MANAGEMENT DISCUSSION & ANALYSIS

Atlanta Limited is an integrated Infrastructure Development Company with focus on fast growing Transport Infrastructure sector which includes construction of Roads, Highways, Bridges and Runways as well as Realty sector. Atlanta's main activities include Engineering, Procurement, and Construction (EPC) and residential and commercial projects. Atlanta's operations in the field of mining of coal, lime stone etc. has been put on hold and can be resumed at opportune time. Atlanta's diversified and de-risked businesses with projects PAN India keeps it in good stead.

The Company plans to complete its Punjab DBFOT road project by October 2015, so that the tolling can start immediately thereafter. Further it plans to complete remaining stretch of its Nagpur project by October 2015, so that higher tariff shall be allowed to the Company.

INDUSTRY STRUCTURE, DEVELOPMENTS AND OUTLOOK

The newly elected Central Government has reiterated its focus on rapid and all round development of infrastructure, especially roads and highways which are the backbone providing logistics support to entire economy. The National Highways, with a length close to 71,000 kms are very important as even though these comprises only 1.7% of the road network (2nd largest in the world and comprises of 3.3 mn kms) but are carrying about 40% of the total road traffic. Easy availability, adaptability to individual needs and the cost savings are some of the factors which go in favour of road transport. The Ministry of Roads, Highways and Shipping is expected to come out with innovative schemes for BOT/DFBOT Road projects in the form of hybrid, annuity and OMT funding to ensure not only Public Private Partnership but also to ensure availability of very long term funds in line with the concession period of different projects. These and other measures are expected to ensure construction of roads at a daily average of 30 kms as against 3 kms brsently. The Ministry primarily follows the agency system to develop and maintain the National Highways. Besides the State Governments, the Border Road Organisation and National Highways Authority of India, an autonomous organisation under this Ministry, act as agencies of the Central Government. The Ministry has undertaken the National Highways Development Project which is being implemented in phases and envisages the improvement of more than about 54,500 kms of arterial routes of National Highways network to international standards. The prime focus on developing roads of international standards is on creating facilities for uninterrupted flow of traffic with enhanced safety features including better riding surface, better road geometry, better traffic management and noticeable signage, divided carriageways, service roads, grade separators, over bridges and underpasses, by passes and wayside amenities.

Roads constitute the most common mode of transportation and account for about 80 per cent of passenger traffic and around 65 per cent of the freight traffic in the country.

The Five- Year Plans have been highly beneficial for the sector in the country - the length of the national highways which was 21,378 kms during the late 1940s touched 71,772 kms by the end of the 11th Five- Year Plan (2007-2012).

India's roads and bridges infrastructure was valued at INR 41,544.90 Crores in 2009 and is expected to reach INR 115,603.20 Crores by 2017. The value of total roads and bridges infrastructure in the country is projected to grow at a CAGR of 17.4% over FY 2012 - 2017.

Total road network increased by a CAGR of approx. 4.3% during the period FY 2008-12, primarily led by the growth in urban and PWD roads whose length increased by a CAGR of approx. 11.1% and 4.3% respectively. Growth was lowest for state highways network, which grew by a CAGR of approx. 1.6% during the same period.

National highways network grew by a CAGR of approx. 3.6% during FY 2008-14.

Opportunities

India's planning commission has projected an investment of US$ 1 trillion for the infrastructure sector during the 12th Five Year Plan (2012-17), with 40 per cent of the funds coming from the private sector. Considering not so encouraging industry scenario and difficult situation in which a few prominent peers in the road sector are, it is likely to be challenging to raise and use this huge amount of funds. However, the global investors look forward to tap these opportunities for participating in the India Growth Story being scripted and executed by the newly elected Central Government. India's focus on infrastructure over the last decade made the country the second fastest growing economy in the world. India's constant growth gives investors a tremendous opportunity in the transportation. Also, large-scale infrastructure ventures such as the Delhi-Mumbai Industrial Corridor (DMIC) spanning 1483 kms between Delhi and Mumbai, on side of the Western Dedicated Freight Corridor as a global manufacturing and investment destination, in collaboration with Japan are likely to provide necessary capital, technology and the required impetus for igniting overall economic growth.

