TABLE OF CONTENTS
SECTION I – GENERAL ... iii
DEFINITIONS AND ABBREVIATIONS ... iii
PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA ... vii
FORWARD LOOKING STATEMENTS ... viii
SECTION II –RISK FACTORS ... ix
SECTION III – INTRODUCTION ... 18
SUMMARY OF INDUSTRY AND BUSINESS ... 18
THE ISSUE ... 24
SELECTED FINANCIAL STATEMENTS ... 25
GENERAL INFORMATION ... 29
CAPITAL STRUCTURE ... 35
OBJECTS OF THE ISSUE ... 41
BASIS FOR ISSUE PRICE ... 46
STATEMENT OF TAX BENEFITS ... 48
SECTION IV – ABOUT US ... 57
INDUSTRY OVERVIEW ... 57
OUR BUSINESS ... 65
KEY INDUSTRY REGULATIONS AND POLICIES ... 74
HISTORY AND OTHER CORPORATE MATTERS ... 81
OUR MANAGEMENT ... 85
OUR PROMOTER ... 96
OUR PROMOTER GROUP ... 99
OUR GROUP COMPANIES ... 100
DIVIDEND POLICY ... 106
RELATED PARTY TRANSACTIONS ... 107
SECTION V – FINANCIAL INFORMATION ... 108
FINANCIAL STATEMENTS ... 108
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 124
SECTION VI – LEGAL AND OTHER INFORMATION ... 131
OUTSTANDING LITIGATIONS AND MATERIAL DEVELOPMENTS ... 131
GOVERNMENT AND STATUTORY APPROVALS ... 133
OTHER REGULATORY AND STATUTORY DISCLOSURES ... 135
STOCK MARKET DATA FOR THE EQUITY SHARES OF OUR COMPANY ... 143
SECTION VII – ISSUE RELATED INFORMATION ... 144
TERMS OF THE ISSUE ... 144
SECTION VIII – MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION ... 172
MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION ... 172
SECTION IX - OTHER INFORMATION ... 183
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ... 183
SECTION I – GENERAL DEFINITIONS AND ABBREVIATIONS
In the Draft Letter of offer, unless the context otherwise requires, the terms defined and abbreviations expanded herein below shall have the same meaning as stated in this Section.
Term Description
“our Company”, “the Company”, “the Issuer Company”, “the Issuer”, “we”, “us”, and “our”
Remidicherla Infra & Power Limited having its registered office at Remidicherla House, CPR Brundavan, flat number 401, near Nectar Garden, Hyderabad – 500 081, India
Promoter Mr. M. Srinivasa Reddy
Promoter Group Mr. M. Venki Reddy, Ms. M. Mangama, Ms. M. Padmavathi, Mr. M. Krishna Reddy, Mr. M. Malla Reddy, Ms. K. Vijayalakshmi, Ms. S. Malleswari, Ms. M. Kanaka Prudhvi Reddy, Mr. Subba Reddy, Mr. K. V. Rajashekhar Reddy, Ms. K. Shravani Reddy, Ms. K. Vijayalakshmi, and Farmax India Limited
GENERAL / CONVENTIONAL TERMS
Term Description
Act The Companies Act, 1956, as amended from time to time
Articles / Articles of Association The Articles of Association of our Company Auditors (Statutory Auditors of
our Company)
The statutory auditor of our Company, being Mr. S. Kishore Kumar, Chartered Accountant
Auditor – Peer Reviewed (Peer reviewed Auditor)
The peer review certified auditor of our Company, being M/s. K. Prahlada Rao& Co. Board of Directors / Board/
Directors
The Board of Directors of our Company Mr. M. Srinivasa Reddy (M. Srinivasa Reddy), Ms. Priyanka Palacharla (P. Priyanka), Mr. Kamala Kumar Pothapragada (P. Kamala Kumar), Mr. Koti Reddy Somala (S. Koti Reddy), Mr. Indukuri Srinivasa Raju (I. Srinivasa Raju), Mr. Samanthapudi Krishna Kanth Varma (S. Krishna Kant Varma), Mr. Mr. Mudunuri Veera Venkata Ramana Varma and Ms. Swapna Chaparala or a duly constituted committee thereof.
Depositories Act The Depositories Act, 1996, as amended from time to time
Depository A depository registered with SEBI under the Securities and Exchange Board of India (Depositories and Participant) Regulations, 1996, as amended from time to time
Depository Participant A depository participant as defined under the Depositories Act Director(s) Director(s) of our Company unless otherwise specified
EPS Earnings Per Share
FEMA Foreign Exchange Management Act, 1999, as amended from time to time, and the rules and regulations framed there under
Financial Year / Fiscal Year / FY The period of twelve months ended March 31 of that particular year, unless specifically otherwise stated
Indian GAAP Generally Accepted Accounting Principles in India I.T. Act / IT Act The Income Tax Act, 1961, as amended from time to time Memorandum / Memorandum of
Association
The Memorandum of Association of our Company
Non Resident A “person resident outside India”, as defined under FEMA including FIIs
Non-Resident Indian A “person resident outside India”, as defined under FEMA and who is a citizen of India or is a person of Indian origin as defined under the Foreign Exchange Management (Deposit) Regulations, 2000, as amended from time to time
RBI Act The Reserve Bank of India Act, 1934, as amended from time to time
Registered Office CPR Brundavan, flat number 401, near Nectar Garden, Hyderabad – 500 081, India Registrar of Companies / RoC Registrar of Companies, Andhra Pradesh, 2nd floor, CPWD Building, Kendriya Sadan,
Sultan Bazar, Koti, Hyderabad – 500195, Andhra Pradesh, India Securities Act The United States Securities Act of 1933 as amended from time to time
SEBI Act The Securities and Exchange Board of India Act, 1992, as amended from time to time SEBI Regulations / SEBI (ICDR)
Regulations 2009
The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, and any amendments thereto
Term Description
Takeover Code Regulations, 1997, as amended from time to time Self Certified Syndicate
Bank or SCSB
The banks which are registered with SEBI under the SEBI (Bankers to an Issue) Regulations, 1994 and offers services of ASBA, including blocking of bank account and a list of which is available on SEBI’s website
U.S. GAAP Generally Accepted Accounting Principles in the United States of America
ISSUE RELATED TERMS
Term Description
Abridged Letter of Offer The abridged letter of offer to be sent to the eligible Equity Shareholders of the Company with respect to this Issue, in accordance with SEBI Regulations
Application Unless the context otherwise requires, the application for allotment of Equity Shares in the Issue
Allotment Unless the context otherwise requires, the allotment of Equity Shares pursuant to the Issue Application Supported
by Blocked Amount/ ASBA
The application (whether physical or electronic) used by an Investor to make an application authorizing the SCSB to block the amount payable on application in their specified bank account
ASBA Investor An applicant who intends to apply through ASBA process and:
(a) holds the shares of the Company in dematerialized form as on the record date and has applied for entitlements and / or additional shares in dematerialized form;
(b) has not renounced his/her entitlements in full or in part; (c) is not a renouncee;
(d) is applying through a bank account maintained with SCSBs Bankers to the Issue [●]
Composite Application Form / CAF
The form used by an investor to make an application for allotment of Equity Shares in this Issue
Consolidated Certificate In case of holding Equity Shares in physical form, the Company would issue one certificate for the Equity Shares allotted to one folio
Controlling Branches Such branches of the SCSBs which coordinate applications under the Issue by the ASBA Investors with the Registrar to the Issue and the Stock Exchanges and a list of which is available at SEBI’s website; that is at http://www.sebi.gov.in/
Designated Stock Exchange The Bombay Stock Exchange Limited
Draft Letter of Offer The Draft Letter of Offer dated July 26, 2010 filed with SEBI for its observations. Equity Shareholder(s) A holder(s) of Equity Shares of our Company as on the Record Date.
