GENERAL CONVENTIONAL TERMS Term
_____________________________________________________________________________________________ TABLE OF CONTENTS
SECTION I – GENERAL ...................................................................................................................................................... iii
DEFINITIONS AND ABBREVIATIONS ........................................................................................................................ iii PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA ............................................................................................................................................................................... vii FORWARD LOOKING STATEMENTS ....................................................................................................................... viii
SECTION II –RISK FACTORS ............................................................................................................................................ ix
SECTION III – INTRODUCTION ...................................................................................................................................... 18
SUMMARY OF INDUSTRY AND BUSINESS ............................................................................................................. 18 THE ISSUE ...................................................................................................................................................................... 24 SELECTED FINANCIAL STATEMENTS ..................................................................................................................... 25 GENERAL INFORMATION ........................................................................................................................................... 29 CAPITAL STRUCTURE ................................................................................................................................................. 35 OBJECTS OF THE ISSUE ............................................................................................................................................... 41 BASIS FOR ISSUE PRICE .............................................................................................................................................. 46 STATEMENT OF TAX BENEFITS ................................................................................................................................ 48
SECTION IV – ABOUT US .................................................................................................................................................. 57
INDUSTRY OVERVIEW ................................................................................................................................................ 57 OUR BUSINESS .............................................................................................................................................................. 65 KEY INDUSTRY REGULATIONS AND POLICIES .................................................................................................... 74 HISTORY AND OTHER CORPORATE MATTERS ..................................................................................................... 81 OUR MANAGEMENT .................................................................................................................................................... 85 OUR PROMOTER ........................................................................................................................................................... 96 OUR PROMOTER GROUP ............................................................................................................................................. 99 OUR GROUP COMPANIES ......................................................................................................................................... 100 DIVIDEND POLICY ..................................................................................................................................................... 106 RELATED PARTY TRANSACTIONS ......................................................................................................................... 107
SECTION V – FINANCIAL INFORMATION ................................................................................................................. 108
FINANCIAL STATEMENTS ........................................................................................................................................ 108 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................................................................................... 124
SECTION VI – LEGAL AND OTHER INFORMATION ............................................................................................... 131
OUTSTANDING LITIGATIONS AND MATERIAL DEVELOPMENTS .................................................................. 131 GOVERNMENT AND STATUTORY APPROVALS .................................................................................................. 133 OTHER REGULATORY AND STATUTORY DISCLOSURES ................................................................................. 135 STOCK MARKET DATA FOR THE EQUITY SHARES OF OUR COMPANY ........................................................ 143
SECTION VII – ISSUE RELATED INFORMATION .................................................................................................... 144
TERMS OF THE ISSUE ................................................................................................................................................ 144
SECTION VIII – MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION .................................................... 172
MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION ................................................................................. 172
SECTION IX - OTHER INFORMATION ........................................................................................................................ 183
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ....................................................................... 183 DECLARATION ............................................................................................................................................................ 185
______________________________________________________________________________________________
Board of Directors / Board/ Directors
The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, and any amendments thereto SEBI Insider Trading Regulations Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations,
Securities Act The United States Securities Act of 1933 as amended from time to time SEBI Act The Securities and Exchange Board of India Act, 1992, as amended from time to time SEBI Regulations / SEBI (ICDR) Regulations 2009
floor, CPWD Building, Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500195, Andhra Pradesh, India
nd
Regulations, 2000, as amended from time to time RBI Act The Reserve Bank of India Act, 1934, as amended from time to time Registered Office CPR Brundavan, flat number 401, near Nectar Garden, Hyderabad – 500 081, India Registrar of Companies / RoC Registrar of Companies, Andhra Pradesh, 2
The Memorandum of Association of our Company Non Resident A “person resident outside India”, as defined under FEMA including FIIs Non-Resident Indian A “person resident outside India”, as defined under FEMA and who is a citizen of India or is a person of Indian origin as defined under the Foreign Exchange Management (Deposit)
I.T. Act / IT Act The Income Tax Act, 1961, as amended from time to time Memorandum / Memorandum of Association
(Depositories and Participant) Regulations, 1996, as amended from time to time Depository Participant A depository participant as defined under the Depositories Act Director(s) Director(s) of our Company unless otherwise specified EPS Earnings Per Share FEMA Foreign Exchange Management Act, 1999, as amended from time to time, and the rules and regulations framed there under Financial Year / Fiscal Year / FY The period of twelve months ended March 31 of that particular year, unless specifically otherwise stated Indian GAAP Generally Accepted Accounting Principles in India
Depositories Act The Depositories Act, 1996, as amended from time to time Depository A depository registered with SEBI under the Securities and Exchange Board of India
Srinivasa Raju), Mr. Samanthapudi Krishna Kanth Varma (S. Krishna Kant Varma), Mr. Mr. Mudunuri Veera Venkata Ramana Varma and Ms. Swapna Chaparala or a duly constituted committee thereof.
