MANAGEMENT DISCUSSION & ANALYSIS REPORT OUTLOOK & OVERVIEW OF THE ECONOMY Financial year 2014-15 was yet another challenging year for the Indian economy. In addition to being an election year, the investment scenario continued to be affected by factors such as delays in approvals for large infrastructure projects, higher capital costs and non-availability of raw material. With the National Elections having resulted in a resounding majority to a single political party in May 2014, public sentiment has since substantially improved and there is considerable hope that the new Government will start creating an environment conducive to investment. Initial steps taken by the Government have been positive, however it will take some time before interest rates are reduced. According to the Central Statistical Organisation, real Gross Value Added (GVA), the new measure of national income for 2014-15 (FY 2015) grew by 7.5% versus 6.6% in 2013-14 (FY 2014). The Indian economy in 201415 has emerged as one of the largest economies with a promising economic outlook on the back of controlled inflation, rise in domestic demand, increase in Investments, decline in oil prices and reforms among others. Reserve Bank of India's Policy seems to be heading towards creation of a stable, low inflation regime. The Reserve Bank of India (RBI) has started to lower the interest rates as well as increase the liquidity in the economy by taking various initiatives. The Government has taken measures to revive the economy by modifying FDI policies for various industries, pushing hard for infrastructure spending and towards creating smart cities. Reforms to create flexibility in labour markets, safety net for the unorganized sector and passing of GST to create a common market will go a long way to take the growth momentum to a different level. INDUSTRY STRUCTURE AND DEVELOPMENTS The real estate industry is considered a growth engine of the economy and plays a vital role in overall growth and development. The real estate sector is a major employment driver, being the second largest employer next only to agriculture. This is because of the chain of backward and forward linkages that the sector has with the other sectors of the economy, especially with the housing and construction sector. About 250 ancillary industries such as cement, steel, brick, timber, building materials etc. are dependent on the real estate industry. 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. The residential real estate space in India is divided into affordable housing, mid-level priced houses and the luxury segment. The onus on low cost housing is expected to put brssure on the luxury segment, but this is not significant. 2015-16 will focus more on recovery and clearing inventory, construction deadlines and backlogs. Further, easing brssure on the rupee will also impact the industry positively. The RBI has started to soften the interest rates but the impact at ground level is still awaited. Further downtrend in the interest rate cycle remains crucial for revival of the sector. Added to this, 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 2015-16. Also, the ability to judiciously use cash from liquidating existing inventories may result in the upgradation of Companies in the real estate sector. Strengths The Company continues to capitalize on the market opportunities by leveraging its key strengths. These include: 1.Brand Reputation: Enjoys higher recall and influences the buying decision of the customer. Strong customer connects further results in higher brmium realizations. 2.Execution: Possesses a successful track record of quality execution of projects with contemporary architecture. 3.Significant leveraging opportunity: Follows conservative debt practice coupled with enough cash balance which provides a significant leveraging opportunity for further expansions. 4.Transparency: Follows a strong culture of corporate governance and ensures transparency and high levels of business ethics. 5.Highly qualified execution team: Employs experienced, capable and highly qualified design and project management teams who oversee and execute all aspects of project development. Opportunities and Threats The Company believes that there are lots of opportunities and demand in Indian Real Estate Sector. Some of them are as under: 1.Smart cities: Government proposal to develop smart cities, to offer sustainable development and employment to a wider section, regardless of skill, education or income level. 2.Real Estate Investment Trusts (Reits): The Sebi (Real Estate Investment Trusts) Regulations, 2014, were notified. It will facilitate tapping of cash flow in the Indian economy, and help smaller investors access income-generating real estate assets. 3.Relaxation in rules for foreign direct investment in the sector. Some of these relaxed rules include reducing minimum built-up area and capital requirement for the projects receiving FDI. 4.Economic activity is gradually picking up, and the Central Bank anticipates GDP growth to reach 6.5% y/y in the next financial year FY2015-16. 5.Office rents to start apbrciating. 6.Rationalize Cost & Capital expenditures Threats: 1.Continuous increase in Interest costs and foreign currency rates. 2.Unanticipated delays in project approvals and heavy tax liabilities. 3.Unstability in the government policies. 4.Rising cost of construction such as steel, cement, power etc. RISKS AND CONCERNS The Company is exposed to number of risks such as economic, regulatory, taxation and environmental risks and also the investment outlook towards Indian real estate sector. The Company's chosen business strategy of focusing on certain key products and geographical segments is also exposed to the overall economic and market conditions. The Company monitors credit and market risks, as well as portfolio and operational risk through the oversight of senior management personnel. Legal risk is subject to the review of the Company's legal department and external advisers. The Company aims to understand, measure and monitor the exposures to implement appropriate measures in a timely and effective manner to mitigate these risks. The Legal Department continues to be fully aligned with various businesses to provide timely legal support on various operations of the Company and support the businesses in proactively managing their legal and compliance risks by robust commercial documentation and assistance in understanding applicable laws and compliance thereof. The Company aims at continuous improvement of the processes which inter-alia include, reporting methodology of the legal matters, efficient engagement of high quality panel of third party lawyers, standardization of key documents and strengthening internal guidelines and processes on documentation, legal matters and their reporting. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Company's internal control systems are commensurate with the nature of its business and the size and complexity of its operations. These are routinely tested and verified by Statutory as well as Internal Auditors. The internal control is supplemented by extensive programme of internal audits, review by Audit Committee and Board of the Company. The system has been designed to ensure that financial and other records are reliable for brparing financial information and for maintaining accountability of assets. All financial and audit control systems are also reviewed by the Audit Committee of the Board of Directors of the Company. Significant audit observations, if any and follow up actions thereon are reported to the Audit Committee. Further to maintain its objectives and independence, the Internal Auditors reports to the Chairman of the Audit Committee. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE: In a year that continued to see very little growth in infrastructure and deep financial distress of real estate Companies, the performance of your Company has also been affected. Here are some key facts for FY 2015 as compared to FY2014: HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS The Company's business is managed by a team of competent and passionate leaders, capable of enhancing your Company's standing in the competitive market. The Company's employees have a defining role in significantly accelerating its growth and transformation, thereby enhancing its position as one of the largest corporate houses. The Company has a structured recruitment process, the focus is on recruiting people who have the right mindset, supported by structured training programs and internal growth opportunities. Periodic reviews of the manpower numbers and costs at the sites and the head office were undertaken to ensure that manpower cost remains within the budget and the key manpower related ratios are maintained. Training and re-training the workforce at project sites continued during the year. Special emphasis was given on safety, equipment operations and maintenance training. As on March 31, 2015 the total strength of your Company's employees stood at 231 CAUTIONARY STATEMENT Statements in this report on Management Discussions and Analysis describing the Company's objectives, estimates and expectations may be forward looking statements based on certain assumptions and expectations of future events. Actual results might differ substantially or materially from those exbrssed or implied. The Company assumes no responsibility nor is under any obligation to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events. For & on behalf of Board of Vipul Limited Punit Beriwala Managing Director DIN: 00231682 Vikram Vasheshar Kochhar Director DIN : 03098195 Place : Gurgaon Date : August 12, 2015 |