Issue The issue of 2,88,00,000 equity shares with a face value of Rs. 10/- each at par aggregating to Rs. 28,80,00,000 by the Company to the Equity Shareholders on rights basis in the ratio of one hundred twenty (120) equity shares for every one (1) equity share.
Issue Closing Date [●] Issue Opening Date [●]
Issue Price Rs. 10/- per Equity Share
Investor(s) The Equity Shareholders and Renouncees Lead Manager/ Lead Merchant
Banker
Intensive Fiscal Services Private Limited
Letter of Offer / LOF The Letter of Offer to be filed with the Stock Exchange after incorporating SEBI observations in the Draft Letter of Offer
Listing Agreement The Equity Listing Agreement signed between the Company and the Stock Exchange
Record Date [●]
Registrar to the Issue or Registrar
Venture Capital & Corporate Investments Pvt.Ltd.
Renouncees Persons who have acquired Rights Entitlements from Equity Shareholders
Rights Entitlement The number of Equity Shares that an Equity Shareholder is entitled to in proportion to his / her Shareholding in the Company as on the Record Date
Stock Exchange BSE where the Equity Shares of the Company are presently listed
BUSINESS / INDUSTRY RELATED TERMS AND ABBREVIATIONS
Term Description
BOT Build Operate Transfer
Gantry A framework of steel bars raised on side supports to bridge over or around something; can display railway signals above several tracks or can support a travelling crane etc.
GQ Golden Quadrilateral
GSB Granular Sub Base
Kmph Kilometer per hour
MDR Major District Roads
NHAI National Highway Authority of India
NHDP National Highway Development Project
NSEW North South East West
ODR Other District Roads
PWD Public Works Department
R & B Roads & Buildings
SU State Undertaking
Tenth Plan The Tenth Five Year Plan (2002-2007)
VR Village Roads
ABBREVIATIONS
Term Description
ACIT Assistant Commissioner of Income Tax
APRDC Andhra Pradesh Road Development Corporation
AGM Annual General Meeting
AS Accounting Standard as issued by The Institute of Chartered Accountants of India ASBA Application Supported by Blocked Amount
Asst. Assessment
BSE The Bombay Stock Exchange Limited
CAGR Compounded Annual Growth Rate
CIA Central Intelligence Agency
CDSL Central Depository Services (India) Limited
CSO Central Statistics Office
DP Depository Participant
Depository A depository registered with SEBI under the SEBI (Depository and Participant) Regulations, 1996, as amended from time to time
Depositories Act The Depositories Act, 1996, as amended from time to time Depositories
Regulations
The SEBI (Depository and Participant) Regulations, 1996, as amended from time to time
EBIDTA Earnings Before Interest Depreciation, Tax and Amortization
EGM Extra-Ordinary General Meeting
EPS Earnings Per Share
PPP Purchasing power parity
FDI Foreign Direct Investment
FEMA Foreign Exchange Management Act, 1999, and the subsequent amendments thereto
FII Foreign Institutional Investor as defined Under SEBI (Foreign Institutional Investors) Regulations, 1995 registered with SEBI and as defined under FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 and under other applicable laws in India
FIPB Foreign Investment Promotion Board FY/ Fiscal Year ended March 31
GDP Gross Domestic Product
GoI Government of India
IMF International Monetary Fund
ISIN International Securities Identification Number allotted by the Depository IT Act Income Tax Act, 1961, as amended from time to time
N. A. Not applicable
PAT Profit after Tax
RBI Reserve Bank of India
RBI Act Reserve Bank of India Act, 1934
ROI Return on Investment
ROC / RoC Registrar of Companies
RONW Return on Networth
RTGS Real Time Gross Settlement
SCSB Self Certified Syndicate Bank
SEBI Securities and Exchange Board of India
SEBI Regulations SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 as amended
Takeover Code Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with amendments issued subsequent to that date
UIN Unique Identification Number
UT Union Territory
Notwithstanding the foregoing,
(i) In the section titled ‘Main Provisions of the Articles of Association’ beginning on page 172 of the Draft Letter of Offer, defined terms shall have the meaning given to such terms in that section;
(ii) In the section titled ‘Financial Statements’ beginning on page 108 of the Draft Letter of Offer, defined terms shall have the meaning given to such terms in that section;
PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA
Unless stated otherwise, the financial data in the Draft Letter of Offer is derived from our restated audited financial information which has been prepared in accordance with Indian GAAP, the Act and restated in accordance with SEBI Regulations. Our current financial year commenced on April 1, 2010 and will end on March 31, 2011.
In the Draft Letter of Offer, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding-off, and unless otherwise specified, all financial numbers in parenthesis represent negative figures.
FORWARD LOOKING STATEMENTS
We have included statements in the Draft Letter of Offer which contain words or phrases such as “will”, “aim”, “is likely to result”, “believe”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “seek to”, “future”, “objective”, “goal”, “project”, “should” and similar expressions or variations of such expressions, that are “forward looking statements”.
All forward-looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include but are not limited to:
• General economic and business conditions in the markets in which we operate and in the local, regional and national economies;
• Increasing competition in or other factors affecting the industry segments in which our Company operates;
• Changes in laws and regulations relating to the industries in which we operate;
• Our ability to successfully implement our growth strategy and expansion plans, and to successfully launch and implement various projects and business plans;
• Our ability to meet our capital expenditure requirements and/or increase in capital expenditure;
• Fluctuations in operating costs and impact on the financial results;
• Our ability to attract and retain qualified personnel;
• Changes in technology in future;
• Changes in political and social conditions in India or in countries that we may enter, the monetary policies of India and other countries, inflation, deflation, unanticipated turbulence in interest rates, equity prices or other rates or prices;
• Variations in exchange rates;
• The performance of the financial markets in India and globally;
• Any adverse outcome in the legal proceedings in which we may be involved in.
