MBL Infrastructure Ltd Management Discussions

Indian economy

Overview

Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, inflation, cautious government and a sluggish equity market. Indias GDP growth

is estimated at 7.2% in FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-largest global economy. India surpassed China to become the worlds most populous nation

(Source: IMF, World Bank)

Indias economic growth in FY22-23 has been principally led by private consumption and capital formation. Indias recovery from the pandemic was relatively quick and growth in the upcoming year will be supported by solid domestic demand and a pickup in capital investment.

The three megatrends - global offshoring, digitalisation and energy transition - are setting the scene for unprecedented economic growth in the country. The economy has withstood the challenge of mitigating external imbalances caused by the Russian-Ukraine conflict without losing growth momentum in the process. Increase in international crude oil prices is one of the major worries for India as it is a net importer of energy. Indias stock markets had a positive return unfazed by withdrawals by foreign portfolio investors.

Indias inflation rate did not creep too far above its tolerance range compared to several advanced nations and regions. Several factors are responsible for Indias growth resilience including strong infrastructure spending, export growth driven by services, improved labour market and robust revenue collections to support public spending.

India has sufficient forex reserves to meet its current account deficit and intervene in the forex market to manage volatility in the Indian rupee. Indias financial sector also remains strong, buoyed by improvements in asset quality and robust private-sector credit growth. India is expected to currently grow at 7% which is a robust growth rate compared to that of other major economies. Well- designed policy measures have reduced inflation pressures, ensured better-targeting of fiscal policy support and revive sustainable growth.

Significant initiatives have been introduced under Aatmanirbhar Bharat and Make in India programmes to enhance Indias manufacturing capabilities and exports across the industries. These are investor-friendly programmes that domestic companies are utilising to increase their production base and create new capacities, which leads to increasing domestic investments.

The current growth trajectory will be supported by multiple structural changes that have been implemented over the past few years. Further support to economic growth will come from the expansion of public digital platforms and measures such as PM GatiShakti, the National Logistics Policy and the Production- Linked Incentive schemes to boost manufacturing output. The governments initiatives in agriculture, infrastructure, employment generation and healthcare are expected to have a positive impact on the countrys economic development and growth in the coming years. Apart from housing, construction activity, in general, has significantly risen in FY23 as the much-enlarged capital budget of the central government and its public sector enterprises is rapidly being deployed.

With improved and healthier balance sheets of the banking, nonbanking and corporate sectors, a fresh credit cycle has already begun, evident from the growth in bank credit. India has emerged as the fastest-growing major economy in the world backed by its robust democracy and strong partnerships.

Outlook

According to the World Bank April 2024 projections, Indias GDP is projected to expand by 6.3% In FY24, supported by domestic demand and increased public investment. Indias retail inflation rate could decline from 6.6% to 5.2% in FY24.

Indian road infrastructure sector review

Road infrastructure is of paramount importance as it serves as the vital link connecting various segments of the population, businesses and consumers. It encompasses a wide range of road networks, such as national highways, state highways, district roads, rural roads and urban roads. These roads not only facilitate transportation but also play a significant role in ensuring the accessibility of remote areas.

India possesses the worlds second-largest road network, spanning an impressive 6.3 million kms and serving as a vital means of transportation for over 90% of passenger traffic and 64.5% of freight traffic. The current FY 2023-24 has set a target of constructing 12,200 kms of national highways in the country. Progressing towards this goal, over 65,000 kms of road projects, with a budget of more than RS 11 lakh crores, are underway. Among these, construction has been completed for projects spanning more than 39,000 kms, while work is still ongoing for the remaining length of over 26,000 kms. In the first nine months of the fiscal year FY 2022-23, 5,774 kms of national highways were constructed. The road and highways sector in India allows 100% Foreign Direct Investment under the automatic route, encouraging foreign investments in this domain.

Under the Gati Shakti program in India, a consolidated list of 81 high-impact projects has been established, with road infrastructure projects being accorded the highest priority. The government aims to construct 23 new national highways by the year 2025. The National Highway Authority of India (NHAI) is expected to generate an annual revenue of RS 1 lakh crores (US$ 14.30 billion) in the next five years, primarily through toll collection and other sources.

(Source: ibef.org, pib.gov.in, economictimes.indiatimes.com, prsindia.org)

Government initiatives

Bharatmala Pariyojana

The Bharatmala Pariyojana, a prominent government initiative, is experiencing delays and it is now anticipated that the program will be completed by FY 2026-27. It is expected to come at a higher cost, with an estimated investment of H 10.63 trillion, compared to the original investment of RS 5.35 trillion. Till date, the projects spanning a length of 22,302 kms, with a total cost of RS 6.9 billion, have been awarded under the programme. Also 9,548 kms of roads have been successfully completed and an expenditure of RS 2.29 trillion has been incurred.

Pradhan Mantri Gati Shakti - National master plan for multi-modal connectivity

The main objective of this initiative is to establish a comprehensive and interconnected multi-modal transportation network across India. A key focus of this initiative is to improve connectivity in road freight transport by constructing 39 multi-modal logistics parks. These parks are designed to address congestion issues in strategic locations, facilitating the seamless and efficient transportation of goods. Establishing these logistics parks, it aims to streamline and enhance the overall logistics and supply chain infrastructure in the country.