The Board of Directors of our Company Mr. M. Srinivasa Reddy (M. Srinivasa Reddy), Ms. Priyanka Palacharla (P. Priyanka), Mr. Kamala Kumar Pothapragada (P. Kamala Kumar), Mr. Koti Reddy Somala (S. Koti Reddy), Mr. Indukuri Srinivasa Raju (I.
reviewed Auditor) The peer review certified auditor of our Company, being M/s. K. Prahlada Rao & Co.
SECTION I – GENERAL
DEFINITIONS AND ABBREVIATIONS
Auditor – Peer Reviewed (Peer
The statutory auditor of our Company, being Mr. S. Kishore Kumar, Chartered Accountant
our Company)
Act The Companies Act, 1956, as amended from time to time Articles / Articles of Association The Articles of Association of our Company Auditors (Statutory Auditors of
GENERAL / CONVENTIONAL TERMS Term Description
Mr. M. Malla Reddy, Ms. K. Vijayalakshmi, Ms. S. Malleswari, Ms. M. Kanaka Prudhvi Reddy, Mr. Subba Reddy, Mr. K. V. Rajashekhar Reddy, Ms. K. Shravani Reddy, Ms. K. Vijayalakshmi, and Farmax India Limited
Promoter Mr. M. Srinivasa Reddy Promoter Group Mr. M. Venki Reddy, Ms. M. Mangama, Ms. M. Padmavathi, Mr. M. Krishna Reddy,
Remidicherla Infra & Power Limited having its registered office at Remidicherla House, CPR Brundavan, flat number 401, near Nectar Garden, Hyderabad – 500 081, India
“our Company”, “the Company”, “the Issuer Company”, “the Issuer”, “we”, “us”, and “our”
Term Description
In the Draft Letter of offer, unless the context otherwise requires, the terms defined and abbreviations expanded herein below shall have the same meaning as stated in this Section.
