Gammon Infrastructure Projects

The Directors have pleasure in submitting their Seventh Annual Report
 (and the first after the IPO), together with the Audited Accounts of
 the Company, for the period 1st April, 2007 to 31st March, 2008 (the
 Period).
 
 FINANCIAL HIGHLIGHTS
 
 Your Company is in the business of infrastructure development. The
 business, by its very nature, requires your Company to undertake
 development of various infrastructure projects through Special Purpose
 Vehicles (SPVs). Consequently, the Company holds substantial equity
 stakes in several SPVs, in line with the concerned bid documents and
 tie-up agreements with consortium partners. Under the circumstances, to
 give an insight into the workings of the Company, the Shareholders are
 advised to refer to the consolidated accounts of the Company.
 Accordingly, your Company has prepared the Financial Statements both
 on a Consolidated Basis (taking into account the financial statements
 of the Company, its subsidiaries, associates and joint ventures) and on
 a Stand-Alone Basis.
 
 On a Consolidated Basis, the income of the Company for the Period was
 Rs. 17,099 lakhs and the profit before depreciation/amortisation and
 taxation was Rs. 7,519 lakhs. After providing Rs. 4,160 lakhs towards
 depreciation/amortisation and Rs. 1,225 lakhs towards tax, the Company
 has a net profit of Rs.  1,864 lakhs for the Period.
 
 On a Stand-Alone Basis, the income of the Company for the Period was
 Rs. 2,751 lakhs and the profit before depreciation/amortisation &
 taxation was over Rs. 1,374 lakhs. After providing Rs. 1,920 lakhs
 towards depreciation/amortisation and Rs. 479 lakhs towards tax, the
 Company has a net profit of Rs. 702 lakhs for the Period.
 
 DIVIDEND
 
 The Company has several projects under implementation. With a view to
 enable the Company to invest in these projects, the Directors find it
 necessary to conserve the Companys resources and have accordingly
 decided to plough back the Profit and have not recommended any Dividend
 for the Period.
 
 OPERATIONS AND PERFORMANCE
 
 The Company was incorporated in the year 2001 with the objective of
 focusing on infrastructure projects on Public Private Partnership (PPP)
 basis. Your Companys business currently comprises fourteen
 infrastructure projects, of which four are already in operation and ten
 are at various stages of development.
 
 Projects in Operation:
 
 Rajahmundry-Dharmavaram Annuity Road Project - a 53 kilometer stretch
 of road in Andhra Pradesh, being a part of National Highway - 5,
 connecting Chennai and Kolkata. The project is owned by an SPV named
 Rajahmundry Expressway Ltd., a subsidiary of your Company. The
 concession period for the Project is 17.5 years, including the 2.5
 years for construction. The project commenced commercial operations in
 September, 2004.
 
 Dharmavaram-Tuni Annuity Road Project - a 47 kilometre stretch of road
 in Andhra Pradesh, being a part of National Highway - 5, contiguous
 to the Rajahmundry-Dharmavaram project referred to hereinabove. The
 project is owned by an SPV named Andhra Expressway Ltd., a subsidiary
 of
 
 your Company. The concession period for the Project is 17.5 years,
 including the 2.5 years for construction. The project commenced
 commercial operations in October, 2004.
 
 New Mattancherry Bridge Project - a 700 metre bridge across the
 Mattancherry Channel at Cochin, Kerala; owned by an SPV named Cochin
 Bridge Infrastructure Company Ltd., a subsidiary of your Company. The
 project commenced commercial operations in September, 2001.
 
 Visakhapatnam Port Project - two multipurpose berths in the northern
 arm of the inner harbor at Visakhapatnam Port, Andhra Pradesh, owned by
 an SPV named Vizag Seaport Pvt. Ltd. The concession period is 30 years,
 including a construction period of 2 years. The project commenced
 commercial operations in July, 2004.
 
 Projects under Development:
 
 These are projects at various stages of development following the
 signing of the concession/ license agreements with the respective
 client. These are:
 
 Vadape-Gonde Toll Road Project - a 100 kilometre stretch of road, being
 a part of National Highway - 3 in Maharashtra, connecting Mumbai and
 Nasik. The project is owned by an SPV named Mumbai Nasik Expressway
 Ltd., a subsidiary of your Company. The project has a concession period
 of 20 years, including a construction period of 3 years. The project
 has already achieved financial closure and is expected to be partially
 commissioned for tolling purposes by December, 2008 & fully
 commissioned by March 2009.
 
