GAMMON INDIA LIMITED

during summer months and during the monsoon season, each of which may restrict our ability to carry on
construction activities and fully utilize our resources. During periods of curtailed activity due to adverse
weather conditions, we may continue to incur overhead expenses, but our revenues from operations may be
delayed or reduced.
Competition. Our results of operations could be affected by competition in the civil engineering and
construction sector in India in the future. We expect competition to intensify due to possible new entrants in
the market, existing competitors further expanding their operations and our entry into new markets where
we may compete with well-established construction companies. We believe that new competitors may
adversely affect our financial condition and operations. However, we are not affected by competition in the
short-term due to our arrangements under our concession and licence agreements.
Our bidding and execution capability. Civil engineering and construction development for large projects in
India involves pre-qualifying interested companies based on their technical and financial strengths. The
nature of the Government‘s process is such that the pre-qualifications obtained in the past play an important
role in allowing companies to bid for the new projects. Also, project management capability (including our
management of sub-contractors' performance) affects our profitability. Additionally, a large number of
infrastructure projects by the Government and government agencies are being tendered on a BOT and
BOOT basis. These types of projects typically require the contractor or construction company to invest in
building the project and maintaining the project for a specified period of time while allowing the contractor
to obtain a toll fee, annuity or grant based consideration, which does not begin to accrue until the project
achieves commercial operation. As a result, these projects have greater capital needs that increase our
finance costs. Further, the ability to strategically partner with other strategic players may also determine the
success in award of projects for which we bid.
Cost management. Our project costs mainly comprise costs of construction related materials, such as steel,
cement, bitumen, oils and lubricants and other mechanical items. Increases in the prices of these
commodities during the execution of our projects may adversely affect the profitability of our contracts,
where such increases are not covered by suitable cost escalation clauses. Our ability to undertake
construction projects in a cost effective manner, our ability to accurately estimate the cost of fixed-price
projects, business development costs in periods where we are looking for new contracts and fluctuations in
the price of labor and property, plant and equipment affect our results of operations.
Availability of cost effective funding sources. Our ability to grow in the infrastructure sectors depends
largely on cost effective avenues of funding, which will be primarily met through debt/loan borrowing from
external sources. Our debt service costs as well as our overall cost of funds depends on many external
factors, including developments in the Indian credit markets and, in particular, interest rate movements and
the existence of adequate liquidity in the debt markets. With the growth of our operations we have had to
increasingly access commercial borrowings and we have benefited in the past due to lower interest rates on
our borrowings. We believe that going forward the availability of cost effective funding sources could affect
our business operations and financial performance.
Availability of labor. We are heavily dependant on highly trained engineers and other skilled labor. We
have generally been successful in recruiting the talent we need in India. However, many factors could make
it more difficult, or more expensive, for us to recruit and retain the personnel we need, particularly as we
grow our business. Any inability to attract and retain suitable skilled personnel could affect both our
profitability and our ability to expand our operations.
Tax benefits and incentives. Our project SPVs are eligible for certain tax benefits and incentives that accord
favorable treatment to infrastructure-related activities. In the future, we believe that any change in the
existing tax benefits and incentives may affect our financial condition.
Significant Accounting Policies
Our consolidated financial statements comprise the financial statements of our Company and our
subsidiaries, associates and joint ventures in the form of jointly controlled entities. The consolidated
financial statements have been prepared using uniform policies for like transactions and other events in
similar circumstances.
Principles of consolidation
38