MANAGEMENT DISCUSSION AND ANALYSIS

ECONOMIC OVERVIEW

WORLD ECONOMY

The world economy continued with its uphill struggle in the year 2014 amidst complex geo-political factors. While growth picked up moderately in advanced economies, it remained subdued in the developing countries and emerging markets. World Gross Output (WGP) grew at 2.6 per cent in 2014, marginally higher than 2.5 per cent in 2013

Global growth during the year 2014 was uneven. In the world's largest economy, the USA, growth picked up, particularly in the latter half of the year as low oil prices led to increased consumer spending. Further, there was a marked improvement in employment rates. The US economy grew by 2.3 per cent in 2014 against 2.2 per cent in 2013. Economic activity in the EU was drastically affected by the new government in Greece that threatened to opt out of the EU. Political turmoil in Ukraine was another key factor that made the situation worse. However, in all the advanced economies, there was a marked improvement in the second half of the year due to declining oil prices that fell to sub US$ 50 per barrel, triggering a rise in consumer spending.

There are upcoming challenges in the form of rising crude prices and US rate increases. However, factors like China's monetary earning is favourable for the world growth. Other major emerging economies like Brazil and Russia are now stabilizing after many hiccups in their political system that affected making of key decisions. Japan, with its aggressive monetary stance, is also likely to help Asian economies with cheap capital even after US starts raising interest rates.

Indian Economy

The year 2014 was a year for bold structural reforms for the Indian economy that are likely to have a profound effect in the medium and long terms. The newly elected government at the centre initiated major reforms in core sectors like banking, defence, infrastructure and insurance. Another key development during the year 2014 was the change in method for measuring the GDP growth rate: (1) the base year was changed to 2011-12 from 2004-05 and (2) GDP will be measured henceforth on market-prices basis instead of the earlier factor-cost basis. This is in line with international practices. As a result, the revised growth rate for the fiscal year 2014 has been determined at 7.3 per cent, compared to 6.9 per cent in the brvious fiscal year, as per the Indian Economic Survey 2014. Moreover, for the first time, India's total GDP will cross US$ 2.1 trillion in FY2014.

There were many things going for India in the year 2014 that prompted the International Monetary Fund (IMF) to remark that the country was in a sweet spot. Inflation, that had been a major headache in the year 2013, tamed in 2014, particularly in the latter half of the year due to falling oil prices. From a high of over 8 per cent in the beginning of the year, retail inflation, as measured by Consumer Price Index (CPI) fell down to below 5 per cent by the end of the year.

As inflation came within manageable limits, the Reserve Bank of India (RBI) eased its monetary policy by reducing lending rates in January 2015. The Indian rupee also remained largely stable during the year.

INDUSTRY OVERVIEW

Indian Real Estate Market

The Indian real estate market has come a long way, transforming from unorganised to one of the most dynamic and organised sectors of the economy. Driven by rising population, rising income levels and rapid urbanisation, the sector has seen a huge influx of both domestic as well as foreign investors, attracted by the tremendous potential of growth.

The sector has been facing stiff challenges in the last few years as sales declined due to an overall debrssed economic scenario. This was further aggravated by rising finance costs due to high interest rates, leading to an accumulation of debts as well as project delays.

However, with the election of a steady government at the centre in 2014, things have changed for the sector. The new government has initiated many forward looking and pragmatic reforms and regulations that are bound to have a long-term and positive impact on the sector. These include:

1. Notification by the Securities & Exchange Board of India (SEBI) on the Real Estate Investment Trusts (REITs) regulations making REIT more feasible by allowing internationally acclaimed investment structure in India.

2. Unveiling of initiatives like 100 Smart Cities and a commitment to Housing for All are expected to go a long way in boosting sustained investments and developments in the sector.

3. Amendment to the Foreign Direct Investment (FDI) rules by reducing the minimum built-up area from 50,000 sq. mt. to 20,000 sq. mt., as well as reduction in capital requirement from US$ 10 million to US$ 5 million, which is to be achieved within six months from the date of commencement of the project. The exit norms have also been simplified, making it attractive for investors in the sector.

According to Department of Industrial Policy and Promotions (DIPP), the real estate sector attracted FDI worth Rs. 703 million till November 2014.

The India real estate sector comprises mainly of Residential, Commercial, Retail and Hospitality sub-segments.