 Rangit II Hydroelectric Project - a 66 MW run-of-the-river
 hydroelectric project on the Rimbi river in West Sikkim. The project is
 owned by an SPV named Sikkim Hydro Power Ventures Ltd., a 100%
 subsidiary of your Company. The project has a concession period of
 approx. 40 years. Presently, the project is awaiting final statutory
 development clearances from the Government. Construction activities are
 expected to commence by December, 2008.
 
 Biomass Power Projects in Punjab - your Company has entered into an
 agreement with Bermaco Energy Systems Limited, to participate in the
 development of nine biomass power projects in Punjab, with proposed
 installed capacities of 10 to 12 MW each. An SPV named Punjab Biomass
 Power Ltd. (PBPL) was incorporated to undertake the first two
 projects at villages Bhaghaura and Sawai Singh Wala in Patiala
 district. Your Company holds an equity stake of 50% in PBPL. The first
 project of 12 MW capacity is expected to be commissioned before March,
 2009.
 
 Kosi Bridge Annuity Project - a four lane bridge, together with
 approach roads, over the river Kosi in Bihar on National Highway -
 57. The project is owned by an SPV named Kosi Bridge Infrastructure
 Company Ltd., a 100% subsidiary of your Company. The project has
 achieved financial closure. The concession period for the project is 20
 years, including a construction period of 3 years.
 
 Gorakhpur Bypass Annuity Project - a four lane road from km 0.00 to km
 32.27 on National Highway - 28 in Uttar Pradesh. The project is owned
 by an SPV named Gorakhpur Infrastructure Company Ltd., a subsidiary of
 your Company. The project has achieved financial closure. The
 concession period for the project is 20 years, including a construction
 period of 2.5 years.
 
 Mumbai Offshore Container Terminal Project - a project for construction
 and management of an offshore container berth and development of a
 container terminal at Mumbai Harbour (OCT) with management of the
 existing Ballard Pier Station Container Terminal (BPS). The project
 is owned by an SPV named Indira Container Terminal Pvt. Ltd. The
 license period for the OCT project is 30 years including the
 construction period, while the license period for the BPS project is
 approximately for five years from the date of signing of the concession
 agreement.
 
 Adityapur Special Economic Zone Project - a mini special economic zone
 focused on automobile and auto components to be developed on 90 acres
 land at Adityapur in Jharkhand. The project is to be developed and
 operated by an SPV named SEZ Adityapur Ltd. in which your Company will
 hold 38% equity stake. The concession period for the project is 90
 years, including a construction period of 5 years.
 
 Tidong Hydroelectric Power Project-a 60 MW hydroelectric project in
 Kinnaur district of Himachal Pradesh. The project is to be developed
 and operated by an SPV named Tidong Hydro Power Ltd, in which your
 Company will hold 50% controlling stake. The concession period for the
 project is 40 years. A writ petition was filed against Government of
 Himachal Pradesh to direct the government for execution of the
 Memorandum of Understanding; the matter is pending in High Court.
 
 Biomass Power Projects in Haryana - Gammon has in consortium with
 Bermaco Energy Systems Limited been awarded the development of six
 biomass based power projects in Haryana, with proposed installed
 capacities of 10 to 12 MW each. The project is to be developed and
 operated by an SPV named Haryana Biomass Power Ltd., in which your
 Company will hold 50% controlling stake.
 
 Pravara Co-generation Power Project - your Company has entered into an
 agreement with Padmashri Dr. Vitthalrao Vikhe Patil Sahakari Sakhar
 Karkhana Ltd. (Karkhana) for the development of a 30 MW co-generation
 power project on BOOT basis in Maharashtra. The Company will operate
 the Project for 25 years from commencement of operations and thereafter
 hand over the power plant to the Karkhana at a nominal consideration.
 
 * Operation & Maintenance (O&M) Contracts
 
 Your Company also has O&M Contracts for (i) the Rajahmundry-Dharmavaram
 Annuity Road Project; (ii) the Dharmavaram - Tuni Annuity Road Project;
 (iii) the Vadape-Gonde Toll Road Project; (iv) the Kosi Bridge Annuity
 Project; and (v) the Gorakhpur Bypass Annuity Project. While the
 contracts for the first two projects are operational, the contract for
 the subsequent three will become operational on the commencement of
 operation of these projects.
 
