Man Infraconstruction Ltd Management Discussions

Global Economy:

The global economy is on a promising recovery trajectory, with steady growth projected by the International Monetary Fund (IMF) at 3.2% for both 2024 and 2025. Despite significant Central Banks interest rate hikes aimed at restoring price stability, there was unexpected economic resilience reflecting healthy private consumption. According to IMF, the growth in global economy is mainly going to come from Emerging markets and developing economies which are anticipated to maintain growth rates of 4.2% in 2024 and 2025, driven by investments and growth in service sectors, particularly in South Asia. The global inflation is forecasted to decline from 6.8% in 2023 to 5.9% in 2024 and further to 4.5% in 2025. This steady decline in inflation is attributed to effective monetary policies and easing supply chain disruptions.

Future economic trends indicate continued resilience and growth, supported by policy reforms and investments in technology and infrastructure. The global focus on sustainability and green energy transitions is expected to create new economic opportunities.

Source: World Economic outlook report April 2024 by IMF; World Bank report

Indian Economy:

The Indian economy demonstrated remarkable growth in FY 2023-24, with 7.6% GDP increase, showing resilience against global challenges, according to second advance estimates of national income, 2023-24. This growth, driven by rising consumer spending, industrial activity, and supportive government policies, makes India one of the fastest-growing major economies. The economic outlook remains promising as the Finance Ministry projects India to become a $7 trillion economy by 2030, with an average annual growth rate of 6.5-7.0%, positioning it as the worlds third-largest economy.

The growing middle-income class and rising disposable income are expected to drive demand for luxury products and services, likely to increase overall private consumption in the economy. Further, the implementation of the PLI scheme benefitting 14 sectors, digitalization push, and agricultural reforms are expected to enhance manufacturing activities, financial inclusion, and rural incomes. However, the risk of global supply chain disruptions and fluctuations in energy prices, particularly amidst geopolitical conflicts, could pose inflationary pressures on the Indian economy. Despite these challenges, the favorable policy environment in India is likely to experience significant investments in sectors such as IT, renewables and infrastructure positioning the country for sustained growth.

Infrastructure and Construction:

The Indian government?s economic growth strategy through Infrastructure development and inclusive growth have resulted in multiplier effect on the economy. The results of such investments complemented with policy reforms are now clearly visible through sustainable development in the economy. Reserve Bank of India?s report released in April 2024, also highlights that the governments focus on infrastructure development, coupled with buoyant business optimism could nurture a sustained revival in the investment cycle. India?s government in fiscal 2025 interim budget has announced plans to increase its capital expenditure on infrastructure projects to rupees (Rs) 11.1tr ($134bn) up 11% from the previous fiscal year, boosting the funds available for the sector for the fourth consecutive year. The government?s significant capex outlay in the past four years resulted in huge multiplier impact on economic growth, stimulating private consumption, investment spending and employment creation. The capex has largely been towards improving physical connectivity such as roads, railways, airports & waterways and thereby reduce logistics cost and improve competitiveness. Several policy reforms have been launched in this regard such as the National Infrastructure Pipeline (NIP), PM Gatishakti Scheme and National Logistics Policy. Similarly, the construction sector contributing around 9% of GDP demonstrated a strong growth of 10.7% in FY24, according to Second Advance Estimates published by Central Statistics Office (CSO). This growth is largely due to strong infra spending by the Government and robust housing demand in the country. It is further indicated through the rise in capacity utilization levels in the key sectors of Commercial Vehicles (CV?s), Cement and Steel.

Looking forward, the governments strong emphasis on infrastructure, coupled with anticipated increased investments from private players due to their reduced debt, a healthy banking system, and the ongoing trend of supply chain diversification, is likely to support sustained economic growth.

Port Infrastructure

The Indian economy currently among the fastest growing economies in the world is also experiencing high demand in handling cargo tra_c largely driven by energy products – POL, crude, coal and containers. The volume of cargo tra_c handled at the Government-run Indian major ports in FY24 has increased by 4.7% to 818 million tonnes (MT) in FY23 compared to 783 MT achieved in FY23.

