to Rs. 2,253.44 Crore. Balance work of Rs. 923.20 Crore is outstanding as on date.

2. Irrigation Projects:

Your Company executed many Irrigation projects such as Canals, Dams, Tunnels, Spillways, Pump house and Lift Irrigation Projects across PAN India. At present various Irrigation Projects having a total value of Rs. 1,635.23 Crore are under progress across PAN India. Out of which work amounting to Rs. 1,032.63 Crore was already executed till March, 2022, while work amounting to Rs. 602.60 Crore is the balance outstanding to be executed.

III. Outlook:

Future outlook of infrastructure industry in India:

The outlook for the Infrastructure sector appears positive since the country is looking forward with a strong mandate to stimulate economic growth. In Union Budget FY 2022-23, the government has given a massive push to the infrastructure sector by allocating Rs.1,99,107.71 crore (US$ 26.04 billion) to the Ministry of Road Transport and Highways to enhance the transport infrastructure. The Government of India has allocated Rs. 111 lakh crore (US$ 13.14 billion) under the National Infrastructure Pipeline for FY 2019-25.

In the Union Budget of 2022-23, the increase in Budget was a whopping 68% compared to the last year. In the Union Budget of 2022- 23, the government plans to complete 25,000 kilometres of National highways.

<p >The infrastructure sector has become the biggest focus area for the Government of India. India plans to spend US$ 1.4 trillion on infrastructure during 2019-23 to have a sustainable development of the country. The Government has suggested investment of Rs. 5,000,000 crore (US$ 750 billion) for railways infrastructure from 2018-30.

India and Japan have joined hands for infrastructure development in Indias Northeast states and are also setting up an India- Japan Coordination Forum for Development of Northeast to undertake strategic infrastructure projects for the region.

Under Phase-I of Bharatmala Pariyojana, the Ministry has approved implementation of 34,800 km of national highways in 5 years with an outlay of Rs. 5,35,000 crore (US$ 76.55 billion). Under this scheme, 22 greenfield projects (8,000 kms length) are being constructed; this is worth Rs. 3.26 lakh crore (US$ 43.94 billion). The government also aims to construct 23 new national highways by 2025. The Minister for Road Transport & Highways and Micro, Small and Medium Enterprises is targeting to construct 40 kms per day in FY22. The National Highways Authority of India (NHAI) is expected to award projects worth Rs. 2.25 lakh crore (US$ 30.3 billion) with a total length of ~5,000 kms in FY22.

Your Company is giving major thrust in various infrastructure projects to reap the benefit of growth in infrastructure sector.

Road Ahead:

The roadmap to Indias infrastructure is exciting and futuristic, and it will not be an exaggeration to say that the new decade seems to be a promising one.

According to Indian Infrastructure Sector in India Industry Report India plans to spend US$ 1.4 trillion on infrastructure in between the period of 2019-23 to promote sustainable development in the country. This depicts the upward trajectory of the Indian infrastructure space which is on the rise. Also, with Covid-19 restrictions been removed, the infrastructure work has progressed, and the Indian National Highways are continuously being upgraded based on the latest technology.

More and more green and clean initiatives are happening across government bodies in major countries, especially, the Indian government has given the much-needed push to the infrastructure sector in the recent FY 2022-23 budget. India is looking at $5 trillion economy dream, as quoted by Finance Minister Nirmala Sitharaman during the recent budget announcement. The economy boost is only possible with the infra development at the forefront. Additionally, there is a need to work in the direction of developing advanced infrastructure that will provide momentum to PE/VC investments in India.

According to the data released by Department for Promotion of Industry and Internal Trade Policy (DPIIT), construction development sector attracted Foreign Direct Investment (FDI) inflow worth US$ 26.1 billion between April 2000-June 2021. In FY22 (until November 2021), the private sector invested Rs. 15,164 crore (US$ 1.98 billion) in roads. In FY21, infrastructure activities accounted for 13% share of the total FDI inflows of US$ 81.72 billion.

IV. Risks and Concerns:

The COVID-19 pandemic has the major effect on timely completion of various projects. The availability of construction labor force is expected to affect the projects for another one year. On the other hand, other construction delays continue to be a concern factor which stems from number of factors outside the control of the project sponsors, which includes land acquisition, regulatory approvals, inflation, and litigation etc., which can delay the timely completion of the project and increase in cost of project. This can, in turn, lead to additional funding, additional cost of fund etc.

The construction sector is expected to face a simultaneous reduction in both supply and demand on account of this pandemic. As the sector is driven by infrastructure projects to a large extent, it is expected to be hit severely by the current levels of uncertainty, dismal business and consumer sentiments, loss of income as well as the diversion of government funds towards COVID-19 management.

I. Internal Control Systems and theiradequacy:

Your Company has adequate system of Internal Control developed by our in-house Internal Audit team consisting of qualified and experienced accounting, costing and technical professionals to ensure that the resources of the Company are used efficiently and effectively, all assets are safeguarded and protected against loss from unauthorized use or disposition and the transactions are authorized, recorded and reported correctly, financial and other data are reliable for preparing financial information and other data and for maintaining accountability of assets.

II. Discussion on financial performance with respect to operational performance:

During the year under review, your Company has achieved a total income (standalone) of Rs. 72,271.80 Lakhs against Rs 71,846.02 Lakhs and Earning per Share (EPS) of Rs. (4.58) against Rs. (4.94) of the Previous Year.

III. Human Resources/lndustrial Relations:

Your Company has recruited competent Professionals at all levels of management for all verticals of the Company as a part of corporate restructuring process and strengthening its Business Verticals to meet the pace of growth of your Company. The Industrial relation is very cordial.