SECTION II –RISK FACTORS RISK FACTORS
An investment in our Equity Shares involves a high degree of risk. You should consider all the information in the Draft Letter of Offer, including the risks and uncertainties described below, before making an investment in our Equity Shares. Investors should carefully consider all the information contained in the section titled “Financial Information” beginning on page 108 of the Draft Letter of Offer for the information related to the financial performance of our Company. If any of the following risks or any of the risks and uncertainties discussed in the Draft Letter of Offer actually occur, our business, financial condition and results of operations could suffer, the trading price of our Equity Shares could decline and you may lose all or part a of your investment. The risk set out in the Draft Letter of Offer may not be exhaustive and additional risks and uncertainties may arise, which are presently not known to us, or which may arise or may become material in the future. Further, some events may have a material impact from a qualitative perspective rather than a quantitative perspective and may be material collectively rather than individually. In making an investment decision, prospective investors must rely on their own examination of the Company and the terms of the Issue, including the merits and risks involved.
Unless specified or quantified in the relevant risk factors below, we are not in a position to quantify the financial or other implication of any of the risks described in this section.
Materiality
The Risk Factors have been determined on the basis of their materiality. The following factors have been considered for determining the materiality:
1. Some events may not be material individually but may be found material collectively. 2. Some events may have material impact qualitatively instead of quantitatively.
3. Some events may not be material at present but may be having material impacts in future. Internal Risk Factors
RISKS IN RELATION TO OUR BUSINESS AND RESULTS OF OPERATIONS:
1. Our Company has recently ventured in to a new line of business, so it is difficult to estimate our future performance.
We have recently ventured into infrastructure, construction and other related activities and have currently no projects in operation or other revenue generating operations, and it has no significant operating history from which its business, future prospects and viability can be evaluated. The development of projects involves various risks, including among others, execution risk, regulatory risk, construction risk, financing risk and the risk that these projects may prove to be unprofitable. Any inability of the Company to effectively develop and operate its projects could adversely affect its business prospects, financial condition and results of operation. Moreover, investors should not evaluate the Company’s prospects and viability based on the performance of its Promoter, FIL or other affiliates. We are scheduled to complete our first project in FY 2011-12 and the Company’s prospects must be considered in light of the risks and uncertainties inherent in new business ventures.
2. Projects included in our balance order book may be delayed or cancelled which could have a material adverse effect on our cash flow position, revenues and earnings.
3. Our financial condition and business prospects could be materially and adversely affected if we do not complete our projects as planned or if our projects experience delays.
Our projects under development have a long gestation period before they become operational or generate profit. Our projects are typically required to achieve financial closure no later than the scheduled commercial operations date specified under the relevant concession agreement. The completion targets for our projects are based on our estimates and are subject to various risks, including, among other things, contractor performance shortfalls, unforeseen engineering problems, force majeure events, unanticipated cost increases or changes in scope and delays in obtaining certain property rights and government approvals, any of which could give rise to delays, cost overruns or the termination of a project's development. In addition, completion of our projects can be delayed by other risks, including increased raw material or labor costs, unfavorable financing conditions, damage or injury to third parties, interruptions to construction due to bad weather, unforeseen environmental or engineering problems, failure to perform by our contactors or their suppliers, site accidents or other incidents and contractual disputes with our construction contractors. The failure to complete our projects within the required period and in accordance with agreed specifications could render benefits granted by the government unavailable or may result in higher costs, penalties or liquidated damages, invocation to performance guarantees, cancellation of our concession, loss of our equity contribution in the project, lower returns on capital or reduced earnings. In addition, such delays or failure would delay the commencement of our toll operations and annuity payments from such projects. Moreover, any loss of our goodwill, though not quantifiable monetarily, could adversely affect our ability to pre-qualify for new projects. Such loss of revenue or any of the foregoing factors could materially and adversely affect our business, cash flows, reputation, prospects and results of operations.
4. In the past, trading in the equity shares of our Company had been suspended from January 14, 2003 to May 18,2010. Shareholders will bear the risk of fluctuations in the price of the Equity Shares of our Company.
The trading in the equity shares of our Company had been suspended from January 14, 2003 to May 18,2010. Further the price of the Equity Shares on the BSE may fluctuate after this offering as a result of several factors, including, but not limited to: volatility in the Indian and global securities market; operations and performance of the Company; performance of its competitors and the perception in the market about investments in the electrical products and services industry; adverse media reports on the Company or the Indian electrical industry; changes in the estimates of the Company’s performance or recommendations by financial analysts; significant developments in India’s economic liberalization and deregulation policies; and significant developments in India’s fiscal and environmental regulations. Trading in the equity shares of our Company may be re-suspended due to lapses on part of our Company. There can be no assurance that the prices at which the Equity Shares are currently traded will correspond to the prices at which the Equity Shares will trade in the market subsequently. For further details please refer to “Stock Market Data for the Equity Shares of Our Company” on page 143 of the Draft Letter of Offer.
5. We have taken two properties on lease, which are owned by our Promoter Group entity.
Our Company utilizes the property situated at Remidicherla House, CPR Brundavan, flat number 401, near Nectar Garden, Hyderabad – 500 081, for commercial purposes and more particularly as our Company’s Registered Office. This has been taken on lease by our Promoter’s brother, Mr. M. Malla Reddy for a period of 5 years effective from March 1, 2010 on a monthly rent of Rs. 18,000/-. Further, in order to facilitate the smooth functioning of our business activities as well as timely co-ordination for undertaking our projects, we plan to set up an additional office space at Municipal No. 8-2-293/82/A/732-A/1 on part of plot number 732-A, in the layout of Jubilee Hills Cooperative House Building Society Limited, IVth floor, road number 36, Madhapur Road, Jubilee Hills, Hyderabad. Our Company has entered into a lease agreement with Mr. S. Pulla Reddy, Mr. M Malla Reddy our Promoter’s brother, Mr. M Koti Reddy, Mr. M Krishna Reddy, Mrs. S. Malleswari dated July 7, 2010 for leasing of the property admeasuring 6,635 sq ft., for a period of 5 years effective from July 1, 2010. The monthly rent of the above mentioned property is Rs. 6,63,500/-. For further information please refer paragraph titled “Property” beginning on page 70 under Chapter titled “Our Business” beginning on page 65of the Draft Letter of Offer.
6. Our registered office from where we operate is taken on lease leased. Discontinuation of lease agreements may require us to vacate such premises which may have an adverse impact on our business continuity and profitability. Further the lease deeds/agreements entered into by our Company are not adequately stamped and registered.
7. Our Promoter does not possess experience in the current line of business. Any inability on part of our Promoter to implement the projects at hand would materially impact our results of operation.
Our Promoter, Mr. M. Srinivasa Reddy, does not have experience in the proposed line of business, that is, infrastructure, construction and related activities. Our business would be managed by our Promoter with the assistance of our Management and experienced Key Managerial Personnel. Any incorrect decisions taken by our Promoter with regards to implementing the projects at hand could materially impact our profitability and results of operations. Further, our Company may be subjected to penalties which may arise due to non performance of contracts / inability to complete our projects at hand, on a timely manner.