Over last 5 years, Cargo capacity has also grown at 1.8% CAGR from FY19-FY23. Going ahead over the next 5 years, CRISIL MI&A expects ports to add capacity of 500-550 million tonne at a CAGR of 2-4%. About 60-70% capacity addition is expected to come from major ports, especially Visakhapatnam, Paradip, Kandla, Ennore, Mumbai, Tuticorin and JNPT.

Residential Real Estate:

The Indian residential real estate market saw remarkable growth over the past year, achieving unprecedented rates and setting new benchmarks. Strong demand for housing from end-users continued to drive the sector. According to Anarock – ‘Indian Residential Annual Report 2023?, housing sales in the top 7 cities in 2023 hit a new peak with 4.76 lakh units sold, marking an annual growth of 31%. The top 7 cities saw a remarkable 25% surge in new real estate supply in 2023, with nearly 4.45 lakh units launched, up from 3.57 lakh in 2022. Notably, Mumbai market (MMR) was a major contributor, accounting for a 35% of the total new supply.

Interestingly an emerging trend taking up shape is of the luxury and ultra-luxury segments with a ticket size of above Rs 1.5 crore and Rs 2.5 crore respectively, that saw a significant rise in new launches, reflecting a growing appetite for luxury properties among homebuyers. These segments, which accounted for nearly 11% in 2019, grew to 23% in 2023. Several key factors contributed to overall growth in this expansion of residential market:

• Policy Reforms: Government initiatives such as RERA and various housing schemes have created a more transparent and regulated market, boosting consumer confidence

• Increased Disposable Income: Economic growth and better employment opportunities have led to higher disposable incomes for many Indians, enabling more people to purchase residential properties

• Rising Demand for Spacious Homes: The trend towards larger homes, driven by the need for home offices and recreational spaces, has fueled demand for bigger apartments and houses

• Increased Urbanization: India has experienced a surge in urbanization, with many individuals moving from the agricultural sector to service-oriented fields to seek employment opportunities Overall, these factors have combined to create a robust and dynamic residential real estate market in India paving the way for continued growth in the coming years.

Outlook

Ongoing infrastructural advancements, stable mortgage rates, and clear monetary and regulatory measures create a conducive environment for sustained growth in Indias residential real estate sector. Poised for a multi-year bull run, demand is expected to remain strong in 2024, particularly in the luxury segment, according to Anarock report.

Company Review:

Man Infraconstruction Ltd. (Man Infra, MICL) has an experience of over five decades, in the construction industry. With 59 years of experience, in EPC (Engineering, Procurement, and Construction) business, we have delivered ambitious projects across ports, residential, commercial, industrial, and road construction sectors throughout India. As a distinguished real estate developer with asset light approach and focus in Mumbai market, Man Infra has earned accolades for its superior quality and punctual delivery. The company?s vast expertise in construction management, combined with its robust skills and resources, ensures the successful development and execution of real estate projects.

Real Estate Introduction

MICL has established a formidable presence in the real estate sector over the past decade, building a reputable brand, Aaradhya, synonymous with trust and quality. The company has strategically adopted an asset-light approach to expand its real estate business through Joint Development Agreements (JDAs), Joint Ventures (JVs), and the Development Management (DM) model, minimizing initial investments. MICL has carved out a niche in the redevelopment space, undertaking projects for private societies, cluster redevelopment, MHADA, and SRA. The Groups portfolio, encompassing 6.0 million sq. ft. of carpet area, primarily spans the Mumbai Metropolitan Region (MMR) and caters to mid-premium, premium, luxury, and ultra-luxury segments. With a diverse presence ranging from the prestigious market of Tardeo and Marine Lines in South Mumbai to projects near Dahisar, and in other prime suburbs including Mulund, Ghatkopar, Juhu, Vile Parle, Bandra - Pali Hill and Goregaon, MICL continues to set new standards in urban redevelopment and real estate excellence.

Strengths

• Growth through asset light model and leverage partners capabilities for growth

• Capitalizing on Man Infra?s execution capabilities

• Maintain Project Discipline & tight project monitoring

• Focus on Cash Flow management to manage project risks

Operational Performance

Significant Progress across Parameters

During fiscal 2024, MICL demonstrated remarkable progress in its real estate business across all parameters.

