Afcon Book.indd - Afcons Infrastructure Ltd.

AFCONS INFRASTRUCTURE LIMITEDMANAGEMENT DISCUSSION AND ANALYSISEconomic OverviewThe fiscal year 2009-10 began as a difficult one. There had been a significant slowdown in the growth rate in the second half of 2008-09following the global financial crisis that began in 2007 and spread to the real economy across the world. The Indian economy, however, washit in the latter part of the global recession and the real economic growth witnessed a sharp fall, followed by lower exports, lower capitaloutflow and corporate restructuring. Yet, over the span of the year, the Indian economy posted a remarkable recovery, not only in terms ofoverall growth figures but, more importantly, in terms of certain fundamentals, which justify optimism for the Indian economy in the medium to longterm. The real turnaround came in the second quarter of 2009-10 when the economy grew by 7.9%. As per the advance estimates of GDP for2009-10, released by the Central Statistical Organisation (CSO), the economy is expected to grow at 7.2% in 2009-10, with the industrial and servicesectors growing at 8.2% and 8.7% respectively.In tandem with the turnaround in overall industrial growth, core industries and infrastructure services have also evinced signs of recovery witheasing of supply bottlenecks in certain sectors and demand recovery in others. India’s gross domestic product (GDP) grew by 6% during Octoberto December 2009, over the corresponding quarter of the previous year, as per data released by the CSO.Six core infrastructure industries grew at 4.5 % in February 2010 against 1.9 % during the corresponding month last year, primarily due toincreased output in electricity. The six infrastructure sectors-crude, petroleum refinery products, coal, electricity, cement and finishedsteel-that constitute 26.68 % in IIP, recorded a growth of 5.3 % in the period April-February 2009-10, as against 2.9% in the same period last year.In order to sustain economic growth during the time of the worst recession, the government authorities in India have announced thestimulus packages to prop up economic growth. It is expected that the global economies will continue to sustain in the short-term, as theeffect of stimulus programs is yet to bear fruit.Industry Structure and DevelopmentThe Construction industry is an integral part of the Indian economy and accounts for significant share of the GDP. It is also one of the largestemployers of skilled and unskilled labour force in the country and is characterized by mix of both organized and unorganized entities.Provision of quality infrastructure is a crucial pre requisite for sustainable growth of the economy. The fast growth of the Indian economyhas placed increasing stress on physical infrastructure which suffers from substantial deficits in terms of capacities and efficiencies in theirdelivery. The pattern of inclusive growth of the economy projected for the Eleventh Plan, with GDP growth averaging 9% per year can be achievedonly if this infrastructure deficit can be overcome and adequate investment takes place to support higher growth and an improved quality of lifefor both urban and rural communities. While there has been some improvement in infrastructure development in the recent years there are stillsignificant gaps that need to be bridged.To revive economic growth, the government has put strong impetus on infrastructure development in the current budget. It has made provision ofRs.1,73,552 crores for Infrastructure development. The Government has raised the allocation for road transport by over 13% to Rs.19,894 croresand Railway by over 6% to Rs.16,752 crores.The Government has also introduced various policies and schemes like Viability Gap Funding (VGF), setting up of an Infrastructure SPV i.e. IndiaInfrastructure Finance Company, Bharat Nirman Programme, National Urban Renewal Mission, Committee on Infrastructure to strengthen theIndian infrastructure sector .It has also increased its budgetary allocation to the aforesaid scheme and policies to further boost the Infrastructuredevelopment of the Country.The Government has been actively encouraging private investment in Infrastructure through Public Private Partnership to meet the massiveInfrastructure funding requirement.With the huge investment proposed in Infrastructure sector in the Eleventh plan period (2007-2012) coupled with the government initiative, thegrowth of infrastructure development in India in the near terms looks very promising. Your Company is well poised to participate in this opportunity.Business OverviewDuring the year under review, the Company has bagged a prestigious order worth Rs.1,45,800 Lacs from the Border Roads Organization forconstructing 8.8 KM long B1-Directional traffic dual lane single bore Highway Tunnel at Rohtang Pass, for providing all weather connectivitybetween Manali and Leh and Ladakh for defence forces. This longest tunnel, is being built in Joint Venture with Strabag AG, Austria.TheCompany’s share of work is equivalent to Rs.58,300 Lacs.The Company in Joint Venture with Transtonnelstroy Ltd.,Russia has bagged order worth Rs.93,795 Lacs from Kolkata Metro Rail Corporation Ltdfor the work of constructing 2 crucial transportation tunnel 20 meters below the Hooghly riverbed along with construction of 3 underground stations.The project is part of the Rs.4,87,458 Lacs East West Metro Corridor Project.The Company has made a significant entry in the Kingdom of Jordan by bagging the project Construction of New Phosphate Rock Terminal inSouth Port of Aquaba, Jordan for Jordan Phosphate Mines Co. PLC. for (JD142.230 million) equivalent to Rs.91,155 Lacs.In September 2009, the Company has received mandate from Konkan Railway Corporation Ltd. to resume work on some locations of theprestigious project of constructing special bridge across river Chenab on the Katra–Laole Section of Jammu and Kashmir .The project wasawarded to the Company in 2004 and the works were subsequently suspended in 2008 by Indian Railway Board as the plans for the bridge couldnot be finalized in view of the treacherous geological conditions and alignment issues.Your Company has also bagged several other orders in various segments of construction business i.e. Marine works, Bridges, Civil works both inIndia and abroad.The present order book position of the Company as on 31 st March, 2010 is Rs.5,75,378 Lacs. Presently the share of the overseas contract is over24% of the order book.The growth has been well diversified across different segments and geographies on the desired line and focus. All the segments are wellbalanced and there is no over dependence on any one sector or geography and we remain present in all segments with a reasonable significantparticipation.Consolidated Financial PerformanceYour Company has achieved total income of Rs.2,32,257 Lacs for the year compared to the previous year’s Rs.2,17,422 Lacs showing anincrease of over 7%.The Consolidated Profit before Tax for the year was Rs.12,656 Lacs compared to Rs.8,716 Lacs in the previous year resultingin increase by 45%.The Consolidated Profit after Tax for the year was Rs.9,748 Lacs compared to Rs.6,019 Lacs in the previous year resulting inincrease by 62%.5