Ahmedabad Real Estate Overview

The Ahmedabad real estate sector is undergoing a rapid transition and transformation. A slew of infrastructure development projects undertaken in the last few years have completely changed the real estate scenario in the city. Some of the projects that have put Ahmedabad on the global pedestal include the Bus Rapid Transit System (BRTS), Riverfront, Outer Ring Road (ORR) project and Gujarat International Finance Tech City (GIFT) at Gandhinagar which has recently been declared as the IFC (International Financial Center). GIFT be only location in India to have all the facilities and infrastructure as well as financial framework comparable to the financial hubs in the world like Singapore, Dubai, Hong Kong and Luxembourg.

The on-going metro project is one of the largest and most ambitious in the country, connecting over 17 lac commuters daily via 31 station.

These developments have changed the demographics of the city, with new areas and localities emerging as new pockets of growth and expansions. Today, localities like Sanand, Bopal, Science City, Thaltej, S. G. Highway, Satellite and Ashram Road are witnessing surge in development of both residential and commercial projects.

Residential Sector

According to the India Real Estate Sector Handbook 2015 published by Grant Thornton India LLP, the year 2014 saw demand falling by 30 per cent in the seven major cities. This was largely due to a combination of high prices, higher interest rates and cautious buyer sentiments. In response, the developers slowed down projects with a view to limit supply. There was a 25 per cent decrease in supply on a year-to-year basis in 2014 compared to 2013. The curtailing of supply mainly happened in the brmium and high/mid end projects, with NCR region witnessing the steepest decline in supply. The much awaited and expected spike in demand during the festive season remained subdued.

According to a Cushman & Wakefield Research Publication of March 2015, almost 500,000 new residential units were launched between 2012 and 2014. 60 per cent of these units were in the mid-segment, while 16 per cent were in the high-segment and only 23 per cent were in the affordable-segment.

According to Knight Frank Research, the demand supply gap between launches and absorption has been narrowing consistently.

The Indian real estate sector is second largest employer after agriculture in the country and is forecast to grow at 30 per cent over the next decade, according to industry reports.

Ahmedabad Residential Sector

According to a report released by global consultants Cushman & Wakefield on 23 April, 2015, there has been a significant drop of 25 per cent drop in the number of houses constructed between January - March 2015. A total of 1,750 new housing units were constructed between January - March 2015, of which 65 percent belonged to the mid-segment and 33 per cent from the high end residential segment. The western periphery locations such as Bopal and Ambli comprised of nearly half of the total launches in the city during the quarter between January - March 2015.

On the demand side, there has been rise in unsold inventory on the back of subdued demand. This is in line with the trend in the residential real-estate sub-segment across other major cities of India, all of which have witness a drop in sales as well as launch of new units. In Bangalore, there has been 76 per cent drop in the newly launched housing units, followed by Kolkata at 67 per cent, Mumbai at 63 per cent, Delhi-NCR by 58 per cent and Chennai by 57 per cent for the same period.

However, things looked more positive in the second quarter of 2015. According to a report by Citibank, about 2,300 units were launched during the second quarter of 2015, marking an improvement of 33 per cent from the brvious quarter. The launch of two projects with more than 400 units each ensured that the western region lead with 54 per cent contribution to total unit launches. The mid segment dominated the quarterly unit launches with a 56 per cent share. Both the capital and rental values remained nearly stable across submarkets during the quarter.

Commercial Sector

The commercial real estate segment has been laden with over-supply since the last few years as developers got over optimistic about the revival of economic growth and development. According to estimates by Jones Lang Lasalle India (JLL), there was an over-supply in the range of 4 million sq.ft. to 10 million sq.ft. for office real estate till 2014, which drove up vacancy rates. However, since the latter half of 2012, developers have strategically started reducing new supply to in the range of 27 million sq.ft. to 30 million sq.ft., which helped improve consumption rates significantly.

Ahmedabad Commercial Sector

In the commercial sector too, the trend was similar to that of residential real estate sector. According to the Cushman & Wakefield report of 23 April, 2015, between January-March 2014, over 6.07 lakh sq.ft. of office space was absorbed by various business entities in the city. However, during the same three months this year, only 1.54 lakh sq.ft. of space has been absorbed, indicating a nearly 75 per cent decline in the leasing of new office spaces in the city.

Most of the decline in the commercial real-estate market in Ahmedabad has been contributed due to low demand from the IT-ITeS sector which was the driving force behind office space leases in 2014.