In NHDP program Phase I to VII, 15,123 kms of road projects are pending for Award. In other programs of road sector like various corridors, exbrssway, ring road etc, 39,000 kms is pending for completion. Year 2015 has seen a contraction in Govt ordering in road sector due to policy paralysis and lack of interest from private developers. The New government has taken initiative to give a big push in road sector and has already announced bidding for 76 projects covering 5,200 kms and amounting to Rs.75,000 Crs. Out of this projects worth Rs.37,000 Crs has already been awarded.

In order to motivate private players, the Govt has taken a number of initiatives, which are:

a) More than 1,50,000 Crs Road projects are lined up for bidding

b) Most of the projects are for EPC contract or Hybrid annuity, which has lower requirement of equity and assured income

c) Before Allotment of Letter of Award , more than 90% RoW shall be in place

d) Milestone linked payments

Many stretches of the National Highways are in need of capacity augmentation by way of widening, grade separation, construction of bypasses, bridges and exbrssways etc.

Another sector, which has gained increasing prominence, is the MRTS segment — with the Gol's spend on the sector expected to increase from 0.3% of its total infrastructure spend during the Tenth FYP to 2.2% in the Twelfth FYP.

The Company is well poised to be a part of emerging opportunities in the roads & highways sector, as well as to be a part of the vibrant real estate sector. It plans to build an order book of Rs.2,000 crs during the year 2015-16 and has already bidded for project worth Rs.3,000 crs so far. Huge number of project availability would ensure attractive returns on the project taken.

Another sector which the Company is focusing is OMT sector (Operate, Maintain and Transfer). This allows immediate collection of tolls with minimal investment and would help it to scale up its revenue income faster.

Government Initiatives

To enhance the flow of resources to the sector, the Reserve Bank of India (RBI) has allowed holding companies and core investment companies to raise resources through the External Commercial Borrowing (ECB) route. The Government is also contemplating introduction of innovative financing of road projects for ensuring matching of repayment period in line with the Concession period generating Toll Revenue in road projects.

The government is expected to modify policy, institutional and regulatory mechanisms including a set of fiscal and financial incentives to encourage increased private sector participation in road sector. In order to further augment flow of funds to the sector and to encourage private sector participation in the road sector, several initiatives have been taken by the Government which includes:

• Declaration of the road sector as an industry

• Provision of capital grants subsidy upto 40 per cent of project cost to enhance viability of the projects on case-to-case basis

• Duty-free import of certain identified high quality construction plants and equipments

• 100 per cent tax exemption in any consecutive 10 years within a period of 20 years after completion of construction of the roads provided the project involves addition of new lanes

• Provision of encumbrance-free site for work, i.e. the government shall meet all expenses relating to land and other br-construction activities

• Foreign direct investment upto 100 per cent in road sector

• Higher concession period (up to 30 years).

The FY13 targets set for most infrastructure sub-sectors were not achieved; in the roads sector NHAI was able to award just 15% of its targeted approx. 7,500 kilometres amid dwindling interest from private sector participants coupled with increasing difficulties in achieving financial closure; relatively less remunerative stretches in the offering and delays in environmental clearances and land acquisition.

However, the dismal state of project awards in the roads sector in FY13 has continued well into FY14 and FY15 especially in case of BOT-based projects given the challenges faced by developers in meeting equity infusion requirements coupled with increasing due-diligence by lenders and issues faced in terms of land acquisition and in securing clearances. NHAI expects to catalyze private sector interest in the roads sector by awarding projects on EPC basis wherein construction of the road is funded by NHAI but undertaken by the private sector participant without assuming traffic risks.

The Ministry of Road Transport, Highways and Shipping (MoRTH) had set a target of awarding about 6,000 kms of road length in FY15. Out of which, it planned to award about 50% through EPC route. The target has not been attained, given the continued impediments faced by the road sector. Delay in obtaining land, forest and environmental clearances, coupled with a slowdown in macro economic conditions continue to hit projects in the sector.

Following are the major support measures and policy initiatives taken by the Government for infrastructure development:

• Direct capital support through Gross Budgetary Support (GBS) and Additional Budgetary Support (ABS) and allocation of a portion of fuel cess to NHAI

• Assistance in availing loans from international lending agencies like Asian Development Bank (ADB) and World Bank.

• 100% Government funded EPC mode of road development in locations where PPP mode is unviable.

• Capital grants for PPP projects (BOT - Toll model) under NHDP (up to 40% capital grant)

• 100% tax exemption for five years and 30% relief for next 5 years for developers of national highways under PPP scheme in NHDP project.

• Proposal in the Union Budget FY 2014 to constitute a regulatory authority to address the challenges like financial stress, construction risk and contract management issues facing the sector.

