Management Discussion and Analysis Dear Members, Going in line with the economic trend and heading North on financial parameters calls for a different kind of mindset. And this was successfully accomplished by Your Company if the figures are of any indication to go by. The Directors are pleased to brsent the 16th Annual Report on the business and operations of Your Company with the audited financial statements and the auditors' report thereon for the financial year ended March 31, 2015. World Economic View Its a cliched Catch-22 situation while on one hand the high-income countries are grappling with legacies of global financial crisis, the emerging economies are no longer as dynamic as they were. The World GDP, after rising marginally in 2014 to 2.6 percent, is now estimated to grow to 3.0 percent in 2015 and 3.3 percent in 2016, supported by gradual recovery in high-income countries, low oil prices, and receding domestic headwinds in developing countries. Developing economies are expected to see an increase in growth from 4.4 percent in 2014 to 4.8 percent and 5.3 percent in 2015 and 2016, respectively. Indian Economy Moody's expect India's economy to grow at 7.5% in 2015 as against 7.2 per cent in 2014 and interest rate cuts may buttress private sector spending. International Monetary Fund projected that India will overtake China as the fastest growing emerging economy in 2015-16 by clocking a growth rate of 7.5 per cent, helpedby its recentpolicy initiatives, pick-up in investments and lower oil prices. Infrastructure Industry The Planning Commission has set an investment target of $1 trillion for infrastructure during the 12b Plan (2012-17). India has one of the largest road networks of over 48.65 lakh km, comprising exbrssways, national highways, state highways, major district roads, other district roads, and village Roads. The Government has approved a scheme for development of 1,126 km of national highways and 4,351 km of state roads in left-wing extremism (LWE) affected areas as a special projectwith an estimated cost of about Rs. 7,300 crores. The government stepped in and took various initiatives to restore market confidence. To ensure that project execution does not suffer owing to cash flow constraints, rescheduling of brmium payment in BOT projects has been granted, to be available to concessionaires experiencing subsistence revenue shortfall. Dividend: Your Directors are pleased to inform that for the year under review, a dividend ofRs. 4.00/- per equity share of Rs.10/- each fully paid up (revious year Rs.3.50/- per equity share of Rs. 10/- each fully paid up), is being recommended for the financial year ended31aMarch, 2015. Operational areas Transport Engineering This is the dominant segment in the company's order book which has historically provided more than 80% of the work. It comprises roads, bridges, flyovers, subways, over bridges,skywalks, railway terminus/stations etc. The company designs and constructs these projects as per client's specifications on turnkey basis. The Company has bagged orders worth Rs. 1223.87 Crores in transport engineering vertical during FY 2014-15. Civil Construction JKIL's offerings in this segment is for commercial buildings. It includes office/commercial buildings, sports complexes, swimming pools etc. Irrigation In this segment, the company builds dams, canals, aqueducts & irrigation tanks, spillways etc. Piling JKIL entered this segment in FY06 by acquiring hydraulic piling rigs. Currently, it has 22 such rigs which are used to build pile foundations for buildings and flyovers, marine structures, offshore platforms etc. This segment caters to major real estate and infrastructure companies. Growth Drivers: The Indian Government is taking every possible initiative to boost the infrastructure sector. Towards this end, the Government has relaxed rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement and liberalized the exit norms. The Cabinet has also approved the proposal to amend the FDI policy. Infrastructure is highly responsible for propelling India's overall development hence it enjoys intense focus from the top officials of the Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. This sector includes power, bridges, dams, roads and urban infrastructure development. In order to create a healthy platform for Infrastructure, both India and the US have signed a memorandum of understanding (MoU) in order to facilitate US industry's participation in Indian infrastructure projects to improve the bilateral commercial relationship and benefit both the Participants' economies. The MoU's scope envisages efforts in the areas of Urban Development, Commerce and Industry, Railways, Road Transport and Highways, Micro Small and Medium Enterprises, Power, New & Renewable Energy, Information and Broadcasting, Communications & Information Technology, Water Resources, River Development and Ganga Rejuvenation. • Order Flow Leading to Effective Cash Flows The work orders for underground works corridor of Delhi MRTS Project of Phase