In the second quarter of 2015, the commercial sector witnessed around 145,200 sq.ft. registering a decline of 6 per cent as compared to the brvious quarter. 96 per cent of the quarterly net absorption was contributed by Grade A developments. The absence of new completions during the second quarter amidst a fairly active transaction activity led to a 0.7 percentage points decline in all Grades vacancy level to 18.5 per cent for the second quarter.

Retail Sector

The retail sub-segment of the real estate market suffered the worst during the year. The single-most important factor to adversely affect the segment was the rapid rise of ecommerce and online retail portals. The combination of choices, offers and discounts, and the added convenience of free trials and home delivery proved to be too powerful of buyers to resist. This meant that only those malls that were well-managed with a good tenant-mix continued to attract footfalls. Malls that were not properly located and/or poorly managed suffered heavily.

One of the largest retail transaction in the real estate space was the sale of Alpha Mall to the Blackstone Group for Rs. 750 crore, which reaffirms that good quality malls will continue doing well and survive in current challenging scenario.

The compounding effect of the last couple of years led to some of Grade-B malls either converting to office spaces or witnessing high vacancy rates. While the vacancy rates in better managed malls were in the vicinity of 10 per cent, the vacancy rates shot up to 20 per cent in malls that were either poorly-built or badly-located or had an unattractive tenant mix.

Ahmedabad Retail Sector

In the retail sector, rentals in malls managed to remain stable in Ahmedabad in spite of limited enquiries and high vacancy levels. In the high-streets, rentals continued to remained stable due to limited transaction activity and owners quoting similar rates to attract retailers.

Business Overview

With humble beginnings in 1991, Ganesh Housing Corporation Limited (GHCL) has today emerged as a leading real estate player in Ahmedabad. The Company has been a pioneer in higher middle class and middle class housing segment, with a number of marquee projects that have changed the real estate landscape in the city of Ahmedabad forever.

Established on strong values of its founder, Late Govindbhai Patel, GHCL has to its credit successfully developed and delivered over 22 million sq.ft. of quality real estate projects spanning residential, commercial and retail segments. The Company also has one of the largest developable land bank in the city sbrad over key locations in the city, as well as in the emerging new growth centres like Sanand, Thaltej, Shilaj, S. G. Road, Matoda, Chharodi. The total development potential of the land bank held by the Company is well over 38 million sq. ft.

Currently, the Company has 8 projects under construction, comprising of approximately 4.1 million sq.ft. of total developable area. During the year, the Company has embarked upon one of its most innovative and ambitious projects, MAPLE TREE Garden Homes and MAPLE Trade Centre, Located close to S. G. Highway in Thaltej, a brmier location, the project is sbrad over 0.44 million sq.ft. of land with total saleable land area of 1.8 million sq. ft. and consists of a mix of residential and commercial development, with residential being approximately 80 per cent and commercial & retail being the balance 20 per cent. What makes this project stand-apart is its unique Alfresco style inspired by the French open-garden homes. The project has seen an overwhelming response, with over 100 homes booked. The project is scheduled for completion in 2018 and has a monetisation value of Rs. 1000 crores.

The Company also has other projects that are under development:

Current Projects: Currently, the Company is developing following residential projects and commercial project:

The residential projects under development are:

1. Malabar County

Malabar County is located just behind Nirma University. This Project comprises with 600 apartments with total development of 751,752 sq.ft. is almost completed and is scheduled for delivery by September-October 2015.

2. Malabar County 2

* Malabar County-II is also situated behind Nirma University. The Project comprises of 442 units with a total developable area of 6,81,588 sq.ft. and a retail (convenient shopping) of 38,473 sq. ft.

3. Sundarvan Epitome

Sundarvan Epitome is situated in the heart of Ahmedabad. It consists for high-end brmium 4BHK apartments, each with a saleable area of about 4900 sq. ft. with total developable area of 234,476 sq. ft. The Construction of the project has been completed and the same has been already occupied by customers.

4. Madhuban Hills

Madhuban Hills is a joint venture project where GHCL is 51 per cent owner. The project is located at Srinathji, Nathdwara, Rajasthan. The total number of units is 228 bungalows having total developable area  of 342,000 sq.ft.

