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Chairman's Desk
 

      

Dear Friends,

 

The air of excitement in India’s road building sector is unprecedented because of a number of reasons.  One, the Indian Government has identified road building (along with power and rail) as a core national economy driver, which means that the road building is likely to drive national growth.  Two, India intends to add nearly 75% to its highway length in just the next five years, setting the pace for the kind of development that we have possibly not seen in our lifetime. The Central Government has already established a monthly run-rate of H15000 cr in the awarding of projects over the last six months, indicating that this has conclusively extended from blueprint to reality. Three, the resulting opportunity, estimated at US$250 billion, represents possibly the largest road infrastructure opportunity in the world, which should keep successful road building companies busy across the coming decade.  Four, the Central Government has shifted its attention from project award to project implementation, clearing roadblocks with the objective to accelerate India’s road building throughput from 13 kms a day to a projected 41 kms a day over the coming months.  Five, the Central Government has evolved from the erstwhile BOT format of projects to the EPC format and has introduced the market-friendly Hybrid Annuity Model (HAM), which has corrected downsides of the erstwhile engagement while enhancing upside opportunities for industry players.

 

  

Attractive proxy  

 

At MBL, we see our Company as one of the prominent beneficiaries of this unprecedented sectoral opportunity.  We survived the infrastructure downturn in the last few years with our Balance Sheet integrity largely protected. As on 31 March 2016, we enjoyed a gearing (based on term loans) of 0.19, which provides us with attractive room to mobilise additional debt to fund new projects should we choose to do so. We have been awarded large projects that provide a more than attractive 24-month revenue visibility from 1st April 2016 onwards at margins that are correspondingly higher than what we earned in our earlier projects. We possess the respect of a Company that has demonstrated its competence in being able to embrace challenging projects and deliver them on schedule.  This makes us a preferred service provider for some of the most prestigious road building projects funded by global financial institutions.

 

  

We are not just a road builder in the narrow sense of the term; we build and maintain roads, widening our opportunity landscape. Besides, we are more than just a road company; we address infrastructure-building opportunities across India’s civil, railway, irrigation and waterway sectors, making us a broader proxy of India’s infrastructure sector.

 

 

Optimism turning into reality  

 

My optimism that the widening national infrastructure play and the Company’s established credentials will translate into attractive numbers has already started to become a reality. The Company strengthened its order book from H3771 cr to H6823 cr as on 31st March 2016. This was the largest percentage and quantum growth in the Company’s order book in a single year. This validated the Company’s credentials, financial structure and its conscious decision to pursue only those contracts that account for large volumes on the one hand and attractive margins on the other.  MBL’s prospects are not only reflected in the quantum growth of its order book; they are also reflected in the evolving quality of the order book. Nearly 31% of our year-end order book comprised prestigious HAM projects. We believe that these HAM projects will enhance margins, profits and long-term revenue visibility. Besides, these projects will evolve our brand from being just a construction vendor into a respected core infrastructure builder.

 

  

Strategic direction  

 

I am optimistic that these fundamentals will translate into attractive earnings for the Company and value for our shareholders for some good reasons. We have bid for only those projects that have been backed by NHAI, MoRTH or funded by global funding agencies, virtually eliminating the possibility of projects being stalled due to the unavailability of funds. This will translate into quicker completion, faster inflows and a stronger return on employed capital.  We have bid for complex projects marked by relatively low competition and higher margins, which should progressively reflect in stronger EBIDTA margins.  We have made it a point to conduct our BOT and HAM projects in subsidiaries with a possibility of their prospective listing, which we believe will help us deleverage our consolidated Balance Sheet and build a more valuable enterprise. Shareholders can look forward to a stronger 2016-17 on account of robust order accretion (that will translate into stronger revenue visibility), BOT projects implementation and achieving financial closure of our HAM projects. We believe that for a company that needs to grow revenues by 20 to 25% annually across the foreseeable future, we need to add H4000 cr profitable orders during the current financial year. However, the big year at our Company is expected to be, when we commission our existing BOT projects and capitalize on a full year’s working of the BOT projects. Besides, we intend to sustain the EPC projects we are presently working on and expect that the timely kick-starting of our HAM projects will translate into revenues.

 

 

Besides road projects, we are also executing projects across metro railway, urban and housing infrastructure among others. The other infrastructure projects formed nearly 23% of the Company’s order book as on 31st March 2016.  The Company tied up with Piacentini Costruzioni S.p.a. for executing inland waterway projects. The other infrastructure segments are expected to reduce our dependence on the road sector and enhance our revenue base.

 

  

Overview 

 

I must assure shareholders that MBL Infrastructures has arrived at a sweet spot in its existence.  The prevailing environment represents the coming together of three positive realities for the Company: government reforms in the sector translating into increase order throughput, financial reforms that will make it increasingly possible for companies to list their subsidiaries on secondary capital markets and mobilise financial resources that help deleverage their balance sheets. And lastly, even as all this is transpiring, most Indian infrastructure players nurse weak balance sheets that prevent them from immediately addressing the unprecedented sectoral opportunity.

  

 

In view of these realities, I expect MBL Infrastructures to report sustainable year-on-year growth translating into targeted revenues of H5000 cr by 2020 and emerging as one of the most attractive proxies of India’s infrastructure sector.

 

   

Anjanee Kumar Lakhotia

 

Chairman & Managing Director