III on Mukundpur-Yamuna Vihar - design and construction of tunnels, stations and ramp between Lalpat Nagar and Hazrat Nizamuddin stations and at Naraina Vihar, Mayapuri and Delhi Cantonment - amounting to Rs. 1387 crs has kick started. It has also concluded elevated station projects - on Jahangir Puri- Badli corridor of Delhi MRTS Ph-II project and Rohni Sector 18 & Badi Corridor of Delhi MRTS Phase III project. The company's order inflows have gained traction in last few quarters: bagged orders worth Rs. 1223.87 crs so far this fiscal, a huge pile up when compared to last fiscal's Rs. 650 crs. Some of its major orders include the construction of elevated connector between BKC and Eastern Exbrss Highway, Mumbai (value Rs. 155.7 crs), building new creek bridge between Thane and Kalwa worth Rs. 90 crs and construction of elevated viaduct from Vastral Gam to Apparel Park worth Rs. 278 crs from MEGA, Ahmedabad. • Prestigious Projects - Mumbai Metro Project The Company is gearing up to submit financial bids for Mumbai Metro Line III. Of the total seven packages, which involves civil construction of 26 underground metro stations, worth Rs. 15000-20000 crs, the company already participated in bidding and submitted bids for six packages out of seven. Thanks to its technical tie up with China Railway Third Group. It expects orders worth at least Rs. 2000 crs from this metro project , which would more than double its total order inflows next year to around Rs. 3000 crs; management estimate: Rs. 4000-5000 crs. Due to proliferation of metro orders in Mumbai (line II & IV), Delhi (Phase IV), Ahmedabad and Nagpur; tenders for Phase IV of Mumbai and Delhi are expected to be floated in a year's time from now. No less worth mentioning are gut-wrenching plans of Mumbai Municipal Corporation to build coastal roads and the Mumbai Trans Harbour Link. This would keep the company broccupied for the next couple of years. • Financially Healthy Your company is among the few infrastructure companies with healthy financial ratios be it the Return on Capital Employed, Return on Equity, Book-Value or even the Debt to Equity ratios. Some of the decisions that the company has undertaken like bidding only for EPC projects and abstaining from BOT projects and sub-contracting jobs has helped the company to post good earnings. Risk Management: Your Company has a system-based approach to business risk management. Backed by strong internal control systems, the current risk management framework consists of the following elements: The Corporate Governance Policy clearly lays down the roles and responsibilities of the various entities in relation to risk management. A range of responsibilities, from the strategic to the operational, is specified in the Governance Policy. These roles are aimed at ensuring formulation of appropriate risk management policies and procedures, their effective implementation and independent monitoring and reporting by Internal Audit. The Corporate Risk Management Cell works with the businesses to establish and monitor the specific profiles including both strategic risks and operational risks. The process includes the prioritization of risks, selection of appropriate mitigation strategies and periodic reviews of the progress on the management of risks. A combination of centrally issued policies and divisionally-evolved procedures brings robustness to the process of ensuring business risks are effectively addressed. Going Forward: The construction equipment industry's revenues are estimated to reach US$ 22.7 billion by 2020. With the country's rapid urbanization and an ever-increasing middle class, the need for sound infrastructure is paramount. The demand for construction equipment in India is expected to grow to US$ 9.9 billion by 2015, at a compound annual growth rate (CAGR) of 24.1 per cent (from 2011). Increased impetus to develop infrastructure in the country is attracting the major global players. There were cumulative foreign direct investment (FDI) inflows of US$ 209.40 million in earth-moving machinery during the period April 2000-March 2014. About 590 million people ( 377 million in 2011) will reside in cities by 2030, and could have a direct bearing on 70 per cent of the country's gross domestic product (GDP), as per a McKinsey report. Research from the Economist Intelligence Unit expects that infrastructure spending and the growth of the country's lower middle class will prop GDP growth over the coming years, achieving 4.5 percent in 2014 and 5.7 percent by 2017. Cautionary Statement Statements in this management discussion and Analysis describing the Company's objective, projection, estimates and expectations may be forward looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those exbrssed or implied. Important developments that could affect the Company's operations include a downtrend in the infrastructure sector, significant changes in political and economic environment in India Exchange rate fluctuations, tax laws, litigation, labour relations and interest cost. |