5. Maple Tree Garden Homes

Maple Tree Garden Homes is a first-of-its-kind residential project in Ahmedabad based on the classic French Alfresco open-garden home style. It is located near Surdhara Circle, Thaltej, the brmium upcoming residential pocket of the city. The project is sbrad over a sprawling 439,395 sq.ft., with a total developable residential area of 1,353,744 sq.ft. The project consists of 3BHK, 4BHK and Penthouse apartments totalling to 512 units. Maple Tree Garden Homes is one of the brmium addresses in Ahmedabad and is all set to emerge as a marquee landmark in the city's skyline.

The commercial project being developed by the Company is:

1. Magnet Corporate Park

Magnet Corporate Park is a concept of individual corporate houses located on S.G. Road, the most promising area of Ahmedabad. This corporate park is sbrad over 2,70,000 sq.ft. having 23 individual  corporate houses. Each corporate house has a size of 20,000 sq.ft. to 30,000 sq.ft. with total saleable area of 6,31,081 sq.ft. 95 per cent of execution of said project has been completed.

2. Maple Trade Centre

Maple Trade Center is the commercial project that is part of the Maple Tree Garden Homes near Surdhara Circle, Thaltej. The 13-floor project will have office spaces with a total saleable area of 341, 147 sq.ft.

3. Maple Shopola

Maple Shopola is the retail project and part of the Maple Tree Garden Homes situated near Surdhara Circle, Thaltej. The project consists of retail outlets below the residential buildings as well as below the Maple Tree Trade Center. These retail outlets are located on the ground and first floors, and have a total saleable area of  133, 883 sq. ft.

In addition of these, the Company has also the following projects in pipeline that are scheduled for launch in the near future :

Upcoming Projects:

Residential

Malabar County 3

Located at Village: Tragad, Nr. S.G. Road, the project consists of a total construction area of around 9,12,450 sq. ft. The total projected sales value is approximately Rs. 260 crores.

Commercial

Magnet Tower

The Magnet Tower project is located at Satellite in Ahmedabad. The project is sbrad over an areas of 30,440 sq. ft. and has a total construction and saleable area of  173,414 sq. ft.

Mega Projects

1. Integrated Township

The Company is also developing its largest and most ambitious project - SMILE CITY 1 & 2. This is an integrated township project.

Smile City 1 is a Joint venture between Ganesh housing Corporation Limited and Monsoon India Infrastructure Direct II Limited, where GHCL is having 69.10 per cent stake and monsoon owns 30.90 per cent. The Joint venture (SPV) is called Gatil Properties Pvt. Ltd. It is located on the highly brmium western part of Ahmedabad and is only 4.5 kms. away from the Ahmedabad city limits.

This integrated township is estimated to generate revenues of approximately Rs. 52 billion over the period of 5-6 years.

The entire township will be sbrad over an area of 506.23 acres. The project will be developed in two phases.

Smile City 2 is solely own by Ganesh Housing Corporation Limited. It is located adjacent to Smile City-1 with an area of 106.15 acres. Smile City - 2 will have total developable area of 4.6 million sq.ft. and is expected to generate a top-line of approx. Rs. 21 billion over the next 4-6 years.

2. SEZ

The Company is planning to launch an IT&ITES SEZ Project having total developable area of 12 million sq. ft. and approximately on 80.83 acre land space located within the Ahmedabad Municipal Corporation limits. The sale value of the Project is approximately Rs. 36-40 billion and will be completed in phases over a period of 4-5 years.

OPPORTUNITIES AND THREATS

Opportunities

1. Strong Economic Revival

Over the last one year, there has been a complete turnaround in the Indian economy. Spurred by bold and long-term structural reforms, confidence in the India growth story has once again been revived. All the macro indicators are pointing towards a phase of sustained positivity ahead in the next few years. Inflation has been largely tamed to benign levels, giving hope that the government will start reducing interest rates further. Moreover, falling commodity prices are likely to have a positive effect on input costs across industries, improving profitability and earnings.

2. Real Estate Policy Reforms

a. Real Estate Investment Trusts (REIT)

Securities and Exchanges Board of India (SEBI) issued a notification on REITs announcing detailed  guidelines. These guidelines clarified and cleared many ambiguous and vague areas that were hitherto creating a lot of confusion. Under the fresh guidelines, the government has cleared the way for internationally accepted investment structures in India. These guidelines are expected to give a fillip to the real estate sector as REITs play a vital role in unlocking the true value of commercial assets and allow developers with a new avenue to raise funds. REITs have proven to be critical in the success of real estate business in countries like Singapore, Hong Kong, the United States and other economies. REITs also help in creating a new investment vehicle for institutional and retail investors. REITs are expected to play a key role in the next phase of growth in the real estate sector in India.

b. Relaxation in FDI in Retail Rules

To encourage more FDI in the real estate sector, the government relaxed rules for FDI in construction sector by reducing the minimum built-up area from 20,000 sq. mts. to 5,000 sq. mts. The minimum capital requirements was also reduced from  US$ 10 million to US$ 5 million.