 FUTURE PROSPECTS
 
 Infrastructure is the backbone of a progressive economy. As the country
 is gearing up to create the infrastructure across various sectors, PPP
 is increasingly becoming the mode of development, due to its inherent
 advantages of better risk allocation, earlier completion and
 efficiencies in operation. These factors coupled with the smoothening
 of the regulatory process and incentives by the Government and the
 willingness of the banks/financial institutions to provide
 infrastructure finance is resulting jn tremendous growth opportunities
 in the sector. Almost all sectors of infrastructure development, namely
 roads & expressways, ports, airports, power generation, urban
 infrastructure (including mass rapid transit systems, water & waste
 water management, etc), railways, power transmission etc., are
 witnessing increasing activities on the PPP side of development. Your
 Company sees tremendous potential in the PPP sector.
 
 Your Company is currently involved at various stages of financial
 proposal submission, technical proposal submission and
 pre-qualification submission in a number of PPP projects and together,
 the size of these opportunities across sectors, would be in excess of
 Rs. 550 billion.
 
 The Company will soon take up the following two projects for
 development as soon as the letter of intent is received:
 
 Youngthang-Khab Hydroelectric Power Project - a 261 MW hydroelectric
 project in Kinnaur district of Himachal Pradesh. The concession period
 for the project is 40 years.
 
 Multi Purpose Port at Bedi - a greenfield multi purpose port to be
 developed at Bedi in Gujarat. The concession period for the project is
 30 years.
 
 EQUITY CAPITAL
 
 The Company made a public issue of 1,65,50,000 equity shares of Rs.
 10/- each of the Company at the issue price of Rs. 167/- per share
 through the book building route. The public issue, which was made at a
 difficult time for the share market, elicited oversubscription to the
 extent of 3.426 times. The shares were allotted on 27th March, 2008.
 The equity shares of the Company were listed at the National Stock
 Exchange and Bombay Stock Exchange on 3rd April, 2008.
 
 EMPLOYEE STOCK OPTION SCHEME
 
 With a view to nurture in-house talent, espouse loyalty and provide an
 incentive for developing a long term relationship with the Company,
 your Directors (the Compensation Committee) had granted 16,40,000 ESOPs
 (1.28% of the pre-lPO capital) to the employees of the Company,
 pursuant to the approval of the members obtained at the Extra-ordinary
 General Meeting of the Company on 4th May, 2007.
 
 The details of the ESOPs granted are set out in table below:
 
 Options granted                     16,40,000
 
 Pricing Formula/Exercise Price Rs.         80/-
 
 Options vested                            Nil
 
 Options exercised                   Not Applicable
 
 Total number of Equity Shares arising 
 as a result of exercise of         Not Applicable
 options
 
 Options lapsed                            75,000
 
 Variation of terms of options             None
 
 Money realised by exercise of options     Not Applicable
 
 Total number of options in force          15,65,000
 
 Diluted EPS pursuant to issue of Equity Shares on exercise of option
 Not Applicable calculated in accordance with Accounting Standard (AS -
 20)
 
 Weighted average exercise price Fixed price of Rs. 80/-
 
 Weighted average fair value Not Applicable
 
 Description of the method and significant assumptions used during Not
 Applicable the year to estimate the fair values of options, including
 the following weighted average information:
 
 (1) risk-free interest rate;
 
 (2) expected life;
 
 (3) expected volatility;
 
 (4) expected dividends; and
 
 (5) the price of the underlying share in market at the time of option
 grant.
 
 Employee-wise details of options granted to: As provided in the table
 below.
 
 (1) Directors and senior managerial personnel;
 
 (2) Any employee who received a grant in any one year of options
 amounting to 5% or more of options granted;
 
 (3) identified employees who are granted options during any one year
 equal to or exceeding 1% of the issued capital (excluding outstanding
 warrants and conversions) of the Company at the time of grant
 (excluding (ii) above)
 
 Name                    Position
 
 Mr. Parvez Umrigar       Managing Director
 
 Mr. Parag Parikh         Chief Financial Officer
 
 Mr. Kshitiz Bhasker      Head- Business
                          Development
 
 Mr. Deepak Chauhan       Deputy General Manager
                          - Legal
 
 Mr. Amanullah Aman       General Manager
 
 Stock                Percentage of             Percentage of
 options              the grant on the          total options
 granted              issued capital at         granted
                      the time of grant
 
 6,00,000                       0.47                36.59
 
 2,40,000                       0.19                14.63
 
 1,50,000                       0.12                 9.15
 
 1,20,000                       0.09                 7.32
 
 75,000                         0.06                 4.57
 
 Each of the options give the concerned employee a right to subscribe to
 one equity share each of the Company at an issue price of Rs. 80/- each
 over a period of one to four years.
 
