MANAGEMENT DISCUSSION AND ANALYSIS Max Heights Infrastructure Limited (also referred to as 'Max' or 'the Company') a growing real estate company is under the management control of the promoters having a rich experience in real estate sector and the promoters had proudly completed and delivered a number of projects in recent past. Various internal and external factors had resulted in the challenging and complex operating environment for the Company. The financial statements have been brpared in compliance with the requirements of the Companies Act, 2013, guidelines issued by the Securities and Exchange Board of India (SEBI) and the Generally Accepted Accounting Principles (GAAP) in India. Our Management accepts responsibility for the integrity and objectivity of these financial statements, as well as for the various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably brsent our state of affairs, profits and cash flows for the year. I. OVERVIEWOFTHEECONOMY The Indian economy has been reporting a growth of less than 5% for the past two financial years. India's GDP growth was 4.5% and 4.7% in FY12-13 and FY13-14, respectively. However since the start of FY14-15, business and investor sentiments have been positive which coincided with the new government assuming power at the Centre. According to Indian Finance Ministry, the annual growth rate of the Indian economy is projected to have increased to 7.4% in 2014-15 as compared to 6.9% in the fiscal year 2013-14. Capital formation has been a major problem for the economy with a slowdown in investment by both the private sector and government. The gross fixed capital formation (GFCF) rate at current prices has come down continuously from 33.6% in FY11-12 to 28.6% in FY14-15. It is expected that with a revival in demand and the stalled projects getting back on-stream, the GFCF rate would improve significantly in FY15-16. II. INDUSTRYSTRUCTUREANDDEVELOPMENTS Real estate is a critical sector for India's economy due to its large potential for employment generation, capital attraction and revenue generation for the Government. It is one of the fastest growing sectors contributing about 6 percent to India's GDP. After witnessing fluctuating business cycles in the last decade, the real estate sector witnessed a slowdown in FY14-15 due to moderate end user demand, rising inventory and high finance costs. However, despite adverse sector dynamics, prices were resilient in most cities and have dropped only in select micro markets. III. OPPORTUNITIESANDTHREATS The Indian real estate sector has come a long way and is today one of the fastest growing markets in the world. It comprises four sub-sectors - housing, retail, hospitality, and commercial. While housing contributes to five-six percent of India's gross domestic product (GDP), the remaining three sub-sectors are also increasing at a fast pace. Real estate business has boomed in India over the past few decades. Despite the recession and credit crunch periods, no severe effects have been seen in this sector of business. The real estate trade has always been all time profitable one in the nation. India being one of the densely populated nations in the world and a rapidly developing country with various foreign industries and investments coming at regular intervals, the business for real estate has become extremely successful. Your Company expects demand from the mid income residential segment to remain strong as we believe there is significant demand in this category across the country. Increasing disposable incomes, rapid urbanization, and strong demographics are some of the trends favouring the mid-income residential market. Unfavorable changes in government policies and the regulatory environment can adversely impact the performance of the sector. There are substantial procedural delays with regards to land acquisition, land use, project launches and construction approvals. Retrospective policy changes and regulatory bottlenecks may impact profitability and affect the attractiveness of the sector and companies operating within the sector. The real estate market is inherently a cyclical market and is affected by macroeconomic conditions, changes in applicable governmental schemes, changes in supply and demand for projects, availability of consumer financing and illiquidity. RESIDENTIALREALESTATE The residential real estate sector in India witnessed moderation in sales, absorption and new launches. Residential property prices have breached affordability limits in various metropolitan cities and certain emerging locations near urban cities. Demand for urban housing will scale up by nearly twelve million units by 2017 and around 23% of this total demand would be generated from the top 8 cities. The increase in demand will certainly prove to be a boost to the residential segment. Nevertheless, developers will have to factor in the ground realities of the business while debating the lowering of prices. Obtaining the permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for a project rises. Builders are already beset with the increased costs of license and cost of construction. Prices remained largely sideways across markets with the exception of few micro markets in NCR which witnessed some correction. Despite the subdued performance in recent years, India's demographics and urbanization trends brsent an optimistic future for the residential market. Demand is expected to revive given the reduction in interest rates and higher GDP growth. COMMERCIALREALESTATE Against the current economic and political backdrop, demand for commercial real estate is likely to remain subdued in the medium term. Corporate are expected to continue their focus on optimal space utilization and cost cutting measures and transaction activity is expected to be mainly restricted to take up of small and medium sized space. Supply backlogs