8. Our Company had negative cash flows in the recent fiscals.
(Rs. in lakhs)
Net cash from /(used in) Operating Activities 21.12 (0.17) 1.33
Net cash from /(used in) Investing Activities (31.86) 0 0
Net cash from /(used in) Financing Activities 11.00 0 0
Net increase in Cash & Cash Equivalents 0.26 (0.17) 1.33
We had negative cash flows from / (used in) Investing Activities for the prior years. This has been primarily due to Inter Corporate Deposit of Rs. 31.64 lakhs given to our Group Company in fiscal 2010. Our cash and cash equivalents have been negative for the fiscal 2009 due to negative cash flows from operating activities.
For further details please refer to “Financial Statements – Annexure 3” beginning on page 113 of the Draft Letter of Offer.
9. We have to renew, maintain and obtain statutory and regulatory permits and licenses as may be required to operate our business and any delay or inability to obtain the same may have an adverse impact on our business.
Being in the infrastructure and construction business, we require several statutory and regulatory permits, licenses and approvals to operate our business. Many of these approvals are granted for fixed periods of time after the expiry of which these need to be renewed from time to time. We cannot assure that we would apply for and obtain the relevant licenses/approvals required for our projects or otherwise within the statutory time limits, and there can be no assurance that the relevant authorities will issue any such permits, licenses or approvals in time or at all. Failure by us to renew, maintain or obtain the required permits, licenses or approvals, or cancellation, suspension or revocation of any of our permits, licenses or approvals may result in the interruption of our operations and may have a material adverse effect on our business. For further information with regards to statutory and regulatory permits, licenses and approvals kindly refer to the chapter titled “Government and Statutory Approvals” on page 133 of the Draft Letter of Offer.
10. We do not own the trademark “ ”. We may be unable to adequately protect our intellectual property. Furthermore, we may be subject to claims alleging breach of third party intellectual property rights.
We have not applied for registration of our logo under the provisions of the Trademarks Act, 1999. As such, we do not enjoy the statutory protections accorded to a registered trademark. There can be no assurance that we will be able to register the trademark and the logo or that, third parties will not infringe its intellectual property, causing damage to its business prospects, reputation and goodwill. Further, we cannot assure you that any application for registration of our trademark in the future by our Company will be granted by the relevant authorities in a timely manner or at all.
Our efforts to protect our intellectual property may not be adequate and may lead to erosion of our business value and our operations could be adversely affected. We may need to litigate in order to determine the validity of such claims and the scope of the proprietary rights of others. Any such litigation could be time consuming and costly and the outcome cannot be guaranteed. We may not be able to detect any unauthorized use or take appropriate and timely steps to enforce or protect its intellectual property.
11. We may not qualify for bidding for larger projects independently.
price often is the deciding factor when it comes to awarding contracts. There are a number of competitors having better financials and other resources who have achieved greater market penetration than we have in the markets in which we compete. We may have to accept contracts with lower margins and values if we are unable to compete with other bigger players in the large and high margin contracts. This may affect our relative market share and profit.
13. Our inability to adhere to agreed timelines could adversely affect our reputation and/or expose us to financial liability.
Most contracts awarded to us contain conditions for completion of the contract within stipulated schedules with liquidated damages payable in the event the schedules not being adhered to. However in the course of our business our client / awarding authority, subject to prior intimation to us, may revise the scope and schedule of the project. Failure on our part to adhere to contractually agreed or revised schedules could result in payment of liquidated damages in addition to the damage which may be caused to our reputation within the construction industry, among clients or prospective clients.
14. Our risk management policies and procedures may leave us exposed to unidentified risks or unanticipated levels of risk.
The policies and procedures we employ to identify, monitor and manage risks may not be fully effective. Some methods of risk management are based on the use of observed historical market behavior. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures indicate. Other risk management methods depend on evaluation of information regarding markets, clients or other matters that are publicly available or otherwise accessible by us. This information may not be accurate, complete, up-to-date or properly evaluated. Management of operational, legal and regulatory risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events. We cannot assure you that our policies and procedures will effectively and accurately record and verify this information.
We seek to monitor and control our risk exposure through a variety of separate but complementary financial, credit, operational and legal reporting systems. Nonetheless, the effectiveness of our ability to manage risk exposure cannot be completely or accurately predicted or fully assured. For example, unexpectedly large or rapid movements or disruptions in one or more markets or other unforeseen developments could have a material adverse effect on our results of operations and financial condition. The consequences of these developments could include losses due to adverse changes in inventory values, higher volatility in earnings, increases in our credit risk to customers as well as to third parties and increases in general systemic risk.
15. Increasing raw material costs could have an adverse effect on our profitability.
Raw materials are subject to price volatility caused by factors including commodity market fluctuations, the quality and availability of supply, currency fluctuations, consumer demand and changes in governmental programs. Raw material price increases result in corresponding increases in our raw material costs.
16. Our business operations are sensitive to weather conditions, which may affect our revenues.
Implementation of our projects may get affected due to adverse weather conditions, such as heavy rains and floods. Though we make adequate provisions for non-execution during certain seasons like monsoon, any unforeseen vagaries of nature and season may result in failure of our meeting the contractual obligations and affect our business. Further, we record contract revenues for those stages of a project for which we receive certification from the client. Since revenues are not recognized until we make progress on a contract and receipt of certification from our clients, revenues booked in the first half of our financial year are traditionally lower as compared to revenues recorded during the second half of our financial year.
17. Changes in the scope of work may result in disputes, which could have a material and adverse impact on the profits from that project.
In certain cases, we may be required to perform additional work on a project that is beyond the stated scope of the contract. We may not receive any remuneration for the same, or payments in respect of the same may be delayed or may not be commensurate to the quantum of work performed, which may have a material adverse effect on our profits. Further, in certain contracts we may be required to execute modified work order as directed by the client which may not be agreed upon at the time of execution of the contract. This process may result in disputes and may result in delayed or inadequate payments. This could have an adverse effect on our profits.
18. Loss of key managerial personnel could have a material adverse effect our business.
19. We rely on contract labour for the performance of many of our operations. We do not typically maintain contractual relationship with these contractors.
Going forward, we will have to rely on contractors who engage on-site labourers for performance of many of our unskilled operations. The requirement of these contract labourers would be mostly met through local contractors. We do not typically maintain contractual relationship with these contractors; hence any change in relationship with these contractors may adversely affect our operations. Further, pursuant to hiring of labourers, there may be application made by the contract labourers to a court/tribunal, pleading for regularisation or absorption as permanent employees of our Company, which may lead to judicial proceedings and orders against us.
20. Our business is subject to legal and tax regulations and there may be changes in legislation governing the rules implementing them or the regulator enforcing them.
We are subject to the jurisdiction of various laws, tax authorities and regulations. The final determination of our tax liabilities involve the interpretation of local tax laws and related authorities in each jurisdiction as well as the significant reliance on estimates and assumptions regarding the scope of future operations and results achieved and the timing and nature of income earned and expenditures incurred. Changes in the operating environment, including changes in tax law, could impact the determination of our tax liabilities for any given year. Taxes and other levies imposed by the central or state governments in India that affect our industry include customs duties, excise duties, VAT, income tax, service tax and other taxes, duties or surcharges introduced from time to time.