 The Company has computed the employee compensation cost arising from
 grant of Options using the intrinsic value method. The difference
 between the employee compensation cost so computed and the employee
 compensation cost as per the fair value method is Rs. 1,70,51,198/-.
 The net profit for the Period on stand alone basis will come down from
 Rs. 698 lakhs to Rs. 527 lakhs if the fair value method is employed.
 Both the basic and diluted earning per share of the Company will come
 down from 0.54 to 0.41 for the Period.
 
 PARTICULARS UNDER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE
 REPORT OF THE BOARD OF DIRECTORS) RULES, 1988
 
 (A) Conservation of Energy
 
 The disclosure required under the said heading is not applicable to
 your Company.
 
 (B) Technology Absorption
 
 The disclosure required under the said heading is not applicable to
 your Company.
 
 (C) Foreign Exchange Earnings & Outgo
 
 The Company did not earn any foreign exchange during the Period. The
 Company expended foreign exchange equivalent to Rs. 5,008,771/- during
 the Period and a further sum of Rs. 10,816,209/- towards professional
 fees in relation to the IPO, which has been charged to the securities
 premium account.
 
 SUBSIDIARIES
 
 Andhra Expressway Limited, Cochin Bridge Infrastructure Company
 Limited, Mumbai Nasik Expressway Limited, Rajahmundry Expressway
 Limited, Sikkim Hydro Power Ventures Limited, Gammon Projects
 Developers Limited and Marine Project Services Limited continue to be
 the subsidiaries of the Company.  Kosi Bridge Infrastructure Company
 Limited, Gorakhpur Infrastructure Company Limited, Tidong Hydro Power
 Limited, Gammon Logistics Limited and Haryana Biomass Power Limited
 became subsidiaries of the Company during the year.
 
 The Company has on 4th April, 2008 exercised a call option to purchase
 2,28,77,500 equity shares of Rs. 10/- each of Vizag Seaport Pvt. Ltd.
 from International Port Services Private Ltd., subject to regulatory
 approvals. Further, the Company has purchased 80,00,000 equity shares
 of Vizag Seaport Pvt. Ltd.  from Cochin Bridge Infrastructure Company
 Ltd., subsidiary of the Company. Upon completion of the two
 transactions the shareholding of the Company in VSPL will stand
 increased to 73.76% from the present 42.22%.
 
 Pursuant to the approval of the Central Government, the Company has not
 attached the audited accounts of the subsidiaries to the Audited
 Accounts of the Company for the Period. However, the effect of the same
 has been brought out in the consolidated Audited Accounts of the
 Company. The annual accounts of the subsidiaries and the related
 information will be made available to the Companys and subsidiaries
 investors at any point of time. These have also been kept for
 inspection of the investors at the Registered Office of the Company and
 of the concerned subsidiaries.
 
 PARTICULARS OF EMPLOYEES
 
 Particulars of employees required under Section 217(2A) of the
 Companies Act, 1956 forms a part of this Report. However, as per
 Section 219(l)(b)(iv) of the Act, the report and accounts are being
 sent to the shareholders of the Company excluding the particulars of
 employees under Section 217 (2A) of the Act. Any shareholder interested
 in obtaining a copy of the said statement may write to the Company
 Secretary at the Registered Office of the Company.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 Pursuant to the requirements of Section 217 (2AA) of the Companies Act,
 1956, the Directors hereby confirm:
 
 a.  The applicable accounting Standards along with proper explanation
 relating to material departures have been followed by the Company in
 preparation of the Annual Accounts for the Period;
 
 b.  that the Directors have selected accounting policies and applied
 them consistently and made judgments and estimates that are reasonable
 and prudent so as to give a true and fair view of the state of affairs
 of the Company at the end of the Period and of the profits of the
 Company for the Period;
 
 c.  that the Directors have taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of the Act for safeguarding the assets of the Company and
 for preventing and detecting fraud and other irregularities; and
 
 d.  that the annual accounts are prepared on a going concern basis.
 
