The last four years of the UPA-2 government the major problem that faced all construction companies was the legacy of stalled infrastructure projects. The size was immense. Such stalled projects completely destroyed the financial viability of private infrastructure developers and construction companies.
These enterprises had used sizeable working capital to mobilise labour and deploy expensive plant and machinery at various project sites. With the stalling and inordinate delays of these projects, the obvious consequences were massive cost over-runs and huge financial strains. Matters significantly worsened with government and quasi-government execution agencies holding back payments against contractor claims. Even when independent arbitrators in dispute resolution favoured construction companies, the executing agencies invariably delayed the payment process by appealing to a higher judiciary. Thus, all construction majors in the infrastructure sector faced a terrible situation of burgeoning receivables on their balance sheets, inadequate cash inflows and huge interest payment on large working capital exposures.
For a sample of listed construction companies, interest cost as a percentage of total income soared from 6% in 2008-09 to above 13% in 2015-16 — when the debt-equity ratio had bloated to over 8. Simply put, for even the better construction majors such as your Company, the business was not financially sustainable.Thankfully, the NDA government under Prime Minister Narendra Modi has intervened to correct this glaring problem.
The year 2017-18, therefore, will be a year of consolidation and laying the foundation for a growth path. The GoI’s determination to remove the obstacles to economic growth is encouraging. Let us pray for a burst of consistent growth that our country needs, growth driven by the government’s purposeful drive to build infrastructure.
Annual Report 2016-17