21. Present equity paid up share capital of our Company is held in physical form which may affect the trading in the Equity Shares on the Stock Exchange
The Company plans to enter into a tri-partite agreement with NSDL respectively and accordingly our equity shares will be admitted in the de-materialised form. If our Company fails in converting its share capital into de-materialised form, investors may face difficulties in trading on the Stock Exchange.
RISK IN RELATION TO OBJECTS OF THE ISSUE
22. We do not have any definitive agreements to utilize the net proceeds of the Issue. Further the Objects of the Issue have not been appraised by any bank or financial institution.
We have not entered into any definitive agreements for utilisation of the net proceeds of the Issue for investment in capital equipment. Further our capital expenditure plans are based on management estimates and have not been appraised by any bank or financial institution or any other independent organization. In addition, our capital expenditure plans are subject to a number of variables, including possible cost overruns and changes in the perception of management for current plans, amongst others. There can be no assurance that we will be able to conclude definitive agreements for such investments in capital equipment.
For details please see the section titled "Objects of the Issue" beginning on page 41 of the Draft Letter of Offer.
23. The Objects of our Issue will be financed from the proceeds of this Issue. Any delay in launching the Issue may impact the implementation of the Objects of our Issue or increase the cost of implementation of the objects of the Issue.
The total requirement of funds for the Objects of our Issue is Rs. 2,880 lakhs. We propose to use the net proceeds of this Issue for investment in capital equipments, paying a deposit for leasing of equipment, acquisition of land for parking and maintenance of our equipment, Corporate brand building and advertisement, ERP Implementation and setting up of an additional office space. In case there is any delay in launching the Issue, the implementation of the objects of this Issue would be delayed, which may increase the cost in relation thereto, and/or require us to make alternative arrangements for the implementation. We cannot assure that such alternative arrangements can be made, or made on terms and conditions acceptable to us.
24. We have not placed any orders for all the equipment required in terms of our objects for the Issue.
We have not placed any of the orders for equipment aggregating to Rs. 1486.00 lakhs to be financed from the proceeds of this Issue. Further this requirement is based on our management estimates. Any delay in obtaining such equipment could significantly hamper our ability to undertake construction orders/ completing existing contracts. We may also have to compensate our clients for any cost over runs which may result because of us not receiving the equipment in time.
25. Our Company has not made any arrangements for borrowings, bank finance or institutional finance in respect of working capital requirements
Any inability on our part to meet the working capital requirements could severely hamper our operations and thus adversely affect our profitability and results of operations.
26. We will continue to be controlled by our Promoter, Mr. M. Srinivas Reddy, following this Issue and our other shareholders may not be able to affect the outcome of shareholder voting.
Currently Mr. M. Srinivas Reddy holds 74.60% of our fully paid up equity share capital. Post this Issue, his shareholding would further increase. For details in this regard, see the section titled “Capital Structure – Our Shareholding Pattern” on page 36. Consequently, Mr. Reddy would exercise substantial control over us and determine the outcome of proposals for certain corporate actions requiring approval of our Board or shareholders. Mr. Reddy will be able to influence our major policy decisions. This control could also delay, defer or prevent a change in control of our Company, impede a merger, consolidation, takeover or other business combination involving our Company, or discourage a potential acquirer from obtaining control of our Company even if it is in our best interests. The interests of our controlling shareholders could conflict with the interests of our other shareholders, including the holders of the Equity Shares, and the controlling shareholders could make decisions that adversely affect your investment in the Equity Shares.
RISKS ARISING OUT OF SHAREHOLDING / EQUITY SHARES
27. Our ability to pay dividends will depend upon future earnings, financial condition, cash flows, working capital requirements, capital expenditures, lender’s approvals and other factors.
Till date our Company has not paid any dividends and has had negative cash flows from operating and investing activities in the past three financial years. The amount of our future dividend payments, if any, will depend upon our future earnings, financial condition, cash flows, working capital requirements, capital expenditures, lender’s approvals and other factors. There can be no assurance that we shall have distributable funds or that we will declare dividends in the future. Additionally, the terms of any financing we obtain in the future, may contain restrictive covenants which may also affect some of the rights of our shareholders, including the payment of the dividend.
28. There may not be an active or liquid market for our Equity Shares, which may cause the price of our Equity Shares to fall and may limit an investor's ability to sell our Equity Shares.
The price at which our Equity Shares will trade after this Issue will be determined by the marketplace and may be influenced by many factors, including:
• our financial results and the financial results of the companies in the businesses we operate in;
• the history of, and the prospects for, our business and the sectors and industries in which we compete;
• the valuation of publicly traded companies that are engaged in business activities similar to ours;
• significant developments in India’s economic policies.
In addition, the Indian stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the securities of Indian companies. As a result, investors in our Equity Shares may experience a decrease in the value of our Equity Shares regardless of our operating performance or prospects.
29. We may have to raise capital or debt to fund our growth, which may further dilute the rights/interests of the existing equity shareholders and/or increase our overall interest cost.
The infrastructure and construction industry is capital intensive in nature. Going forward, to meet our capital requirements or pre-qualification criteria for bidding, we may have to raise further debt to fund our growth. This in turn, could further dilute the rights or interests of our existing equity shareholders and/or increase our overall interest cost.
External Risk Factors
1. The extent and reliability of Indian infrastructure could adversely affect our results of operations and financial condition.
India‘s physical infrastructure is less developed than that of many developed nations. Any congestion or disruption in its port, rail and road networks, electricity grid, communication systems or any other public facility could disrupt our normal business activity. Any deterioration of India‘s physical infrastructure would harm the national economy, disrupt the transportation of goods and supplies, and add costs to doing business in India. These problems could interrupt our business operations, which could have an adverse effect on our results of operations and financial condition.
Since 1991, successive Indian governments have pursued policies of economic liberalization and financial sector reforms. The government dissolved parliament in May 18, 2009 and following the general elections held during April and May 2009, a new coalition Government of India, was formed on May 22, 2009. The new cabinet was sworn in on May 28, 2009. The new Government of India has announced its general intention to continue India’s current economic and financial sector liberalization and deregulation policies. However, there can be no assurance that such policies will be continued and a significant change in the Government of India’s policies in the future could affect business and economic conditions in India and could also adversely affect our business, prospects, financial condition and results of operations.
3. Financial instability in Indian financial markets could materially and adversely affect our results of operations and financial condition.
The Indian financial market and the Indian economy are influenced by economic and market conditions in other countries, particularly in emerging market Asian countries. Financial turmoil in Asia, the United States and elsewhere in the world in recent years has affected the Indian economy. Although economic conditions are different in each country, investors' reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss in investor confidence in the financial systems of other emerging markets may cause increased volatility in Indian financial markets and, indirectly, in the Indian economy in general. Any worldwide financial instability, including further deterioration of credit conditions in the U.S. market, could also have a negative impact on the Indian economy. Financial disruptions may occur again and could harm our results of operations and financial condition.