The Gati Shakti mission will further the governments effort to cut the various bottlenecks and cut down on delays in completion of such projects. The platform would work out the entire logistical planning for any infrastructure project and point out the gaps that could be fixed with separate intervention of the central and state governments. 102 critical projects under the Gati Shakti masterplan worth US$ 7.67 billion are expected to be completed by 2024

NHIDCL (National Highways and infrastructure Development Corporation Limited)

As part of the first phase of the Bharatmala Pariyojana, the National Highways and Infrastructure Development Corporation (NHIDCL) has been entrusted with the task of constructing 5,070 kms of roads. This initiative aims to enhance connectivity along border highways and the economic corridor, facilitating smoother transportation and improving accessibility in those areas.

National Logistics Policy 2022

The Indian government is actively working towards creating a cost- effective production hub by developing necessary infrastructure. To achieve this goal, they have introduced the National Logistics Policy 2022, which aims to establish a comprehensive logistics ecosystem. The primary objective is to reduce the logistics costs in the country and make them comparable to those in developed nations. The focus is on improving intermodal transport connectivity and enhancing logistics infrastructure through effective public-private partnerships (PPP). The private sector has played a significant role in this endeavour by undertaking various infrastructure projects and providing financial support to the sector.

Special Accelerated Road Development Programme for North Eastern region (SARDP-NE): This project mainly focuses on the development of the North-Eastern region road infrastructure. SARDP-NE Phase B will construct 3,723 km of roads, which consist of 2,210 km of national highways and 1,513 km of state roads by FY 2023-24.

Arunachal Pradesh scheme: This project aims to be complete by FY 2023-24 and will develop 2,205 km of national highways and 114 km of state roads.

National Highways Authority of India (NHAI): The increase in investment of capital expenditure are primarily for three sectors (i) Ministry of Railways, Ministry of Road Transport and Highways and capital outlay on Defence Services-which account for 66% of total capital expenditure. Given its critical role in the growth of the nation, the infrastructure sector has experienced a tremendous boom as a result of Indias necessity and desire for rapid development. In the Budget FY 2023-24 the government has given a massive push to the infrastructure sector by allocating RS 10 lakh crores (US$ 130.57 billion) to enhance the infrastructure sector. The government allocated RS 134,015 crores (US$ 17.24 billion) to National Highways Authority of India (NHAI). The government announced an outlay of RS 60,000 crores (US$ 7.72 billion) for the Ministry of Road Transport and Highways.

Growth drivers

Increasing population

India now has the highest population worldwide and it boasts a relatively young population, with a median age of 28.2 years. This demographic characteristic emphasises the crucial need to develop robust road infrastructure and enhance transit efficiency. By focusing on establishing well-connected roadways and reducing travel time, India can ensure improved connectivity for its vast population.

Urbanisation

By 2047, 50% of the population is projected to reside in urban areas, creating a demand for enhanced urban infrastructure.

Industrialisation

The introduction of the Production Linked Incentive (PLI) scheme is expected to drive industrial growth, creating a surge in the demand for quicker transportation and better road infrastructure. This highlights the need for strengthening road connectivity across the nation to cater to the growing needs of industries and ensure seamless transportation.

Infrastructure investment

In order to accomplish Indias target of becoming a US$ 5 trillion economy by 2025, the development of infrastructure plays a pivotal role. The government has implemented the National Infrastructure Pipeline (NIP) along with initiatives such as Make in India and the production-linked incentives (PLI) scheme to expedite the expansion of the infrastructure sector to accelerate the growth of the infrastructure sector.

Outlook

The timely monetisation of assets has become increasingly important to fund the Bharatmala program, given the rising costs of land acquisition and inputs. The National Highway Authority of India (NHAI) aims to generate approximately RS 250 billion through asset monetisation in the current financial year.

The road sector in India is currently on a positive growth trajectory, fuelled by various factors. These include robust traffic growth, the development of expressways under the Gati Shakti initiative, a focus on sustainability and multimodal connectivity and increased private capital inflow. Private investments in the sector are projected to reach RS 1 trillion by 2030. Regulatory interventions, optimistic investor sentiment and a commitment to enhancing mobility will further accelerate the sectors progress and development.

Opportunities

¦ The government is focusing on infrastructure sector with particular emphasis on roads, highways and railways.

¦ In the Budget FY 2023-24 the government has given a massive push to the infrastructure sector by allocating RS 10 lakh crores (US$ 130.57 billion) to enhance the infrastructure sector.

¦ The Indian Government intents to accelerate road construction in FY 2024 by 16-21% to 12,000-12,500 km.

¦ The government allocated RS 134,015 crores (US$ 17.24 billion) to National Highways Authority of India (NHAI).

¦ The government announced an outlay of RS 60,000 crores (US$ 7.72 billion) for the Ministry of Road Transport and Highways 0 A new scheme, called the Scheme for Special Assistance to States for Capital Expenditure, was announced for financial assistance to states in the form of a 50-year interest free loan for capital investment projects.