• Government sponsored road development programs like "Pradhan Mantri Gram Sadak Yojana (PMGSY) to develop road connectivity in rural areas.

• Government will carry out all brparatory work including land acquisition and utility removal. Right of way (ROW) to be made available to concessionaires free from all encumbrances.

• NHAI / GOI to provide capital grant up to 40% of project cost to enhance viability on a case to case basis

• 100% tax exemption for 5 years and 30% relief for next 5 years, which may be availed of in 20 years.

• Concession period allowed up to 30 years

• Arbitration and Conciliation Act, 1996 based on UNICITRAL provisions.

• In BOT projects entrebrneur are allowed to collect and retain

tolls

• Duty free import of specified modern high capacity equipment for highway construction.

• Current Initiatives

• Approval of INR 40,000 Crores worth of highway projects by the road transport and highways ministry to be implemented in Jammu and Kashmir, Himachal Pradesh, Uttarakhand and the north-eastern region.

• Of the total INR 40,000 Crores, projects worth about INR 20,000 Crores are approved for Jammu & Kashmir which include two-laning and four-laning of national highways in the state, some road projects in Leh and Ladakh and projects worth INR 15,000 Crores in the northeast region comprising Assam, Manipur, Meghalaya, Mizoram, Arunachal Pradesh, Nagaland and Tripura.

• Government plan to set up INR 100,000 Crores Finance Corporation with 26% stake of the Japanese investors to fund projects in the road sectors.

Demand Factors

• Growth in vehicular traffic

While growth in industrial activity has led to an increase in the number of commercial vehicles, increase in disposable income and easy financing terms have helped in the growth of passenger vehicles in India.

• Population Growth and Urbanization

Increasing population and urbanization are major drivers of infrastructure development. India has been witnessing increasing population from 2001 onwards. The population of India is expected to reach 160 Crores by year 2050 from 121 Crores in 2011.

Also, India is experiencing increasing levels of urban population. Over 55% of the Indian population will be urban population by year 2050 and another 49.7 Crores will be added to its urban population between 2010 and 2050. The urban population is further expected to increase from 377 million in 2011 to 600 million in 2031, which implies increase of 200 million in over 20 years.

Thus, increasing population and urbanization over the years have led to tremendous brssure on land, civic infrastructure, transport, open spaces, etc. and the country's water resources.

Since, the current pace of urbanization is bound to accelerate due to the factors of rural-urban migration and in- situ population growth, the demand for affordable housing and urban infrastructure and services will also go up. By 2030, the country is expected to have 68 cities with over 0.1 Crores residents. This torrid rate of urbanization means that massive investment will be required in everything from metro systems to clean water supplies, power generation to affordable housing.

In the recent years, expansion and modernization of utilities has created a huge demand for better and robust infrastructure in India. The increasing demand for infrastructure in India is mainly on account of population growth, urbanization, burgeoning middle class, booming service sector, improved access to financing and increasing disposable income.

Although the investment in infrastructure has increased over the years, the country's existing infrastructure is unable to meet this increased demand. This demand supply gap was recognized in the 11th Five Year Plan as a major constraint for rapid growth and therefore the plan emphasized on the need for massive expansion on infrastructure investment based on a combination of public and private investment. The total investment in infrastructure, which includes roads, railways, ports, electricity and telecommunication, oil gas pipelines, and irrigation, is estimated to have increased from 5.7% of GDP in the base year of the Eleventh Plan to around 8% in the last year of the Plan. The pace of investment has been particularly buoyant in some sectors, notably telecommunication and oil and gas pipelines.

This infrastructure gap is also experienced by the transport sector. India's roads haul roughly two-thirds of its freight and 85% of passenger traffic. Only half of the country is paved. and less than a quarter of its national highways meet required standards. Thus, India being a fast developing country will have to spend trillions of rupees for modernization and expansion of infrastructure - water, electricity and transportation system in order to achieve developed nation's crown.

Thus long term growth potential of the Sector is Intact.

Risks and Concerns

Low traffic density: Relatively less attractive road projects were offered by NHAI, where traffic density to make adequate returns was lower.

Land acquisition: Inordinate delay in the acquisition of land in some states, mainly due to procedural formalities, court cases and lack of adequate co-operation from state governments pose a major risk to any road project. Delay in clearances: Many projects faced delays in getting environmental clearance and forest clearance, which discouraged players from bidding for new projects.