4. After the Issue, the price of our Equity Shares may become highly volatile, or an active trading market for our Equity Shares may not develop.
The price of our Equity Shares on the Bombay Stock Exchange may fluctuate after the Issue as a result of several factors, including: volatility in the Indian and global securities market; our operations and performance; performance of our competitors; the perception in the market with respect to investments in the sectors in which we operate in India; adverse media reports about us or the sectors in which we operate; changes in the estimates of our performance or recommendations by financial analysts; significant developments in India's economic liberalization and deregulation policies; and significant developments in India's fiscal regulations. There can be no assurance that an active trading market for the Equity Shares will be sustained after this Issue, or that the price at which the Equity Shares are being currently traded, or will trade on listing of the Equity Shares pursuant to the Issue, will correspond to the price at which the Equity Shares will trade in the market subsequent to the Issue.
5. You will not be able to immediately sell any of the Equity Shares you purchase in this Issue on the Stock Exchanges.You can start trading in the Equity Shares only after they have been credited to your dematerialized account and listing and trading permissions are received from the Stock Exchanges.
Under the SEBI Regulations, we are permitted to allot Equity Shares within 15 days of the Issue Closing Date. Consequently, the Equity Shares you purchase in the Issue may not be credited to your dematerialized account with Depository Participants until 15 days of the Issue Closing Date. You can start trading in the Equity Shares only after they have been credited to your dematerialized account and listing and trading permissions are received from the Stock Exchanges.
6. The Issue Price of our Equity Shares may not be indicative of the market price of our Equity Shares after the Issue.
The Issue Price of Rs. 10- per Equity Share may not be indicative of the market price for our Equity Shares after the Issue. The market price of our Equity Shares could be subject to significant fluctuations after the Issue, and may decline below the Issue Price. There can be no assurance that the investor will be able to resell their shares at or above the Issue Price. Among the factors that could affect our share price are:
• quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income and revenues;
• changes in revenue or earnings estimates or publication of research reports by analysts;
• speculation in the press or investment community;
• general market conditions; and
• domestic and international economic, legal and regulatory factors unrelated to our performance.
7. There are restrictions on daily movements in the price of the Equity Shares, which may adversely affect a shareholder's ability to sell, or the price at which it can sell, Equity Shares at a particular point in time.No assurance can be given regarding your ability to sell your Equity Shares or the price at which you may be able to sell your Equity Shares at any particular time.
The stock exchanges will not inform us of the percentage limit of the circuit breaker in effect from time to time and may change it without our knowledge. Circuit breaker will limit the movements in the price of the Equity Shares. As a result of circuit breaker, no assurance can be given regarding your ability to sell your Equity Shares or the price at which you may be able to sell your Equity Shares at any particular time.
8. Additional issuances of equity may dilute your share holding in the Company.
Any future issuance of our Equity Shares or securities linked to our Equity Shares may dilute your shareholding in our Company. Further, sale of a large number of our Equity Shares by our major shareholders could adversely affect the market price of our Equity Shares. Similarly, the perception that any such primary or secondary sale may occur could adversely affect the market price of our Equity Shares.
9. Our business and activities will be regulated by the Competition Act, 2002 (the” Competition Act”) and any application of the Competition Act to use could have a material adverse effect on our business, financial condition and results of operations.
The Indian Parliament has enacted the Competition Act for the purpose of preventing business practices that have an appreciable adverse effect on competition in India under the auspices of the Competition Commission of India, which (other than for certain provisions relating to the regulation of combinations) has recently become effective. Under the Competition Act, any arrangement, understanding or action in concert between enterprises, whether or not formal or informal, which causes or is likely to cause an appreciable adverse effect on competition in India is void and attracts substantial monetary penalties. Any agreement which directly or indirectly determines purchase or sale prices, limits or controls production, shares the market by way of geographical area or market or number of customers in the market is presumed to have an appreciable adverse effect on competition. The effect of the Competition Act and the Competition Commission of India on the business environment in India is as yet unclear. Any application of the Competition Act to us may be unfavorable and may have a material adverse effect on our business, financial condition and results of operations.
10. A third party could be prevented from acquiring control of our Company because of the takeover regulations under Indian law.
There are provisions in Indian law that may discourage a third party from attempting to take control of our Company, even if it would result in the purchase of our Equity Shares at a premium to the market price or would otherwise be beneficial to our Company’s shareholders. Indian takeover regulations contain certain provisions that may delay, deter or prevent a future takeover or change in control so as to ensure that the interests of shareholders are protected. Any person acquiring either “control” or an interest (either on its own or together with parties acting in concert with it) in 15% or more of our Company’s voting Equity Shares must make an open offer to acquire at least another 20% of our Company’s outstanding voting Equity Shares. A takeover offer to acquire at least another 20% of our Company’s outstanding voting Equity Shares also must be made if a person (either on its own or together with parties acting in concert with it) holding between 15% and 55% of our Company’s voting Equity Shares has entered into an agreement to acquire or decided to acquire additional voting Equity Shares in any financial year that exceed 5% of our Company’s voting Equity Shares. These and other applicable provisions may discourage or prevent certain types of transactions involving an actual or threatened change in control.
11. Global economic, political and social conditions may harm our ability to do business, increase our costs and negatively affect our stock price.
External factors such as potential terrorist attacks, terror threats, pandemics, acts of war or geopolitical and social turmoil in many parts of the world could prevent or hinder our ability to do business, increase our costs and negatively affect our stock price. For example, increased instability may adversely impact the desire of employees and customers to travel, the reliability and cost of transportation, our ability to obtain adequate insurance at reasonable rates or require us to incur increased costs for security measures for our operations. These uncertainties make it difficult for us and our customers to accurately plan future business activities. More generally, these geopolitical social and economic conditions could result in increased volatility in India and worldwide financial markets and economy.
12. Our plants can be affected by natural disasters and technical failures. Any such failures could adversely affect our business and the operations of our Company.
Prominent Notes
1. Issue of 2,88,00,000 Equity Shares with a face value of Rs. 10/- each at par each for an amount aggregating to Rs. 2,880 Lakh son rights basis to the existing equity shareholders of our Company in the ratio of 120 Equity Share for every 1 Equity Share held by the equity shareholders on the Record Date i.e. [●]. For more details, please refer to the chapter titled “Terms of the Issue” beginning on page 144 of the Draft Letter of Offer.
2. The net asset value per Equity Share was Rs. -4.73 and Rs. 0.58, based on the restated audited financial information of our Company as on March 31, 2010 and March 31, 2009 respectively.
3. Based on our restated audited financial information, our net worth was Rs. (11.35) as on March 31, 2010.
4. Except as disclosed in the section titled “Capital Structure” on page 35 of the Draft Letter of Offer, none of our Promoters, Promoter Group and Directors have consummated any transactions in our Equity Shares during the last six months prior to the filing of the Draft Letter of Offer with SEBI.