1992, as amended from time to time, including instructions and clarifications issued by
_____________________________________________________________________________________________ Term Description
Consolidated Certificate In case of holding Equity Shares in physical form, the Company would issue one certificate for the Equity Shares allotted to one folio Controlling Branches Such branches of the SCSBs which coordinate applications under the Issue by the ASBA
BUSINESS / INDUSTRY RELATED TERMS AND ABBREVIATIONS Term Description
Registrar to the Issue or Registrar Venture Capital & Corporate Investments Pvt.Ltd. Renouncees Persons who have acquired Rights Entitlements from Equity Shareholders Rights Entitlement The number of Equity Shares that an Equity Shareholder is entitled to in proportion to his / her Shareholding in the Company as on the Record Date Stock Exchange BSE where the Equity Shares of the Company are presently listed
[ ●]
Intensive Fiscal Services Private Limited Letter of Offer / LOF The Letter of Offer to be filed with the Stock Exchange after incorporating SEBI observations in the Draft Letter of Offer Listing Agreement The Equity Listing Agreement signed between the Company and the Stock Exchange Record Date
Issue Price Rs. 10/- per Equity Share Investor(s) The Equity Shareholders and Renouncees Lead Manager/ Lead Merchant Banker
[ ●]
[ ●] Issue Opening Date
Investors with the Registrar to the Issue and the Stock Exchanges and a list of which is available at SEBI’s website; that is at http://www.sebi.gov.in/ Designated Stock Exchange The Bombay Stock Exchange Limited Draft Letter of Offer The Draft Letter of Offer dated July 26, 2010 filed with SEBI for its observations. Equity Shareholder(s) A holder(s) of Equity Shares of our Company as on the Record Date. Issue The issue of 2,88,00,000 equity shares with a face value of Rs. 10/- each at par aggregating to Rs. 28,80,00,000 by the Company to the Equity Shareholders on rights basis in the ratio of one hundred twenty (120) equity shares for every one (1) equity share. Issue Closing Date
The form used by an investor to make an application for allotment of Equity Shares in this Issue
Takeover Code Regulations, 1997, as amended from time to time Self Certified Syndicate Bank or SCSB
Composite Application Form / CAF
Bankers to the Issue [ ●]
ASBA Investor An applicant who intends to apply through ASBA process and: (a) holds the shares of the Company in dematerialized form as on the record date and has applied for entitlements and / or additional shares in dematerialized form; (b) has not renounced his/her entitlements in full or in part; (c) is not a renouncee; (d) is applying through a bank account maintained with SCSBs
The application (whether physical or electronic) used by an Investor to make an application authorizing the SCSB to block the amount payable on application in their specified bank account
Issue Allotment Unless the context otherwise requires, the allotment of Equity Shares pursuant to the Issue Application Supported by Blocked Amount/ ASBA
Abridged Letter of Offer The abridged letter of offer to be sent to the eligible Equity Shareholders of the Company with respect to this Issue, in accordance with SEBI Regulations Application Unless the context otherwise requires, the application for allotment of Equity Shares in the
ISSUE RELATED TERMS Term Description
U.S. GAAP Generally Accepted Accounting Principles in the United States of America
The banks which are registered with SEBI under the SEBI (Bankers to an Issue) Regulations, 1994 and offers services of ASBA, including blocking of bank account and a list of which is available on SEBI’s website
BOT Build Operate Transfer Crash Barrier Is a barrier on a road designed to prevent vehicles from leaving the roadway to improve road safety
______________________________________________________________________________________________ Gantry A framework of steel bars raised on side supports to bridge over or around something; can display railway signals above several tracks or can support a travelling crane etc.
GQ Golden Quadrilateral GSB Granular Sub Base Kmph Kilometer per hour MDR Major District Roads NHAI National Highway Authority of India NHDP National Highway Development Project NSEW North South East West ODR Other District Roads PWD Public Works Department R & B Roads & Buildings SU State Undertaking Tenth Plan The Tenth Five Year Plan (2002-2007)
VR Village Roads
ABBREVIATIONS Term Description
ACIT Assistant Commissioner of Income Tax APRDC Andhra Pradesh Road Development Corporation AGM Annual General Meeting AS Accounting Standard as issued by The Institute of Chartered Accountants of India ASBA Application Supported by Blocked Amount Asst. Assessment BSE The Bombay Stock Exchange Limited CAGR Compounded Annual Growth Rate CIA Central Intelligence Agency CDSL Central Depository Services (India) Limited CSO Central Statistics Office DP Depository Participant Depository A depository registered with SEBI under the SEBI (Depository and Participant) Regulations, 1996, as amended from time to time Depositories Act The Depositories Act, 1996, as amended from time to time Depositories Regulations
The SEBI (Depository and Participant) Regulations, 1996, as amended from time to time EBIDTA Earnings Before Interest Depreciation, Tax and Amortization EGM Extra-Ordinary General Meeting EPS Earnings Per Share PPP Purchasing power parity FDI Foreign Direct Investment FEMA Foreign Exchange Management Act, 1999, and the subsequent amendments thereto FII Foreign Institutional Investor as defined Under SEBI (Foreign Institutional Investors) Regulations, 1995 registered with SEBI and as defined under FEMA (Transfer or Issue of Security by a Person