Problems with Bank funding: Banks are being more cautious as they are approaching the sectoral exposure limit towards roads. Moreover, they are trying to ensure land acquisition does not hinder the project progress and hence demand 80-100 per cent of the land is available with the developer at the time of sanctioning funds.

Limited financial flexibility: Players have limited financial flexibility to bag more BOT projects. The gearing level of many players is high due to - a sizeable portfolio of BOT projects.

Interest rates have ruled high for nearly three years, which have gone up from 8 to 8.5 per cent to 12 to 12.5 per cent. Owing to stricter norms being followed by the lenders, some of the projects' funding may be affected. This factor alone has thrown all calculations out for the developer. Some of the delays caused by regulatory issues have added to the woes.

Working Capital issues

Working capital cycles continue to be stretched on account of delays in the certification of works completed by companies. Higher debts for executing large order books and to fund working capital along with

high interest rates have led to further deterioration of credit metrics of the companies. With increasing working capital requirements and the resultant increase in leverage, the EPC players are left with limited opportunity to raise further capital to fuel growth in the current scenario.

Manpower Constraints

Growth in the supply of skilled and semi-skilled manpower in India has not kept pace with the growth of the infrastructure sector. Attracting and retaining skilled manpower is one of the key challenges for contractors. According to the industry, the construction sector employs nearly 340 lakh persons and creates an average demand of 32 lakh people who need to be trained, tested and certified. The industry needs to add around 10% of the manpower every year to sustain the growth momentum, which at brsent appears to be an overwhelming task. Training of human resources has also gained importance in view of the increasing complexity of projects. Along with skilled manpower, relationships with labour contractors and adherence to local labour laws are necessary for uninterrupted operations.

Green Construction

Green construction is the practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building's life-cycle, from siting to design, construction, operation, maintenance, renovation, and deconstruction. Green buildings also known as a sustainable or high performance building, use less water, optimizes energy efficiency, conserves natural resources, generates less waste and provides healthier spaces for occupants, as compared to a conventional building.

Three broad challenges infra companies face have been identified — policy paralysis, delays in receiving various clearances, financing issues such as high interest rates and poor liquidity, and fuel concerns for power projects.

Outlook on National Highways

As per the published reports, between 2013-14 to 2017-18, 20,640 kms of roads, at an average of 11.5 kms per day of roads is to be constructed / upgraded at an estimated cost of Rs.1,945 billion. National Highways investments are expected to grow 2 times over the next five years from Rs.274 billion in 2012-13 to Rs.535 billion in 2017-18. Most of the projects are likely to be awarded on EPC basis or a mix of BOT/ EPC/Annuity bases. Over the next five years, over of projects is to be awarded in National Highways (including MORTH and NHAI). Under NHDP, the total road length of more than 47,096 kms is planned for construction and upgradation. Out of the total, NHAI has completed the work on about 18,409 kms of road length. The work on about 12,673 kms of road length is under progress, which is about 27% of the total road projects planned under NHDP, while almost 34% of the road length is yet to be awarded. Under NHDP, GQ project is complete while almost 85% of the work on NS-EW corridor is complete. Going forward, the main focus will be on the completion of road projects under Phase III and Phase VI. Given the current subdued pace of project implementation and various concerns in the sector and the economy, the projected target of $1 trillion investment in 12th Plan in infrastructure appears to be difficult to achieve.

The BOT (build-operate-transfer) projects under the National Highways Authority of India have been tough for developers and most of them are now shying away from bidding for such projects and focussing only on EPC (engineering, procurement and construction) works.

Also, the recent judgment by the Subrme Court on delinking the environment clearance from the forest clearance may help in reducing delays in the project execution.

Real Estate

The Indian real estate market size is expected to exponentially grow and touch US4180 billion in value terms by 2020. The real estate sector in India has come a long way by becoming one of the fastest growing markets in the world. It is not only successfully attracting domestic real estate developers, but foreign investors as well. The growth of the industry is attributed mainly to a large population base, rising income level and rapid urbanisation.

The sector comprises of four sub-sectors - housing, retail, hospitality and commercial. While housing contributes to around five to six percent of the country's gross domestic product (GDP), the remaining three sub-sectors are also growing at a rapid pace, meeting the increasing infrastructural needs.

The real estate sector has transformed from being unorganised to a dynamic and organised sector over the past decade. Government policies have been instrumental in providing support after recognising the need for infrastructure development in order to ensure better standard of living for its citizens. In additions to this, adequate infrastructure forms a brrequisite for sustaining for the long-term growth momentum of the economy.