3. SMART Cities

The government has announced its ambitious vision to develop 100 Smart Cities over the next twenty years and announcement of AMRUT Project with the outlay of Rs. 4,00,000 Crores is going to give big push to urban infra industry. A sum of Rs. 7,060 crores was allocated towards this in the Union Budget of 2014-15. These Smart Cities will include the construction of satellite townships near existing mega cities, upgrading existing mid-sized cities and the construction of settlement along industrial corridors. The plan also envisages development of new smart cities.

Threats

1. Inventory Pile-Up

The glut in demand over the last few years in the real estate sector has resulted in an inventory pile-up at all the major cities of India. According to a leading industry research firm, the combined inventory of Bengaluru, Chennai, Hyderabad, Mumbai Metropolitan Region or MMR and Delhi-National Capital Region or Delhi-NCR is around 50 months. The situation is worst in Delhi-NCR, where the inventory pile-up reaches 83 months or seven years, while it is 50 months for MMR and Chennai, and 23 months for Pune. In case of Ahmedabad it is over 18 months.

In the mid to high-end residential segment, the inventory has come down to 30 months in the major metropolitan cities due to a bridging of the demand-supply gap.

2. Complex and Cumbersome Regulations

In spite of positive changes, the real estate sector is still plagued by complex procedures, permission and clearances. Depending on cities, these regulations range between 30 and 40, resulting in a huge burden of both time and cost over-runs.

3. Financing Costs

The real estate business is a capital intensive business that requires long-term investments in land, construction and marketing. Most developers have to borrow funds at various stages of the project. High interest rates over the last few years have adversely affected the viability of projects, not to mention brssure on profitability. Moreover, certain banks are reluctant to extend financial assistance to the developers.

FINANCIAL PERFORMANCE Consolidated

INCOME: The total income of the Company decreased by 10.44 per cent from Rs. 288.86 Crores in 2013-2014 to Rs. 258.70  Crores in 2014-2015.

EBITDA: The Earnings before interest, tax and debrciation of the Company increased by 2.35 per cent from Rs. 136.62 Crores in 2013-2014 to Rs. 139.83 Crores in 2014-2015.

PAT: The Profit after Tax of the Company increased by 9.54 per cent from Rs. 68.99 Crores in 2013-2014 to Rs. 75.57 Crores  in 2014-2015.

INTERNAL CONTROL SYSTEMS

The Company has appropriate and sufficient internal control systems in place commensurate with the size and the industry it operates in. The Company has a well-laid framework of systems, processes, procedures and policies to ensure compliance to statues and laws, as well as to ensure  optimum and sufficient use of resources. The Company monitors expenses on a regular basis to ensure that these are within the budgeted targets. Regular internal audit through external agency to test the adequacy and effectiveness of its internal control processes and also suggest improvement and upgrades to the management. All rules, policies, statues and legislations are strictly followed and adhered to by the Company. The Company specifically ensures that all environment protection norms are followed without any compromise.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

The Company believes that the employees are the most valuable resource for any establishment and are the utmost valuable assets. The Company has laid down stringent measure to make sure that the safety and health of its employees are secured such as ensuring safety brcautions at the construction site to avoid work injuries. The Company has a professional and healthy work culture built around strong corporate values. It also encourages and supports its employees to upgrade their skills on a continual basis through organising skill development programmes. Employees are also encouraged to participate in professional skills and training development courses.

CAUTIONARY STATEMENT

This report contains statements that may be "forward looking" including, but without limitation, statements relating to the implementation of strategic initiatives, and other statements relating to Company's future business developments and economic performance. While these forward looking statements indicate our assessment and future expectations concerning the development of our business, a number of risks, uncertainties and other unknown factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, general market, macroeconomic, governmental and regulatory trends, movements in currency exchange and interest rates, competitive brssures, technological developments, changes in the financial conditions of third parties dealing with us, legislative developments, and other key factors that could affect our business and financial performance. Company undertakes no obligation to publicly revise any forward looking statements to reflect future/likely events or circumstances.