¦ Infrastructure Finance Secretariat is being established to enhance opportunities for private investment in infrastructure that will assist all stakeholders for more private investment in infrastructure, including railways, roads, urban infrastructure, and power.

¦ PM Gati Shakti - US$ 1.3 trillion national master plan for infrastructure for (i) seamless multimodal connectivity to facilitate easy movement of goods and people (ii) improved prioritisation, optimal usage of resources, timely creation of capacities and (iii) resolution of issues such as disjointed planning, standardisation and clearances. This will also catalyse the Infrastructure Sector.

¦ National Infrastructure Pipeline (NIP) unveils the infrastructure projects across various states which will receive the expected funding of US$ 1.4 Tn over the next 5 years of which US$ 26.90 billion for road sector.

Company overview

The Company provides integrated engineering, procurement and construction (EPC) services for civil construction and other infrastructure projects.

The Company is engaged in the execution of civil engineering projects in various business segments namely: Highways (EPC, Build-Operate-Transfer (BOT) and operation and maintenance (O&M), building, housing and urban infrastructure, railways/metro and other infrastructure.

MBL was among the first batch of contractors to be awarded the contracts of prestigious North South East West Corridor by NHAI and was the first to complete the project.

MBL was amongst the early batch of contractors to be awarded contract for maintenance of National Highways by NHAI.

MBL has witnessed continuous growth in bid capacity and prequalification capability.

MBL owns a large fleet of sophisticated equipment, including hot mix plants, sensor pavers, tandem rollers, soil compactors, stone crushers, loaders, excavators, tippers, motor graders, concrete batching plants, transit mixers, concrete pumps, dozers, cranes etc.

MBL is certified for execution of civil engineering projects under the following categories:

(a) ISO 9001: 2015: in recognition of the organisations quality management system

(b) ISO 14001:2015: in recognition of the organisations environment management system

(c) ISO 45001:2018: in recognition of the organisations health and safety management system

Financial overview

Revenue and Other Income

The total income of the Company during the FY 2022-23 was RS 21,256 lakhs on standalone basis and RS 30,095 lakhs on consolidation basis as against H 16,148 lakhs on standalone basis and RS 26,047 lakhs on consolidation basis during FY 2021-22. The Company had profit after tax of RS 580 lakhs on standalone basis and a loss of RS 5,052 lakhs on consolidation basis during FY 2022-23 as against profit of RS 6,359 lakhs on standalone basis and profit of RS 13 lakhs on consolidation basis during FY 2021-22.

Key ratios

Key financial ratios are given below:

Particulars	FY 2022-23	FY 2021-22
Debtors turnover	1.22	0.79
Inventory turnover	6.64	7.67
Interest coverage ratio	-	-
Current ratio	1.44	1.86
Debt-equity ratio	0.64	0.64
Operating profit margin (%)	9.53	6.77
Net profit margin (%)	4.37	2.59
Return on net worth (%)	1.49	1.18

The key ratios are not comparable as the operations of the Company are not normal due to non-implementation of the resolution plan by banks post CIRP under IBC, 2016.

Human resources

We recognise the importance of human values and ensure that proper encouragement, both moral and financial, is extended to employees. The senior management team consists of experienced professionals with diverse skill sets across all cadres and geographical locations. The total number of employees employed as on 31^st March, 2023 was 299.

Health, Safety and Environment

MBL has framed a Health, Safety and Environment Policy (HSE). The key objective of HSE Policy is to empower employees to attain a healthy and safe work place with an emphasis on zero injury and environmental protection. We provide regular training to our employees, conduct regular audits and have taken ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 certifications to ensure proper implementation of our HSE Policy. The HSE Policy enunciated by the Management lays emphasis on Health, Safety & Environment through a structured approach and well-defined SOPs have been established for implementing the requisites at all stages of construction. The safety and health of employees, partners, service providers and the public are a priority at MBL. The wellbeing of stakeholders and the minimisation of impact on the natural environment are extremely important to us. HSE are key focus areas and integrated into our business operations at every level. Our HSE

Policy ensures that site operations meet legal requirements and that operations cause minimal visual impact or nuisance to the public. Continuous efforts to achieve safety awareness and eliminate unsafe practices are made through employee engagement.

Internal control systems and their adequacy

We have an adequate system of internal control to ensure that transactions are properly authorised, recorded and reported apart from safeguarding our assets. The internal control system is supplemented by well-documented policies, guidelines and procedures. We have also installed an extensive CCTV Surveillance system to cover all our project sites. All these measures are continuously reviewed and necessary improvements are implemented.

Cautionary statement

The Statements in the Management Discussion and Analysis Report with regard to projections, estimates and expectations have been made in good faith. The achievement of results is subject to risks, uncertainties and even less than accurate assumptions. Market data and information are gathered from various published and unpublished reports. Their accuracy, reliability and completeness cannot be assured.

	By Order of the Board
	for MBL Infrastructure Ltd.
Place: New Delhi	Anjanee Kumar Lakhotia
Date: 29th May, 2023	Chairman & Managing Director