The real estate sector in India is being recognised as an infrastructure service that is driving the economic growth engine of the country.

Government Initiatives

For the purpose of increasing investment, generating economic activity, creating new employment opportunities and adding to the available housing stock and built-up infrastructure, etc., FDI upto 100 percent is allowed under the automatic route in townships, housing, infrastructure and construction developments projects to.

The Ministry of Housing & Urban Poverty Alleviations has planned to introduce a single window system for clearance of all real estate projects across the country. The system could bring down the average approval time from the current 196 days to 45-60 days.

Some of the initiatives taken in the union budget 2013-14 include following:

A sum of Rs.6000 crore funding approved to Rural Housing Board.

National Housing Bank plans to set up Urban Housing Fund Rs. 2000 crore.

Challenges

The key challenges that the Indian real estate industry has been facing are:

• Lack of clear land title.

• Absence of title insurance.

• Absence of industry status.

• Lackofadequatesourceoffinance.

• Shortage of labour.

• Rising manpower and material costs.

• Approvals and procedural difficulties.

The real estate industry in India is in a promising stage. The sector happens to be the second largest employer after agriculture and is expected to grow at the rate of 30% over the next decade. A growing migrant population due to increasing job opportunities, together with healthy infrastructure development, is underpinning demand in the region's residential real estate market.

With the government trying to introduce developer and buyer friendly policies, the outlook for real estate in the coming years does look promising.

Key Developments

Atlanta has leveraged the opportunities in the realty sector by prudently investing in land sites with clear land titles, close to its road projects sites and demonstrated success and expertise across diverse formats by executing commercial projects and residential projects in prime and emerging locations in Mumbai.

It is developing some projects on its own. The first one is on a parcel of land near its Mumbra project. It is coming up with a residential-cum-commercial project -"Atlanta Enclave". "Atlanta Enclave" is an upcoming residential project on a land parcel near its Mumbra project site with 633,000 sq ft of saleable area. A beautiful combination of a breath taking scenic view, aesthetics and modern amenities, spacious and well-designed complex of 936 apartments on 8 acres of green pollution free land. The project includes six towers of 20 + storey's each with superior 1 BHK & combination flats & 1 tower of 20 + storey with 2 BHK flats with excellent view and cross ventilation. A convenient shopping complex is also included. It is centrally located from Thane-Dombivli-Ghansoli (Mahape).

With a longstanding sectoral brsence in constructing and executing large projects, Atlanta may consider plans to build attractive properties in emerging Tier II and Tier III cities across the country.

The Company has over 1.1 million square feet of space under various stages of development. The focus has been on the development of brmium residential, commercial, integrated township and redevelopment of properties. Quality construction innovation, optimum use of space, comfortable surroundings, modern amenities and vastu are at the centre of its value proposition.

Atlanta, in joint venture (JV) with third-party developers, has executed various commercial and residential projects at fast developing locations across India.

"Olympic Lifestyles" is an upcoming residential project admeasuring more than 5 lacs sq. ft. at Jodhpur. Amidst all the old world charm and culture, is a modern sanctuary, interweaving the grandeur of a begotten time with a contemporary way of life, the first soaring skyscraper 15-storeys tall in Jodhpur. A JV project with Atlanta Limited having 60% stake.

Future Outlook

Although, the Indian construction industry has seen rising investments over the years, the demand for quality infrastructure still exceeds the supply. This increasing demand is mainly emanating from the housing, transportation and urban development segments. As the population, urbanization, agricultural activity and industrialization continue to expand, the demand for infrastructure will keep rising and hence it is estimated that the industry will grow from INR 2,865,816 Crores to INR 5,391,629 Crores with a CAGR of 15.45%. Although, the short term prospects of this industry might seem less than satisfactory, in the long run the sector is expected to register a positive growth and become the third largest construction market in the world by 2025 adding 1.15 Crores homes a year.

Development of the infrastructure sector is crucial to the growth of the Indian economy and hence Indian government, over the years has made attempts to reduce the bottlenecks faced by this sector. Realizing that infrastructure development is imperative for the growth of the economy, the Indian government has increased its spending on infrastructure over the years and also encouraged private participation in the sector through PPPs and other policy measures. The government has set a target of investing INR 5,146,427 Crores as per the 2011-12 prices, for the development of the sector, higher than the brvious five year plan.