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Patel Engineering Company Ltd.

BSE: 531120 | NSE: PATELENG | Series: NA | ISIN: INE244B01030 | SECTOR: Construction & Contracting - Civil

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Annual Report

For Year :
2017 2016 2015 2013 2012 2011 2010 2009 2008

Chairman's Speech

Dear Shareholder,

It is my pleasure to present to you, our performance for the fiscal year 2016-17 and major events after the end of the said fiscal year during which your Company has crossed one of the biggest hurdles in its history of more than 6 Decades presence in EPC sector. Over the years we have continually worked on expanding our capabilities and horizons, moving closer every year to our vision of becoming a leader in EPC sector.

The legacy of stalled infrastructure projects due to delay in land acquisition, mandatory clearances, lack of coordination between various authorities and delay in payments to construction companies had been looming over the sector - for quite some time and such delay had depleted the companies in the sector including yours’ and made them starve for financial liquidity to sustain day to day expenses of the large workforce and machinery deployed all over the country coupled with debt with ever mounting interest burden making it impossible for almost all companies in the sector to sustain.

With infrastructure development being the major focus of the current government, EPC sector’s outlook has started to look encouraging again. India’s 2016-2017 Union Budget has provided a significant outlay for infrastructure expenditure which was further boosted in the budget for FY 2017-18. This spending is seen as a key component of the government’s plans to boost India’s growth levels to projections ranging between 7 and 9 percent. The allocation of Rs.3.96 lakh crore for the sector and a newly liberalized foreign direct investment (FDI) policy further underline the government’s commitment in this regard. The implementation of GST, consolidating Rail and Fiscal budget, pushing in Make in India, Digital India, Skill India, Start-up India and Swachh Bharat Abhiyan (Clean India Mission) and the introduction of Bullet Trains etc. reflect the better quality of life that government wants for its people.

The current government has undertaken steps by giving faster clearances and removal of hurdles by regular monitoring of projects by key officials. This outlook change by the government has been reflected in NITI Aayog Initiatives, where the government has taken the initiative to address liquidity crunch by early disbursement of 75% of receivables against margin free bank guarantees, stuck in various legal forums even after Arbitral Awards in favour of the contractors. The amendment to Arbitration act, reducing the arbitration timeline and formation of separate commercial courts are few examples of initiatives to bring in ease of business and much required liquidity in the sector. Measures taken by Reserve Bank of India (RBI) with Debt Restructuring schemes like Strategic Debt Restructuring (SDR) which was introduced in the previous year and Scheme for Sustainable Restructuring of Stressed Assets (S4A) introduced in 2016 further enabled various companies to resolve debt repayment issues by aligning it with cash flows generated from operations.

As you are aware that the lenders of the Company had invoked SDR on May 26, 2016. The Company allotted equity shares and converted ~ Rs.418 crore of debt to equity for a 51.08% stake in the Company taken by the lenders in November, 2016 as part of the said SDR Scheme. The company had also undertaken to sell various non-core assets including actionable claims, real estate etc. to reduce its debt burden and hold back all investments in Asset Ownership projects while concentrating on the core EPC Business.

It gives me immense pleasure to inform you all that we have been successful in implementing the above plan -

1. We have merged and amalgamated Patel Realty (India) Ltd., a wholly owned subsidiary of the Company to reduce costs and concentrate more on core EPC business.

2. We have successfully completed transfer/assignment of certain actionable claims for various projects undertaken by the Company in the present and past and certain rights of real estate assets together with corresponding debts including debts, liabilities and obligations related thereto valuing approximately Rs.2,020 crore from its books to its wholly owned subsidiary viz Hitodi Infrastructure Limited whose 51% equity has been taken by an Eight Capital Group Entity and change of management has been affected in November 2017.

3. Lodha Developers, one of the prominent builders in Mumbai, has acquired 100% equity of wholly owned subsidiary of the Company, viz Patel Land Developers Limited (PLDL), to whom the company has transferred ~ 5 acres of Jogeshwari property along with its corresponding liability and debt of Rs.376 crore, in November 2017.

4. Apart from the above, the Company has also entered into Joint Development Agreements and sold certain other noncore land assets in Electronic City, Bengaluru.

With the above transactions, the total debt of the company has been reduced by more than Rs.2,500 crore.

In addition to the above transactions, the Company has received approvals from majority of lenders under JLF (as required under RBI guidelines) for its debt resolution plan under the S4A Scheme as mandated by the overseeing committee of RBI in November 2017. Under the scheme, the total debt of the company shall split into Sustainable PART A Debt ~ Rs.1,724 crore (Fund Based) and unsustainable PART B debt ~ Rs.1,240 crore. Further, all non-fund based limits, both current and additional limits approved under the scheme forms part of Sustainable Debt.

Under the Scheme, the Part B debt is converted into Optionally Convertible Debentures (OCDs) issued to the said lenders with balance Part A debt to be serviced as per the existing terms. After repayment of debts as mentioned above the Company has till date issued ~ Rs.715 crore of OCDs with a 0.01% Coupon rate payable annually and 7% IRR payable at the time of redemption over a period of 10 years. As part of the Scheme, the Promoters of the Company have also pledged Shares held by them to the extent of 10% of the total Equity capital of the Company to a Trustee appointed by the lenders out of which pledge on shares equivalent to 3.93% of the total equity capital of the Company has been invoked and credited to the lenders @ Re. 1 per share who have approved and signed the OCD documents as part of the said S4A Scheme.

As part of the Scheme, the promoters of the Company have also infused Rs.75 crore (first tranche) as an interest-free unsecured loan in the Company by raising a loan against pledge of their shares aggregating to 13.37% of the total Equity capital of the Company held by them to bring in required liquidity in the company.

Our Company is one of the few entities to come out and stand tall after undergoing debt restructuring schemes of SDR and S4A. With the implementation of the above, the interest burden of the company is expected to reduce substantially and with an additional non-fund based limits, especially, bank guarantees availability after this implementation shall boost and enable the company to bid for new projects and enhance the much required Order Book of the Company.

- The company is already L1 with ~ Rs.3,500 crore of work, which is expected to turn into firm orders and now the focus of the Company shall be to double the current order book of ~ Rs.7,415 crore by end of FY 18-19.

The Consolidated Performance of the Company: -

- The Revenues from Operations reduced by 4% from Rs.4,040.87 crore to Rs.3,883.84 crore. The net loss of the Company for the year FY17 however, was Rs.102.89 crore as compared to Rs.196.19 crore in the previous year.

The performance of the company’s operations out of its core engineering & construction business reflected in standalone results were as follows after implementation of Ind AS and merger of PRIL :-

- Revenue of the Company registered a growth of 5.85%, where revenue increased from Rs.2,764 crore in FY 2015-16 to Rs.2,925.55 crore in FY 2016-17.

- PBT of the company stood at Rs.107.31 crore in FY 17 as compared to ‘ (39.14) crore in FY 16.

- PAT of the company for FY 17 was Rs.41.83 crore viz. a viz. a loss of ‘ (29.91) crore in FY 16.

As the Managing Director of the company, I see a bright and glooming future ahead and would say that with all courage and hope we look forward to grow the company back again and roaring much ahead than ever before and even if there are more hurdles we shall be able to overcome the same with the support of you all shareholders and lenders of the Company.

Thank you all for your much needed support and co-operation. Yours truly,

Rupen Patel

Managing Director