MEP Infrastructure Developers Ltd

Dear shareholders,

The FY20-21 marked the completion of 19 years of MEP Infrastructure Developers Limited. Firstly, my sincere gratitude to all our shareholders for your continued trust in our capability, which enables us to reach new heights. We believe that the infrastructure sector is more than building roads and creating corridors of transit. It is about making the wheels of the economy move continuously, shrinking distances and making tomorrow better.

Strategic review and outlook.

Overview

The principal message that one needs to communicate is that the worst appears to be over for India's road building and allied sectors, which could benefit focused long-term players like MEP Infrastructure Developers Limited. Our optimism is derived from our decision to resize our Balance Sheet to enhance long-term competitiveness. The speed with which the Company responded has helped the Company protect its Balance Sheet from extensive impairment on the one hand and capitalise on widening prospects on the other in a challenging FY20-21.

Initiatives

The year under review was marked by the extensive impact of the Covid-19 pandemic. The pandemic affected virtually every segment of India's industry; the road building sector was not an exception. In the road building and tolling sector, there was a decline in labour availability as most preferred to return to their rural home towns and villages; there was a decline in road and highway traffic that affected toll collection.

The twin impact resulted in a mismatch between what had been projected and reality. In a business where project deliveries are strictly mapped leading to capital management discipline, this mismatch disrupted our cash flows. The Company was faced with two options: wait for the improvement to transpire and thereafter drive the business as usual or realign the business model with speed to remain relevant and viable. The

Company opted for the second option; this responsiveness was driven by the conviction that to be able to finish first, the Company would first need to finish, prompting a corresponding urgency and sensitivity.

The result is that the Company completed the harmonious substitution of four hybrid annuity model (HAM) projects to the new concessionaire during the year under review; these projects were marked by factors largely outside the Company's control and the management took a considered view that in view of the extensive uncertainty, a smaller order book would be safer.

Following this harmonious substitution, the Company finished the year under review with six ongoing projects, strengthening the Company's capacity to address them with timely competence.

Strengthening the business

At MEP Infra, we recognised that harmonious substitution during the last financial year would help protect the business; the Company was faced with the need to grow the business to respond to the widening prospects within India's road building sector.

The Company proposed to create a wider room for sizable net worth infusion for which shareholders' approval was taken. The proposed net worth infusion is expected to achieve the following objectives: resize the Balance Sheet towards a higher role of net worth over debt; strengthen the Company's pre-qualifications to address larger road building projects; strengthen the credit-rating that could potentially moderate the cost of debt. In view of this, we see the proposed net worth infusion as a potential game-changer that is expected to enhance the Company's preparedness to bidding opportunities in the BOT, HAM, EPC and tolling spaces.

Sectoral upside

At MEP Infra, we see the emerging road building agenda for the next decade as the single largest infrastructure opportunity for the country.

The Indian government has made fresh road building its principal national growth agenda, reconciling a number of national priorities: inclusive growth, Make in India, bridging the urban-rural divide and strengthening national logistical efficiency. There is a growing conviction that road building represents an investment offering the largest returns to the biggest number of beneficiaries for the longest time. During the first phase of the present Central government, the focus was on strengthening the existing road network through lane-widening (from four to six), facilitating a quicker throughput. In the second phase, the government is focusing on new road construction coupled with road widening. This second phase (comprising road building across national and state highways, expressways and district roads) has been secured through large institutionalised programmes with multi-year potential. In view of this, I am convinced that road building represents a growth sector through the coming decade, strengthening prospects for long-term players. Besides, the Indian government is also responding with speed to evolving ground realities. The Finance Minister recently announced the National Monetisation Pipeline comprising of four-year pipeline of the government's brownfield infrastructure assets. Maximum monetisation by FY25 is expected from the road sector where H1.6 lakh crore worth national highways of NHAI are identified. At MEP Infra, we are optimistic that despite a relaxation in the bidding norms that could lead to a larger number of players, there is enough scope for all the players to succeed in. This is on account of a large number of projects being announced by the government that is widening the sectoral opportunity; a focus on Make in India is enhancing the role of Indian players in joint venture alliances; a focus on governance is serving as an effective filter for intending entrants. We are confident that the government's initiatives will only widen the sectorial eco-system by enhancing the availability of talent, capital, technology and equipment providers. Also, the emergence of models within the country are inspiring a number of States to replicate proven approaches and prompt project launches across the country, widening the industry opportunity.

MEP Infra's preparedness

At MEP Infra, we are attractively placed to capitalise on the sectorial inflection point. One, the Company addresses the widest value chain in its business – from road building (EPC) to road building cum ownership (HAM) to toll management. Two, the Company enjoys a leadership in the toll management business.

Three, the Company resized its business with speed during the last financial year, enhancing sustainability.

Four, the proposed infusion of net worth will strengthen the Company's credit-rating, initiating a virtuous cycle.

Outlook

We see an upside for good reasons. Going ahead, we see accelerated road building without comprising safety and protection standards. This should translate into a higher throughput and timely completion (after getting the necessary road extension permissions from the concessionaire for reasons related to the pandemic) that revives cash flows, enhancing value for all those related to the sector and our Company.

Mr. Jayant D. Mhaiskar