 BOARD OF DIRECTORS
 
 As per Article 169 of the Articles of Association of your Company, Mr.
 Sanjay Sachdev and Mr. Himanshu Parikh are liable to retire by rotation
 at the ensuing Annual General Meeting and being eligible, have offered
 themselves for re-appointment. Your Directors recommend their
 re-appointment.
 
 Mr. Naresh Chandra, ex-Governor of Gujarat, ex-Indian ambassador to the
 United States and ex-senior advisor to the Prime Minister of India
 joined the Board on 15th October, 2007 as an Additional Director of the
 Company. The Company has received a notice from a member signifying his
 intention to propose Mr. Chandras candidature at the ensuing Annual
 General Meeting to the office of a Director of the Company liable to
 retire by rotation.
 
 Mr. Sushil Chandra Tripathi, ex-principal advisor to the Governor of
 U.R, ex-secretary to the Government of India in the Ministry of Human
 Resources Development and Ministry of Petroleum and Natural Gas joined
 the Board on 21st May, 2008 as an Additional Director of the Company.
 The Company has received a notice from a member signifying his
 intention to propose Mr. Tripathis candidature at the ensuing Annual
 General Meeting to the office of a Director of the Company liable to
 retire by rotation.
 
 During the year, the Company lost the services of Mr. Guha Thakurtha as
 a member of the Board due to his untimely demise. The Directors are
 grateful for Mr. Thakurthas services to the Company during his tenure.
 
 BOARD COMMITTEES
 
 The Board has set up the following committees to assist the Board in
 its work:
 
 (i) Audit Committee to, inter-alia, oversee and review the financial
 reporting system and disclosures made in its financial results; 
 
 (ii) Shareholders/Investors Grievance Committee to, inter-alia, redress
 investor complaints;
 
 (iii) Remuneration Committee to approve appointments and remuneration
 of executive directors; 
 
 (iv) Compensation Committee to administer the Employee Stock Option
 Scheme;
 
 (v) IPO Committee to oversee issues relating to and arising from the
 Public Issue; and 
 
 (vi) Project Committee to, inter-alia, advice the company on the
 business opportunities that arise from time to time.  The constitution
 of the various committees, its powers and duties have been elaborated
 in greater detail in the Corporate Governance Report, which is
 annexed to the Audited Accounts of the Company.
 
 REPORT ON CORPORATE GOVERNANCE
 
 Attention of the Shareholders is invited to a separate section titled
 Report on Corporate Governance which is annexed to the Annual
 Accounts. A certificate of compliance issued by Mr: N. Veeraraghavn, a
 practising company secretary on compliance with corporate governance
 requirements of the Listing Agreement is annexed to this Report.
 
 MANAGEMENT DISCUSSION AND ANALYSIS REPORT
 
 Attention of the Shareholders is also invited to a separate section
 titled Management Discussion and Analysis Report which is annexed to
 the Annual Accounts.
 
 PUBLIC DEPOSITS
 
 Your Company has not accepted deposits under Section 58A of the
 Companies Act, 1956.
 
 AUDITORS
 
 The Companys auditors, M/s. Natvarlal Vepari & Co. and M/s. S. R.
 Batliboi & Associates retire at the ensuing Annual General Meeting and
 being willing and eligible to be re-appointed as Auditors of the
 Company, have submitted their certificates to the effect that their
 re-appointments, if made, would be within the limits prescribed under
 Section 224 (IB) of the Companies Act, 1956. Your Directors recommend
 their re-appointment.
 
 AUDITORS REPORT
 
 Observations made by the Auditors in their Audit Report have been duly
 clarified and explained in the relevant Notes forming part of the
 Annual Accounts, which are self explanatory and do not need any further
 clarifications.
 
 ACKNOWLEDGEMENTS
 
 The Directors wish to place on record their appreciation of the devoted
 and efficient services rendered by the personnel of the Company. Your
 Directors also wish to acknowledge the co-operation and assistance
 received from the Bankers, Financial Institutions and various
 Government, Semi Government and Local Authorities.
 
                             For and on behalf of the Board of,
                             Gammon Infrastructure Projects Limited
 
                             Abhijit Rajan            Parvez Umrigar
                     Chairman & Managing Director     Managing Director
 
 Place : Mumbai
 Date  : 21.05.08