5. Our Company was incorporated as Star Leasing Company Limited on August 01, 1983 with the Registrar of Companies, Maharashtra under the Act. It got commencement certificate on September 20, 1983 & later changed its name to Star Leasing Limited in the year 1996 and was further changed to Remidicherla Infra & Power Limited consequent to a special resolution passed by the members at its Extra-Ordinary General Meeting held on January 28, 2010 which has been approved by the Registrar of Companies of Andhra Pradesh. Our Company received a fresh certificate of incorporation on February 08 2010. The main objects clause of our MoA was amended consequent to the change in the name of our Company to Remidicherla Infra & Power Limited. For further details, see the section titled “History and Other Corporate Matters” on page 81 of the Draft Letter of Offer.
6. The company has not fully complied with the listing requirements of the concerned stock exchange and no punitive action has been taken against the company by the Stock Exchange except the suspension in the trading in the securities of the Company by Bombay Stock Exchange Limited. BSE has suspended trading of Star Leasing Limited with effect from January 14, 2003 due to the non compliance of clauses of listing agreement which was revoked w.e.f, May 18, 2010 vide its Notice No.20100512-21 dated 12th May 2010.
7. Except as disclosed in the section titled “Our Management” and “Our Promoter” and “Our Promoter Group” on pages 85, 96 and 99 respectively and “Financial Statements – Annexure 16” on page 122 as disclosed herein below of the Draft Letter of Offer, none of the Promoter, Directors and our key management personnel have any interest in our Company except to the extent of remuneration and reimbursement of expenses and to the extent of the Equity Shares held by them or their relatives and associates or held by the companies, firms and trusts in which they are interested as directors, member, partner and/or trustee and to the extent of the benefits arising out of such shareholding.
8. Our Company has not made any loans and advances to our Directors, relatives of our Directors and any persons or companies in which our Directors are interested.
9. Investors may contact the Lead Manager for any complaints, information or clarifications pertaining to the Issue.
10. Before making an investment decision in respect of this Issue, investors are advised to review the entire Draft Letter of Offer, please also refer to the section titled “Terms of the Issue – Basis for the Issue” on page 144 of the Draft Letter of Offer. 11. Refer to the section titled “Terms of the Issue – Basis of Allotment” on page 156 of the Draft Letter of Offer for details of the
basis of allotment.
12. During the year March 31, 2010 we have granted Inter corporate loan of Rs. 31.64
13. We don’t have any subsidiary; hence the reporting of the same is no applicable. For details of related party transactions please refer to “Financial Statements – Annexure 16” on page 122 of the Draft Letter of Offer.
SUMMARY OF INDUSTRY INFRASTRUCTURE IN INDIA AND PRIVATE PARTICIPATION
The fast growth of the economy in recent years has placed increasing stress on physical infrastructure such as electricity, railways, roads, ports, airports, irrigation, and urban and rural water supply and sanitation, all of which already suffer from a substantial deficit from the past in terms of capacities as well as efficiencies in the delivery of critical infrastructure services. The pattern of inclusive growth of the economy projected for the Eleventh Plan, with GDP growth averaging 9% per year can be achieved only if this infrastructure deficit can be overcome and adequate investment takes place to support higher growth and an improved quality of life for both urban and rural communities.
According to the Planning Commission, Government of India, inadequate infrastructure constitutes a significant constraint in India’s growth potential and improvement in physical infrastructure has emerged as a high priority area. Increased private participation would be necessary for mobilizing the resources needed to bridge the infrastructure deficit. The Eleventh Five Year Plan (2007-2012) the ("Eleventh Plan"), therefore, recognizes that adequate, cost-effective and quality infrastructure is a pre-requisite for sustaining the growth momentum and that investment in physical infrastructure would have to be increased from approximately 5.0 percent of GDP during the Tenth Plan (2002-07) (the "Tenth Plan") to 9.0 percent of GDP by the end of the Eleventh Plan. The investment in infrastructure during the Tenth Plan was Rs. 8,877,940.00 million which constituted 5.07 percent of GDP. This included Rs. 1,752,030.00 million of investment by the private sector.
To overcome the infrastructure deficit, the Eleventh Plan projects an investment of Rs. 20,561,500.00 million which would imply an investment of 7.6 percent of GDP during the Eleventh Plan and 9.0 percent of GDP in the terminal year of the Eleventh Plan (2011-12). This includes public sector investment of Rs. 7,656,220.00 million in the Central Government projects and Rs. 6,709,370.00 million in the State Government projects, leaving the remaining Rs. 6,195,910.00 million, to be invested by the private sector. Private capital is thus expected to fund approximately 30 percent of the total investment during the Eleventh Plan, as compared to 20 percent realized during the Tenth Plan. The total investment in infrastructure from 1999-2000 onwards and investment in infrastructure as a percentage of GDP, are provided in the graphs below.
(Source: Development of Infrastructure- Planning Commission)
The investment required by the Central and State Governments and the private sector in each of the ten major physical infrastructure sectors for sustaining a growth rate of 9% in GDP over the Eleventh Plan (2007– 08 to 2011–12) and corresponding to the quantitative targets for the Eleventh Plan as presented in box below:
(Source: CSO for 2006-07, and computations of the Planning Commission)
A comparative picture of the sector-specific allocations in these two Plan periods is given in Table below. Compared with investment levels achieved in the Tenth Plan period, the expected infrastructure investment in the Eleventh Plan is 2.36 times the amount of Rs 871445 crore or US$ 217.86 billion at constant 2006–07 price.
GOVERNMENT INITIATIVES
• Foreign Direct Investment up to 100 per cent in road sector.
• Provision of subsidy up to 40 per cent of project cost to make projects viable. The quantum of subsidy to be decided on a case-to-case basis.
• 100 per cent tax exemption in any consecutive 10 years out of 20 years after commissioning of the project.
• Duty free import of high capacity and modern road construction equipments.
• Declaration of the road sector as an industry.
• Easier external commercial borrowing norms.
• Right to retain Toll
• The government has also announced an increase in the overseas borrowing amount of infrastructure sectors, to US$ 500 million from US$ 100 million.
• In order to tide over the shortage of funds, the road transport and highways ministry has proposed priority sector status for road development, allowing private highway developers more funds from banks.
• In Budget 2010-11, the allocation for road transport has been increased by over 13 per cent from US$ 3.8 billion to US$ 4.3 billion.
• Moreover as per the Economic Survey, the Ministry of Road Transport and Highways, with a view to expediting the progress of the NHDP, has set a target of completion of 20 km of national highways per day, which translates to 35,000 km at the rate of 7,000 km per year during the next five years (2009-14).