Resident Outside India) Regulations, 2000 and under other applicable laws in India FIPB Foreign Investment Promotion Board FY/ Fiscal Year ended March 31 GDP Gross Domestic Product GoI Government of India
IMF International Monetary Fund
ISIN International Securities Identification Number allotted by the Depository
IT Act Income Tax Act, 1961, as amended from time to time N. A. Not applicable NECS National Electronic Clearing Service NEFT National Electronic Fund Transfer NSDL National Securities Depositories Limited OCB(s) Overseas Corporate Body(ies)
_____________________________________________________________________________________________
PAT Profit after Tax RBI Reserve Bank of India RBI Act Reserve Bank of India Act, 1934 ROI Return on Investment ROC / RoC Registrar of Companies RONW Return on Networth RTGS Real Time Gross Settlement SCSB Self Certified Syndicate Bank SEBI Securities and Exchange Board of India SEBI Regulations SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 as amended Takeover Code Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 read with amendments issued subsequent to that date UIN Unique Identification Number UT Union Territory
Notwithstanding the foregoing, (i)
In the section titled ‘Main Provisions of the Articles of Association’ beginning on page 172 of the Draft Letter of Offer, defined terms shall have the meaning given to such terms in that section;
(ii) In the section titled ‘Financial Statements’ beginning on page 108 of the Draft Letter of Offer, defined terms shall have the meaning given to such terms in that section;
(iii) In the paragraphs titled ‘Disclaimer Clause of Securities and Exchange Board of India (SEBI)’ and ‘Disclaimer
Clause of Bombay Stock Exchange Limited ’ beginning on page 135 and 138 respectively of the Draft Letter of Offer, defined terms shall have the meaning given to such terms in those paragraphs.
______________________________________________________________________________________________
PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA
Unless stated otherwise, the financial data in the Draft Letter of Offer is derived from our restated audited financial information which has been prepared in accordance with Indian GAAP, the Act and restated in accordance with SEBI Regulations. Our current financial year commenced on April 1, 2010 and will end on March 31, 2011. In the Draft Letter of Offer, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding-off, and unless otherwise specified, all financial numbers in parenthesis represent negative figures.
Unless stated otherwise, industry data used throughout the Draft Letter of Offer has been obtained from industry publications. Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although we believe that industry data used in the Draft Letter of Offer is reliable, it has not been independently verified.
_____________________________________________________________________________________________
FORWARD LOOKING STATEMENTS
We have included statements in the Draft Letter of Offer which contain words or phrases such as “will”, “aim”, “is likely to result”, “believe”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “seek to”, “future”, “objective”, “goal”, “project”, “should” and similar expressions or variations of such expressions, that are “forward looking statements”. All forward-looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include but are not limited to:
- General economic and business conditions in the markets in which we operate and in the local, regional and national economies;
- Increasing competition in or other factors affecting the industry segments in which our Company operates;
- Changes in laws and regulations relating to the industries in which we operate;
- Our ability to successfully implement our growth strategy and expansion plans, and to successfully launch and implement various projects and business plans;
- Our ability to meet our capital expenditure requirements and/or increase in capital expenditure;
- Fluctuations in operating costs and impact on the financial results;
- Our ability to attract and retain qualified personnel;
- Changes in technology in future;
- Changes in political and social conditions in India or in countries that we may enter, the monetary policies of India and other countries, inflation, deflation, unanticipated turbulence in interest rates, equity prices or other rates or prices;
- Variations in exchange rates;
- The performance of the financial markets in India and globally; • Any adverse outcome in the legal proceedings in which we may be involved in.
For a further discussion of factors that could cause our actual results to differ, please refer to the sections titled “Risk Factors”, “Our Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages ix, 65 and124 respectively of the Draft Letter of Offer. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. Neither the Company nor the Lead Manager nor any of their respective affiliates have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI / Stock Exchange requirements, the Company and Lead Manager will ensure that investors in India are informed of material developments until the time of the grant of listing and trading permission by the Stock Exchange.
