In last year''s annual report, at the end of my message to you, I had written:
“So, what is my outlook for FY2018? Your Company has gone through very hard times in the last three years. In the process, we have learned a great deal, become unfailingly cost conscious in everything that we do, and have taken a careful path that focuses on preserving cash flows while building our order book by bidding for profitable projects. Adversity forces each of us to do better. Your Company is no different. Therefore, I am cautiously hopeful of better results in FY2018, and of using the year to set the foundations for a new growth path.”
In many ways, this was indeed so in FY2018.
As described in the chapter on Management Discussion and Analysis, FY2018 was a year of consolidation for your Company with its core focus areas being: (i) rapid execution of existing orders, (ii) expeditious collection of dues from various clients, (iii) radically optimising workforce and creating a single line of sight regularly monitored at my level; while (iv) pursuing profitable business opportunities to maintain a healthy order book.
Throughout the year, we successfully completed several long standing projects to the satisfaction of our clients and, in many such instances, also received what was due to us. We consciously reengineered our project teams and empowered them to complete projects within or earlier than their deadlines. We diligently followed up on our claims and have had some success, thanks to the new arbitration process under the Arbitration and Conciliation (Amendment) Act, 2015. And we cut costs wherever possible without impinging on the progress of our projects.
Consequently, at a standalone level, your Company''s FY2018 revenues increased by almost 8% to Rs. 4,059 crore. On a consolidated basis, it grew by 4% to Rs. 5,080 crore. Standalone EBITDA was Rs. 215 crore; and at a consolidated level it was Rs. 18 crore. Unfortunately, thereafter, the financial consequences of the last six years came into play.
As you know, throughout the UPA-II regime and even the first few years of the present government, the country suffered from projects coming to a halt across all infrastructure sectors. Stalled projects meant that milestones could not be achieved for no fault of the contractors. This, in turn, led to payments being withheld. Every construction company that had borrowed from banks to mobilise resources had to sit idle with no revenues in sight, while the interest cost continued to burgeon.
In addition, for years on end, all construction contractors suffered from clients not honouring arbitration awards that went in favour of the contractors. Thankfully, this has changed for the better under the current government with the Arbitration and Conciliation (Amendment) Act, 2015. However, the sheer size of such unpaid dues is still enormous, and these have also caused serious financial strain — not just on your Company but every contractor doing work in the infrastructure space.
Thus, while we did well to increase revenues and the order book in FY2018, we were hit by large finance costs. At a standalone level, these amounted to Rs. 976 crore; and at the consolidated level these were Rs. 1,087 crore. Consequently, pre-tax losses were 7 882 crore (standalone), and Rs. 1,273 crore (consolidated).
Based on projected future taxable income and results of operations, your Company believes that it will have sufficient income in the future. The statutory auditors agreed with this stance and, hence, allowed it to realise the carried forward losses and unabsorbed depreciation. Hence, we have recognised deferred tax assets of Rs. 1,199 crore for FY2018 (standalone), and Rs. 1,202 crore (consolidated), which are fully recoverable. This resulted in a positive impact on taxes In the profit and loss account, and explains why we have recorded post-tax profits while there were pre-tax losses.
As I have shared with you earlier, since FY2015, your Company has been operating under the guidelines of a Corrective Action Plan (CAP) developed in partnership with a consortium of banks and financial institutions. Unfortunately, there were additional pressures on working capital in the last few years, as some lenders in the consortium delayed actual release of short term funds in line with the CAP. This led to the lenders and Punj Uoyd collaborating on designing another round of financial restructuring to reduce debt and strengthen your Company''s balance sheet.
While this was going on, the Resen/e Bank of India (RBI) annulled the possibility of any financially distressed company from adopting any of the routes that were permissible under the previously existing restructuring schemes. That occurred in February 2018.
Consequently, your Company''s restructuring proposal is now being reviewed by the lenders as per the latest RBI guidelines. The exercises required for the debt restructuring such as a techno-evaluation study, forensic audit, fair valuation of various assets, credit rating and review of future business plans are in various stages of completion. We remain confident of a favourable outcome of this restructuring exercise and also of getting the necessary approvals, including from the shareholders. We hope to close this by the first half of FY2019.
When that occurs, your Company will have the breathing room to do what it does best: bid for profitable projects and execute projects with best-in-class operational efficiency to earn profits for the shareholders. I hope to see this happen in FY2019.
Having dealt with many financial setbacks over the last four years and yet kept focus on running your Company, I take comfort from Aeschylus (525 BC - 456 BC), an ancient Greek poet, playwright and soldier. He wrote, ''It is a mark of a wise and upright man not to rail against the gods in misfortune’.
Yes, we shall overcome. Sooner than many believe. Because we can do it.
Thank you for your patience and support.
With best wishes,