MANAGEMENT DISCUSSION & ANALYSIS
Infrastructure development is the most crucial factor for India's economic and social development. If we are talking about a double digit India's GDP growth for next 10-15 years we have to invest in the infrastructure development to achieve and sustain this growth. India has the necessary human and natural resources for becoming world's leading economy but without infrastructure these assets cannot be adequately utilized. Last twenty years of our journey has been quite enriching for the company and for all of us. It has been a continuous process of learning and today we are comfortably placed among our peers with a diversified and substantial order book. We have grown multifold and have been able to sustain this growth because of the dedicated and committed efforts of the entire team. From a small construction company we have matured ourselves in a large and diversified infrastructure organization. We have shown stellar business and financial performance year-on-year and have forayed into different business segments of the infrastructure sector. Economic and Industry Overview Supported by strong fundamentals and the Central Government's proactive measures India has been the most resilient and efficient economy to come out of the economic crisis. India's GDP growth for 2009-10 is estimated at 7.2 per cent. With an assumption of sustainable good performance of the industry and services sectors, the latest RBI projection placed the real GDP growth at 8.0 per cent for the year 2010-11. According to the latest IMF projection, India will grow at 8.8 percent during the year 2010. Central and State Governments are also realizing the need of good infrastructure. In the next 10-year period, if we take the estimates of the Union Government, India needs US$1 trillion (from 2007-2017 spread over the 11th and 12th Plan periods) for building new roads, ports, airports, power plants, sewage treatment and related urban infrastructure. We need US$500 billion over the next five years itself (more than 50% of India's GDP) to create new infrastructure to meet the 9% growth target. The construction industry has entered a phase of quantum growth in last 5-10 years. This has been necessitated by the urgency to address the inadequacies in infrastructure, which has been universally recognized as a major constraint in the path of economic growth and development. To make the growth process more inclusive, the 11th Five year Plan indicates a strong focus on infrastructural investment, social development, agriculture and rural development. Construction of houses and roads involves about 75% and 60% of civil construction respectively. Building of airports and ports has construction activity in the range of 40-50%. For industrial projects, construction component ranges between 15-20%. The country's core sector, comprising six key infrastructure industries, accelerated by 5.5 per cent year on year in April 2010, compared with 3.7 per cent in April 2009, according to the data released by the Union Ministry of Commerce and Industry. Further, investment in the infrastructure sector is expected to be around US$ 425.2 billion during the Eleventh Five Year Plan (2007-12), as against US$ 191.3 billion during the Tenth Plan. Meanwhile, private investment into the sector is also projected to increase to US$ 157.3 billion in the Eleventh Plan, as compared to US$ 47.84 billion in the Tenth Plan. This investment is likely to be fulfilled through public-private-partnership (PPP) projects that are based on long-term concessions. Clearance has been given to nine new investment proposals of around US$ 1.05 billion by the State Level Single Window Clearance Authority (SLSWCA). A committee on infrastructure under Prime Minister will conduct quarterly review of development of power, road, ports, civil aviation and railways sectors: announced the Planning Commission of India recently. Further, the Cabinet Committee on Infrastructure (CCI) will handle specific infrastructure cases that may require necessary policy correction or solving issues affecting projects.