are likely to exert brssure on rental and capital values as well. Overall vacancy is likely to gradually reduce over CY15- 17, owing to limited launches of new office space. Corporate entities have already begun rolling out their expansion plans due to an improvement in business fundamentals. The anticipated revival of the economy is expected to be a key trigger for the segment. Given that the market has seen an oversupply in the last few years, the gap between demand and supply is likely to shorten, leading to a further increase in rentals. RETAILREALESTATE The real estate and construction sectors are playing a crucial role in the overall development of India's core Infrastructure. The real estate industry's growth is linked to developments in the retail, hospitality and entertainment (hotels, resorts, cinema theatres) industries, economic services (hospitals, schools) and information technology (IT)-enabled services (like call centres) etc. and vice versa. In the past few years, India's organised retail industry has posted high growth rates, given improvement in key driving factors namely, lavish lifestyles, high disposable incomes and a propensity to spend. Keeping in step with growth in the organised retail market, the retail real estate market recorded an increase in demand. Cashing in on the retail real estate market boom, developers in most cities announced new malls, which indicated a large amount of supply coming up in 2008. This, in turn, created an excess supply in the existent weak demand scenario, a resultant of the economic slowdown. The supply of organised retail real estate, which was mainly concentrated in Tier I cities until a few years back, sbrad to Tier II and Tier III cities as well. Some of the major challenges that the real estate industry in the country is facing today are deficiency of proper industry status, Absence of Title insurance, Lack of land titles that are clear, Not having enough financial sources, Scarcity of laborer, Increasing cost of material and manpower, difficulties in getting approval for different procedures involved. The year 2015 is expected to see a lot of action on the retail front due to the possible entry of multi-brand retailers. The growth is expected to set in from the second half of 2015 when an increase in leasing activities both on account of entry of new companies into the country, expansion of existing companies and indeed relocation and consolidation activities that are expected to continue. IV. OUTLOOK The headwinds facing the Indian economy over the past couple of years are quickly abating. A combination of beneficial turns in commodity and interest rates cycles, a favourable policy environment and an improved consumer and investor sentiment is likely to lead to a far improved demand environment. V. RISKS & CONCERNS The Company is exposed to different types of risks such as credit risk, market risk (including liquidity risk, interest rate risk), operational risk and legal risk. The Company monitors credit and market risks, as well as portfolio and operational risk through the oversight of senior management personnel in each of its business segments. Legal risk is subject to the review of the Company's legal department and external advisers. The Company is exposed to specific risks in connection with the management of investments and the environment within which it operates. The Company aims to understand, measure and monitor the various risks to which it is exposed and to ensure that it adheres, as far as reasonably and practically possible, to the policies and procedures established by it to mitigate these risks. VI. INTERNALCONTROLSYSTEMSANDTHEIRADEQUACY Max has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition, and to ensure that all transactions are authorised, recorded and reported correctly and adequately. The Company's internal controls are supplemented by an extensive programme of internal audits, review by management and documented policies, guidelines and procedures. The internal control is 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. VII. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE OF MAX HEIGHTSINFRASTRUCTURE LIMITED Operations & Financial Review (Standalone) The company has been engaged in the business of real estate and making all the effort to explore and excel in the real estate market. The salient features of the performance are: • The total revenue has considerably increase from Rs. 3,55,27,204.87/- in 2013-14 to Rs. 4,62,95,344.00/- in 201415. • The expenses of the Company have increased from Rs.2,97,71,744.40/- in 2013-2014 to Rs.3,98,28,653.48/- in 2014-2015 in order to generate higher revenue for the Company. • TheCompanyhasearnedaprofitofRs.47,79,178.52/-duringtheyear2014-2015. • The Earningper Share(EPS)for2014-15was0.31against0.28in2013-2014. VIII. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED. Human resource continues to be the backbone of Max's business. The Company lays strong emphasis on attracting and retaining the best talent. Personal developmental initiatives including training, both technical and managerial, are regularly conducted to enhance human potential. CAUTIONARYSTATEMENT Statements in this Management Discussion and Analysis describing the company's objectives, projections, 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 real estate sector, significant changes in political and economic environment in India or key financial markets abroad, tax laws, litigation, labour relations, exchange rate fluctuations, interest and other costs. For & on behalf of Board of Directors For Max Heights Infrastructure Limited Sd/- Satish Chander Narang Chairman DIN:00095693 Regd. Off.: SD-65, Pitampura, New Delhi - 110034 Sd/- Naveen Narang Managing Director & CFO DIN:00095708 Regd. Off.: SD-65, Pitampura, New Delhi - 110034 Date: 14th August, 2015 Place: New Delhi |