1. Healthy Business Development

MICL acquired a total of 27.5 lakh square feet of carpet area in Mumbai?s coveted locations of Marine Lines, Pali

Hill, Goregaon West, and Ghatkopar West. With these acquisitions, the company?s real estate portfolio has grown to 60 lakh square feet of carpet area as of March 2024. This includes 21 lakh square feet of ongoing and 39 lakh square feet of upcoming projects.

2. Upscaling Portfolio

MICL has strengthened its real estate portfolio by expanding its presence in the upscale market of Mumbai. Currently, luxury and ultra-luxury projects contribute about half of the portfolio in terms of sales value, reflecting the flourishing luxury residential market where demand for these properties continues to outpace the affordable category

3. Unveiled Iconic properties of Mumbai

During the fiscal year, MICL launched two ultra-luxury projects: ‘Aaradhya Avaan? in Tardeo with 6.5 lakh sq. ft. of carpet area and ‘Aaradhya OnePark? with 11 towers and 4.2 lakh sq. ft. of carpet area. Together, these projects cover 10.8 lakh sq. ft. with a revenue potential of Rs 4,200 crore. ‘Aaradhya OnePark? saw a successful launch, achieving Rs 333 crore in sales upon launch, reafirming the demand for luxury properties in the Mumbai market.

4. Strong Delivery

MICL has raised the bars in the industry with a keen focus on timely delivery of all its projects. The company delivered 3 large projects in FY24 by securing Occupancy Certficate (OC) in remaining towers of ‘Aaradhya OneEarth? located in Ghatkopar West, Aaradhya Highpark near Dahisar East and Atmposphere O2 (tower D&E) in Mulund West. All these project were delivered in a record span of less than 3.5 to 4 years from launch.

5. Sales

The company witnessed an encouraging response from customers across its ongoing projects and new launches, maintaining a healthy sales momentum. MICL clocked annual sales of Rs 744 crore from the sale of 3.0 lakh sq. ft. of carpet area, largely driven by new launches and projects delivered in FY24.

Long Term outlook

• Continue to explore opportunities in redevelopment space in Mumbai real estate market

• Strong revenue visibility from the upcoming projects and from projects in pipeline

EPC Introduction

Man Infras EPC division, has delivered over 50 million sq. ft. of construction across India. This division earns income from infrastructure projects such as ports, institutional buildings, government residential projects, and its own residential developments. Additionally, it has the potential to generate income through PMC (Project Management Consultancy) fees for professional management of site, material, and labor on its real estate projects.

Strengths

• Commitment to Quality and Timely Delivery: This dedication results in repeat business from satisfied clients

• Efficient Project Monitoring and Cost Control: Ensures projects stay on schedule and within budget.

• Experience in Complex Projects: Extensive expertise in constructing complex infrastructure projects, high-rise buildings, townships, and mass housing developments.

• Ownership of Plant and Equipment: Minimizes subcontracting, leading to more effective project execution and control.

Operational Performance

During FY23-24, Man Infra secured a significant EPC order worth Rs680 crore (inclusive of GST) from the Port of Singapore Authority (PSA) group. This order is for pavement work on reclaimed land as part of the Phase II Infrastructure Works at the Fourth Container Terminal of JNPT port in Navi Mumbai, Maharashtra. Man Infra has already achieved remarkable progress on Phase I of the project, completing 85% of the work. Phase II is advancing on schedule and is expected to be completed within 1.5 years.

In addition, Man Infra is constructing one of Indias tallest residential towers ‘Aaradhya Avaan? in Tardeo, standing at over 1,000 feet. The company will earn a PMC margin on the construction work throughout the projects duration.

As of March 31, 2024, Company?s EPC order book stands at Rs823 crore, with infrastructure projects contributing 86% and the residential segment accounting for the remaining 14%. The company reported EPC revenue from operations of

Rs 737 crore, driven primarily by the port project and other residential EPC projects.

Long Term Outlook

• Strategically selective in building healthy order book

• Continue identifying lucrative opportunities in ports, infrastructure and government sectors

• Upcoming real estate project launches expected to strengthen the order book and generate PMC fees

Consolidated Financial Performance

• Revenue & Profitability

• The company?s consolidated revenue from operations for FY23-24 stood at Rs 1,264 crores and reported a total income of Rs 1,360 crores.