______________________________________________________________________________________________
SECTION II –RISK FACTORS
RISK FACTORS
An investment in our Equity Shares involves a high degree of risk. You should consider all the information in the Draft Letter of
Offer, including the risks and uncertainties described below, before making an investment in our Equity Shares. Investors should
carefully consider all the information contained in the section titled “Financial Information” beginning on page 108 of the Draft
Letter of Offer for the information related to the financial performance of our Company. If any of the following risks or any of the
risks and uncertainties discussed in the Draft Letter of Offer actually occur, our business, financial condition and results of
operations could suffer, the trading price of our Equity Shares could decline and you may lose all or part a of your investment.The risk set out in the Draft Letter of Offer may not be exhaustive and additional risks and uncertainties may arise, which are
presently not known to us, or which may arise or may become material in the future. Further, some events may have a material
impact from a qualitative perspective rather than a quantitative perspective and may be material collectively rather than
individually. In making an investment decision, prospective investors must rely on their own examination of the Company and the
terms of the Issue, including the merits and risks involved.Unless specified or quantified in the relevant risk factors below, we are not in a position to quantify the financial or other
implication of any of the risks described in this section. MaterialityThe Risk Factors have been determined on the basis of their materiality. The following factors have been considered for
determining the materiality: 1.Some events may not be material individually but may be found material collectively.
2. Some events may have material impact qualitatively instead of quantitatively.
3. Some events may not be material at present but may be having material impacts in future.
Internal Risk Factors
RISKS IN RELATION TO OUR BUSINESS AND RESULTS OF OPERATIONS: 1.
Our Company has recently ventured in to a new line of business, so it is difficult to estimate our future performance.
We have recently ventured into infrastructure, construction and other related activities and have currently no projects in operation or other revenue generating operations, and it has no significant operating history from which its business, future prospects and viability can be evaluated. The development of projects involves various risks, including among others, execution risk, regulatory risk, construction risk, financing risk and the risk that these projects may prove to be unprofitable. Any inability of the Company to effectively develop and operate its projects could adversely affect its business prospects, financial condition and results of operation. Moreover, investors should not evaluate the Company’s prospects and viability based on the performance of its Promoter, FIL or other affiliates. We are scheduled to complete our first project in FY 2011-12 and the Company’s prospects must be considered in light of the risks and uncertainties inherent in new business ventures.
2. Projects included in our balance order book may be delayed or cancelled which could have a material adverse effect on our cash flow position, revenues and earnings.
As of June 30, 2010, our balance order book was Rs. 5,173.50 lakhs. Our order book does not necessarily indicate future earnings. Balance order book merely indicates the values of signed contracts and represents only business that is considered firm, although cancellations or modifications may occur. Most of our projects are still under development and have recently commenced operation. We may also face problems in executing the project as contracted, or executing it on a timely basis. Moreover, factors beyond our control or the control of our clients may delay a project or cause change of scope, including delays or failures to obtain necessary permits, authorizations, permissions, right-of-way, and other types of difficulties or obstructions. Due to the possibility of delays or changes in project scope and schedule, as a result of exercise of our clients’ discretion, problems we encounter in project execution, or reasons outside our control or the control of our clients, we cannot predict with certainty when, if or to what extent an order book project will be performed. Delays in the completion of a project can lead to clients delaying to us some or all of the amounts we expect to be paid in respect of the project. Any delay, reduction in scope, execution difficulty or payment delay in regard to balance order book projects, or disputes with clients in respect of any of the foregoing, could have a material adverse effect on our cash flow position, revenues and earnings.
_____________________________________________________________________________________________
3. Our financial condition and business prospects could be materially and adversely affected if we do not complete our projects as planned or if our projects experience delays.