SUMMARY BUSINESS Our Evolution
Our Company was incorporated with the main object to carry on the business of leasing and hire purchase. With a view to pursue business in financial services, primarily leasing and hire purchase, our Company made its maiden public issue in the year 1983 and the equity shares of our Company got listed on the Bombay Stock Exchange on March 12, 1984. Our Company is not a non banking finance company (NBFC) and is not registered with the Reserve Bank of India (RBI). Also it is not registered with SEBI in any capacity.
In March 2001, the first promoters of our Company sold off their controlling interest to Mr. Mir Ahmed Ali Khan and Mr. Mir Hasnain Ali Khan. Further, Mr. Mir Ahmed Ali Khan and Mr. Mir Hasnain Ali Khan made an open offer in compliance with the Takeover Code and took over the controlling interest of our Company.
Mr. Mir Ahmed Ali Khan and Mr. Mir Hasnain Ali Khan took over the controlling interest in the share capital and management of our Company for the benefits of listing status, easier finance raising, etc. and with the intent to diversify the activities of our Company into the application software such as accounting, inventory, order management, manufacturing, CRM etc.
In January 2009, Mr. Mir Ahmed Ali Khan and Mr. Mir Hasnain Ali Khan sold their controlling interest in our Company to 3A Capital Services Limited and Mr. Rajan Shah. Further, 3A Capital Services Limited and Mr. Rajan Shah made an open offer in compliance with the Takeover Code and took over the controlling interest of our Company.
Mr. Rajan Shah, promoter director of 3A Capital Services Limited, acquired the controlling interest in the share capital and management of our Company with the intent of expanding its activities, business into financing, investment and trading of shares and securities etc.
Thereafter vide share purchase agreement dated January 30, 2010, 3A Capital Services Limited and Mr. Rajan Shah, sold their controlling interest in our Company to Mr. M. Srinivasa Reddy, our Promoter. Further, Mr. M. Srinivasa Reddy made an open offer in compliance with the Takeover Code and took over the controlling interest of our Company. Mr. M. Srinivasa Reddy acquired the controlling interest in the share capital and management of our Company as he proposes to diversify the business activities of our Company in the field of power, infrastructure, mining and other related / unrelated areas depending upon the market conditions and available opportunities.
Mr. Reddy is a graduate in Mechanical Engineering from Nagarjuna University. Post graduation he started marketing / distribution of FMCG products whilst sourcing them from various manufacturers. Having established a distribution network, Mr. Reddy started a manufacturing plant with hygienic facilities. With a keen sense of entrepreneurship, he is the driving force behind the success of Farmax India Limited and the implementation of the projects envisaged by our Company.
Business Overview
We have recently ventured into infrastructure, construction and related activities. The market for the Company’s service i.e. construction and infrastructure development is directly linked with the economic development in the country, as construction is the key step for any development. We are currently providing our services to various private companies that can be later extended to Governmental as well as Public Private Partnership projects. Our projects currently extend to 3 states in India that are focused on the following areas:
• Land Development
• Construction and Civil Work
• Roads
Major Work Order Received by the Company
Client State Name of the
15,01,50,000/- 01/06/2010 1/7/2010 18 months
Sanjeevan Enterprises
Karnataka Road Construction material supply
21,72,00,000/- 09/06/2010 11/06/2010 12 months
TOTAL 51,73,50,000/- Our Competitive Strengths
Contracts in hand
Vide share purchase agreement dated January 30, 2010, 3A Capital Services Limited and Mr. Rajan Shah, sold their controlling interest in our Company to Mr. M. Srinivasa Reddy, our Promoter. Further, Mr. M. Srinivasa Reddy made an open offer in compliance with the Takeover Code and took over the controlling interest of our Company. Mr. M. Srinivasa Reddy acquired the controlling interest in the share capital and management of our Company as he proposes to diversify the business activities of our Company in the field of power, infrastructure, mining and other related / unrelated areas depending upon the market conditions and available opportunities. As on June 30, 2010 we have order book of Rs. 5,173.50 lakhs in infrastructure, construction and related activities.
Proven track record of Promoter
Our Promoter Mr. M. Srinivasa Reddy, is a Mechanical Engineer. Mr. M. Srinivasa Reddy is a Mechanical Engineer by qualification. Post graduation, Mr. Reddy began his career by marketing / distributing FMCG products sourced from various manufacturers. Making the most of his knowledge of the various markets and the experience gained while setting up the marketing network across different areas he conceived the idea of starting a FMCG manufacturing plant and promoted Farmax India Limited which is listed on Indian Stock Exchange. With a keen sense of entrepreneurship, he is the driving force behind the successful implementation of Farmax India Limited. As the company grew in size, his knowledge and experience helped to develop his own network.Capitalising on this, as well as the emerging opportunities in infrastructure, construction and related activities, he is now venturing into them through our Company
Professionally managed company with an experienced management and a qualified employee base
Our Company has a balanced mix of youth and experience, comprising of a strong and young management team coupled with experienced seniors that provides a blend of old school principles as well as young and fresh ideas. We have a qualified and motivated workforce consisting of managers, engineer, technical staff and non-technical staff. The skill sets of our employees give us the flexibility to adapt to the needs of our clients and the technical requirements of the various projects that we undertake. We are dedicated to the professional development of our employees and continue to invest in them to ensure that they have the necessary skills. Our management team is well qualified and experienced and is responsible for the growth in our business operations.
Business Strategy
To pursue continuous marketing & corporate brand building
We plan to make ourselves visible to a large audience that will enable us to get more contracts as well as bid for larger contracts. We intend to position ourselves in the market through communication and promotional initiatives such as advertisements in print media, hoardings, televisions, organizing events, participation in industry events, public relations and investor relations efforts. For the said purpose we propose to spend Rs. 362.80 lakhs for further details please refer to the chapter titled “Objects of the Issue” on page 41 of the Draft Letter of Offer.
Continue to enhance our project execution capabilities
We intend to focus on performance and project execution in order to maximize client satisfaction and margins. We will leverage technologies, designs and project management tools to increase productivity and maximize asset utilization in capital intensive activities. We will optimize operating and overhead costs to maximize our operating margins. Our ability to effectively manage projects will be crucial to our continued success as a recognised infrastructure company. We believe that we are able to distinguish ourselves from our competitors because of our management strength, construction, operation and maintenance capabilities. We intend to continuously strengthen our execution capabilities by adding to our existing pool of engineers, attracting new graduates, and facilitating continuous learning.
project, clients generally limit the tenders to the contractors who are pre-qualified based on several criteria including experience, technological capacity and performance, reputation of quality, financial strength, net worth, bonding capacity and size of previous contracts executed and competitive price/bid. The Company is improving on its pre-qualification criteria to enable it to bid for BOT projects.
Improve the execution capabilities
The Company aims to improve its execution capabilities to execute larger number of projects at a time. With this view, the Company is constantly strengthening its capabilities to enable it to execute various projects at a time.
To operate into diversified sectors
The Company aims to operate into diversified sectors such as townships, offices, houses and other buildings, urban infrastructure, highways, roads, power systems, etc. which will mitigate business risk in case of slowdown in any one particular field in the future.
Expanding geographical reach