• MICL achieved Net Profit of Rs 300 crores with 16% YoY growth

• Balance Sheet

• The consolidated networth of the company for FY24 grew to Rs 1,463 crore from Rs 1,089 crore in previous year

• The company continue to be Net Debt Free with cash and bank balance of Rs 741 crores providing considerable strength for future growth

• MICL raised an amount of Rs 543 crore via preferential issue in Dec-23 primarily for business expansion, receiving 25% of the allotment money amounting to Rs 136 crores in Jan-24

• The forthcoming Rs 407 crores will further enhance MICLs financial position for future project acquisitions

Risk Management:

The Company works in an environment which is affected by various factors, some of which are controllable while others are outside the control of the Company. At Man Infra, we have developed a vigorous risk management framework that reduces the volatility due to unfavorable internal and external events, facilitates risk assessment, mitigation and reporting procedures and enables timely reviews by the management. The following section discusses some of these risks and steps taken by Man Infra to mitigate such risks.

1. Macroeconomic Risk Risk:

• Cyclicality of Real Estate and EPC Businesses

• Impact from changes in interest rates, GDP growth, purchasing power, inflation

Mitigation:

Conservative approach with internal prudential norms Joint development model Net Debt Free with adequate liquidity Marquee clientele with timely payments

2. Policy Risk Risk:

• Non-Compliance with RERA regulations

• Delays and cost overruns

Mitigation:

Milestone-based time & quality checks

All the ongoing projects of the Group are registered under RERA.

Financial discipline in investment and cash flow Track record of timely delivery and maintaining high-quality standards

3. Execution Risk Risk:

• Regulatory hurdles, approval delays, labor and material availability

Mitigation:

Standard operating procedures from planning to delivery Internal checks and balances Extensive due diligence before joint development partnerships

4. Liquidity Risk Risk:

• High initial outflow, long-term inflows

• RERAs 70% fund allocation rule

• Project delays impacting liquidity

Mitigation:

Financial discipline in project investment and cash flow Effective working capital management Receipt of mobilization advances in EPC business Net Debt free as of March 31, 2024

5. Input Price Risk Risk:

• Cost overruns due to rising material and labor costs

Mitigation:

Risk accounted for at project launch

Phased sales to cover rising construction costs

6. Sales Volume Risk Risk:

• Di_erence between estimated and actual sales volume of real estate projects

Mitigation:

Focus on project nature, location, design, and developer reputation Delivering superior quality and building strong client relationships Utilizing latest technologies and cost-e_ective measures for timely delivery Offering distinctive project features to stand out in the market

Human Resources

The Company believes its ability to sustain and grow hinges on its strength in developing, motivating, and retaining talent. Highly motivated and empowered employees are seen as its greatest assets for maintaining a competitive market edge.

Employee Development

Management is dedicated to continuously upgrading skills and competencies at all levels through extensive training.

Focuses fostering employee development, and offering competitive compensation As of 31st March 2024, the Man Group employs over 800 individuals

Expertise and Culture

Well-qualified employee possessing the technical expertise necessary to execute projects Maintaining an excellent work culture with high retention ratio The Company is committed to ensuring safe working conditions and promoting social awareness among all its employees

Internal Control Systems

The Company has an adequate internal control system in place to safeguard all assets and ensure their efficient productivity. It employs a quality management system for design, planning, and construction that complies with international quality standards.

Business Processes and Operations

• Company has a suitable internal control system for the business processes, operations, financial reporting, compliance with applicable laws and regulations.

• Successfully implemented Enterprise Resource Planning (ERP) software at its Head Office and across its sites.

• Periodical audits conducted by an Internal Audit firm ensure the adequacy of internal control systems and adherence to management policies.

• When necessary, internal control systems are reassessed and corrective actions are taken.

Cautionary Statement

This management discussion and analysis may contain forward looking statements that reflects Company?s performance with respect to future events. The management believes these to be true to the best of its knowledge at the time of preparation of this report. The actual results may differ materially from those anticipated in the forward looking statements as a result of many factors.