Our projects under development have a long gestation period before they become operational or generate profit. Our projects are typically required to achieve financial closure no later than the scheduled commercial operations date specified under the relevant concession agreement. The completion targets for our projects are based on our estimates and are subject to various risks, including, among other things, contractor performance shortfalls, unforeseen engineering problems, force majeure events, unanticipated cost increases or changes in scope and delays in obtaining certain property rights and government approvals, any of which could give rise to delays, cost overruns or the termination of a project's development. In addition, completion of our projects can be delayed by other risks, including increased raw material or labor costs, unfavorable financing conditions, damage or injury to third parties, interruptions to construction due to bad weather, unforeseen environmental or engineering problems, failure to perform by our contactors or their suppliers, site accidents or other incidents and contractual disputes with our construction contractors. The failure to complete our projects within the required period and in accordance with agreed specifications could render benefits granted by the government unavailable or may result in higher costs, penalties or liquidated damages, invocation to performance guarantees, cancellation of our concession, loss of our equity contribution in the project, lower returns on capital or reduced earnings. In addition, such delays or failure would delay the commencement of our toll operations and annuity payments from such projects. Moreover, any loss of our goodwill, though not quantifiable monetarily, could adversely affect our ability to pre-qualify for new projects. Such loss of revenue or any of the foregoing factors could materially and adversely affect our business, cash flows, reputation, prospects and results of operations.
4.
2010. In the past, trading in the equity shares of our Company had been suspended from January 14, 2003 to May 18, Shareholders will bear the risk of fluctuations in the price of the Equity Shares of our Company.
The trading in the equity shares of our Company had been suspended from January 14, 2003 to May 18, 2010. Further the price of the Equity Shares on the BSE may fluctuate after this offering as a result of several factors, including, but not limited to: volatility in the Indian and global securities market; operations and performance of the Company; performance of its competitors and the perception in the market about investments in the electrical products and services industry; adverse media reports on the Company or the Indian electrical industry; changes in the estimates of the Company’s performance or recommendations by financial analysts; significant developments in India’s economic liberalization and deregulation policies; and significant developments in India’s fiscal and environmental regulations. Trading in the equity shares of our Company may be re-suspended due to lapses on part of our Company. There can be no assurance that the prices at which the Equity Shares are currently traded will correspond to the prices at which the Equity Shares will trade in the market subsequently. For further details please refer to “Stock Market Data ” on page 143 of the Draft Letter of Offer.
for the Equity Shares of Our Company 5.
We have taken two properties on lease, which are owned by our Promoter Group entity.
Our Company utilizes the property situated at Remidicherla House, CPR Brundavan, flat number 401, near Nectar Garden, Hyderabad – 500 081, for commercial purposes and more particularly as our Company’s Registered Office. This has been taken on lease by our Promoter’s brother, Mr. M. Malla Reddy for a period of 5 years effective from March 1, 2010 on a monthly rent of Rs. 18,000/-. Further, in order to facilitate the smooth functioning of our business activities as well as timely co-ordination for undertaking our projects, we plan to set up an additional office space at Municipal No. 8-2-293/82/A/732-A/1 on part of plot number 732-A, in the layout of Jubilee Hills Cooperative House Building Society Limited, IVth floor, road number 36, Madhapur Road, Jubilee Hills, Hyderabad. Our Company has entered into a lease agreement with Mr. S. Pulla Reddy, Mr. M Malla Reddy our Promoter’s brother, Mr. M Koti Reddy, Mr. M Krishna Reddy, Mrs. S. Malleswari dated July 7, 2010 for leasing of the property admeasuring 6,635 sq ft., for a period of 5 years effective from July 1, 2010. The monthly rent of the above mentioned property is Rs. 6,63,500/-. For further information please refer paragraph titled “Property” beginning on page 70 under Chapter titled “Our Business” beginning on page 65 of the Draft Letter of Offer.
6. Our registered office from where we operate is taken on lease leased. Discontinuation of lease agreements may require us to vacate such premises which may have an adverse impact on our business continuity and profitability. Further the lease deeds/agreements entered into by our Company are not adequately stamped and registered.
If the owner of the premise of our registered office terminates the agreement under which we occupy the premises or refuses to renew the agreement on terms and conditions that are unfavorable to us, we may suffer a disruption in our operations which could have a material adverse effect on our business, financial condition and results of operations. The lease deed entered into by our Company for its registered office may not be adequately stamped and/or registered. The potential consequence of this could be that the said lease documents may not be admissible as evidence in a court of law, until the relevant stamp duty is paid and the relevant registration, if required, is done. Any claim or adverse order/ finding in connection with these properties could adversely affect the operations of our Company. For further information please refer paragraph titled “Property” beginning on page 70 under Chapter titled “Our Business” beginning on page 65 of the Draft Letter of Offer.
______________________________________________________________________________________________
7. Our Promoter does not possess experience in the current line of business. Any inability on part of our Promoter to implement the projects at hand would materially impact our results of operation.
Our Promoter, Mr. M. Srinivasa Reddy, does not have experience in the proposed line of business, that is, infrastructure, construction and related activities. Our business would be managed by our Promoter with the assistance of our Management and experienced Key Managerial Personnel. Any incorrect decisions taken by our Promoter with regards to implementing the projects at hand could materially impact our profitability and results of operations. Further, our Company may be subjected to penalties which may arise due to non performance of contracts / inability to complete our projects at hand, on a timely manner.
8. Our Company had negative cash flows in the recent fiscals.
(Rs. in lakhs) Particulars Year Ended March Year Ended March Year Ended March 31, 2010 31, 2009 31, 2008
Net cash from /(used in) Operating Activities 21.12 (0.17) 1.33 Net cash from /(used in) Investing Activities (31.86) Net cash from /(used in) Financing Activities
11.00 Net increase in Cash & Cash Equivalents 0.26 (0.17) 1.33 We had negative cash flows from / (used in) Investing Activities for the prior years. This has been primarily due to Inter Corporate Deposit of Rs. 31.64 lakhs given to our Group Company in fiscal 2010. Our cash and cash equivalents have been negative for the fiscal 2009 due to negative cash flows from operating activities. For further details please refer to “Financial Statements – Annexure 3” beginning on page 113 of the Draft Letter of Offer.
9. We have to renew, maintain and obtain statutory and regulatory permits and licenses as may be required to operate our business and any delay or inability to obtain the same may have an adverse impact on our business.
Being in the infrastructure and construction business, we require several statutory and regulatory permits, licenses and approvals to operate our business. Many of these approvals are granted for fixed periods of time after the expiry of which these need to be renewed from time to time. We cannot assure that we would apply for and obtain the relevant licenses/approvals required for our projects or otherwise within the statutory time limits, and there can be no assurance that the relevant authorities will issue any such permits, licenses or approvals in time or at all. Failure by us to renew, maintain or obtain the required permits, licenses or approvals, or cancellation, suspension or revocation of any of our permits, licenses or approvals may result in the interruption of our operations and may have a material adverse effect on our business. For further information with regards to statutory and regulatory permits, licenses and approvals kindly refer to the chapter titled “Government and Statutory Approvals” on page 133 of the Draft Letter of Offer.
10.
”. We may be unable to adequately protect our intellectual property. We do not own the trademark “ Furthermore, we may be subject to claims alleging breach of third party intellectual property rights.
We have not applied for registration of our logo under the provisions of the Trademarks Act, 1999. As such, we do not enjoy the statutory protections accorded to a registered trademark. There can be no assurance that we will be able to register the trademark and the logo or that, third parties will not infringe its intellectual property, causing damage to its business prospects, reputation and goodwill. Further, we cannot assure you that any application for registration of our trademark in the future by our Company will be granted by the relevant authorities in a timely manner or at all. Our efforts to protect our intellectual property may not be adequate and may lead to erosion of our business value and our operations could be adversely affected. We may need to litigate in order to determine the validity of such claims and the scope of the proprietary rights of others. Any such litigation could be time consuming and costly and the outcome cannot be guaranteed. We may not be able to detect any unauthorized use or take appropriate and timely steps to enforce or protect its intellectual property.
11. We may not qualify for bidding for larger projects independently.
Our operations primarily include Infrastructure, construction and related activities. We can bid for projects only if we meet the pre-qualification bidding criteria set for each project. We are comparatively small in size vis-à-vis other construction companies with whom we compete. This necessitates a need for entering into joint venture with bigger construction companies; on account of which, our profit margins may be impacted. We cannot assure that we will be able to secure projects independently in the future or of being able to secure the projects on our terms which may adversely impact our results of operations and financial condition.
12. We face competition in our business from other engineering construction companies.
_____________________________________________________________________________________________
price often is the deciding factor when it comes to awarding contracts. There are a number of competitors having better financials and other resources who have achieved greater market penetration than we have in the markets in which we compete. We may have to accept contracts with lower margins and values if we are unable to compete with other bigger players in the large and high margin contracts. This may affect our relative market share and profit.
13. Our inability to adhere to agreed timelines could adversely affect our reputation and/or expose us to financial liability.
Most contracts awarded to us contain conditions for completion of the contract within stipulated schedules with liquidated damages payable in the event the schedules not being adhered to. However in the course of our business our client / awarding authority, subject to prior intimation to us, may revise the scope and schedule of the project. Failure on our part to adhere to contractually agreed or revised schedules could result in payment of liquidated damages in addition to the damage which may be caused to our reputation within the construction industry, among clients or prospective clients.
14. Our risk management policies and procedures may leave us exposed to unidentified risks or unanticipated levels of risk.
The policies and procedures we employ to identify, monitor and manage risks may not be fully effective. Some methods of risk management are based on the use of observed historical market behavior. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures indicate. Other risk management methods depend on evaluation of information regarding markets, clients or other matters that are publicly available or otherwise accessible by us. This information may not be accurate, complete, up-to-date or properly evaluated. Management of operational, legal and regulatory risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events. We cannot assure you that our policies and procedures will effectively and accurately record and verify this information. We seek to monitor and control our risk exposure through a variety of separate but complementary financial, credit, operational and legal reporting systems. Nonetheless, the effectiveness of our ability to manage risk exposure cannot be completely or accurately predicted or fully assured. For example, unexpectedly large or rapid movements or disruptions in one or more markets or other unforeseen developments could have a material adverse effect on our results of operations and financial condition. The consequences of these developments could include losses due to adverse changes in inventory values, higher volatility in earnings, increases in our credit risk to customers as well as to third parties and increases in general systemic risk.
15. Increasing raw material costs could have an adverse effect on our profitability.
Raw materials are subject to price volatility caused by factors including commodity market fluctuations, the quality and availability of supply, currency fluctuations, consumer demand and changes in governmental programs. Raw material price increases result in corresponding increases in our raw material costs.
16. Our business operations are sensitive to weather conditions, which may affect our revenues.
Implementation of our projects may get affected due to adverse weather conditions, such as heavy rains and floods. Though we make adequate provisions for non-execution during certain seasons like monsoon, any unforeseen vagaries of nature and season may result in failure of our meeting the contractual obligations and affect our business. Further, we record contract revenues for those stages of a project for which we receive certification from the client. Since revenues are not recognized until we make progress on a contract and receipt of certification from our clients, revenues booked in the first half of our financial year are traditionally lower as compared to revenues recorded during the second half of our financial year.
17. Changes in the scope of work may result in disputes, which could have a material and adverse impact on the profits from that project.
In certain cases, we may be required to perform additional work on a project that is beyond the stated scope of the contract. We may not receive any remuneration for the same, or payments in respect of the same may be delayed or may not be commensurate to the quantum of work performed, which may have a material adverse effect on our profits. Further, in certain contracts we may be required to execute modified work order as directed by the client which may not be agreed upon at the time of execution of the contract. This process may result in disputes and may result in delayed or inadequate payments. This could have an adverse effect on our profits.
18. Loss of key managerial personnel could have a material adverse effect our business.