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Roads India has one of the largest road networks in the world, aggregating to about 3.34 million kilometers at present. The country's road network consists of National Highways, State Highways, Major District Roads, other District roads and Village Roads. The road network comprises of 70,548 km of National Highways, 1,31,899 km of State Highways, 4,67,763 km of Major District Roads and about 26,50,000 km of Other District and Rural Roads. The upgradation of 12,109 km has been approved by the Government under NHDP Phase - III at an estimated cost of Rs. 80,626 Cr. In addition to the above-mentioned approved projects, there is a proposal for two-laning with paved shoulder for 20,000 km of National Highways under NHDP Phase-IV. The Government has also approved six laning of 6,500 km of NH’s comprising 5,700 km of GQ and balance 800 km of other sections of NH’s under NHDP phase- V at a cost of Rs. 41,210 Crores. The Government has approved construction of 1,000 km of expressways with full access control on new alignments at a cost of Rs.16,680 Cr. under NHDP Phase VI and the construction of ring roads including improvement of NH Links in city, grade separated intersections, flyovers, elevated highways, ROBs, underpasses and service roads at a cost of Rs. 16,680 Cr. under NHDP Phase-VII. An in-principal approval for converting 10,000 km of state roads to national highways has been given by the Empowered Group of Ministers (EGoM). It is estimated that around US$ 3.3 billion would be required over the next five years to undertake this project. Further, the Cabinet Committee on Infrastructure (CCI) has approved four highway projects of about US$ 543.8 million on June 10, 2010. These projects would cover states such as Gujarat, West Bengal, Bihar, Uttar Pradesh and Madhya Pradesh. In the union budget 2010, Allocation for road transport increased by over 13 per cent from Rs. 17,520 Cr. to Rs 19,894 Cr. Railways Railways play an important role in the overall development of country's economy and various proposals are made in this regard in the budget for 2010-11. The Railways has taken following initiative to do the overall development of various businesses:

• • • • • • • • • • • •

Extension of Kolkata Metro. Railway line to be extended from Bilaspur in Himachal Pradesh to Leh in Jammu and Kashmir. Andaman and Nicobar Islands to get railway line from Port Blair to Diglipur. Gangtok to be connected by rail from Rangpo. Thrust on expansion in 2010-11 with allocation of Rs.4,411 Cr. 10 automobile ancillary hubs to be created. North-south, east-west dedicated freight corridors to be created. Construction of high-speed passenger rail corridors envisaged. Construction of more underpasses, besides road over bridges. Upgrade of 94 stations. Besides various proposals had been made in the 2009 railway budget for creating better rail infrastructure. Freight business: Blue print prepared for High Density Network: phased execution of capacity augmentation including dedicated freight corridors, doubling third and fourth lines bypasses, flyovers, automatic signaling works etc. over 7 years at least of about Rs. 75,000 Crs. Dedicated freight corridor: A 2,700 Km - long railway line project at an investment of more than Rs. 28,000 Crs which consists of 1,232 Km long Eastern Corridor (from Ludhiana to Sonnagar) in Phase-I and 1,469-Km- long Western Corridor from Jawahar Lal Port area (Mumbai to Dadri/Tuglakabad) in Phase II.

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Annual Report 2009-10

33

Allocation for railways increased from Rs.15,800 Cr. in B.E. 2009-10 to Rs.16,752 Cr. in B.E. 2010-11. Foreign investors are also increasingly getting attracted in the railway sector and are making substantial investments. According to the Department of Industrial Policy and Promotion (DIPP), the Foreign Direct Investment (FDI) inflow into railways related components has been US$ 109.56 million from April 2000 to March 2010. Airports The domestic airlines flew about 4.78 million passengers in May 2010, an increase of almost 22 per cent over the number carried in the same period in the previous year. The Union Minister of State for Civil Aviation stated that the country will become the top five civil aviation markets in the world in the next five years. India is the ninth largest civil aviation market in the world at present. The Airports Authority of India (AAI), the agency responsible for civil aviation infrastructure, is likely to spend over US$ 1.01 billion on the modernization of non-metro airports in the current year. Aircraft manufacturing companies, Boeing and Airbus, remain upbeat over India's aviation growth potential. Airbus has forecast that India will need 1,032 new aircraft worth US$ 138 billion by 2028, while Boeing has forecast that the country will require 1,000 aircraft worth US$ 100 billion over the next two decades. A new terminal (terminal three) will be inaugurated in July at Delhi Airport. Cost of construction of this Terminal is about US$ 2.7 billion. The terminal, spread over 5.4 million square feet, has 78 gates, 97 automated walkways, 95 immigration counters, 20,000 square meters (215,000 square feet) of retail space and parking for 4,300 cars. The facility begins handling international flights and will boost the airport's capacity to 60 million passengers a year. Mumbai Airport posted its highest ever monthly passenger traffic in its history in December 2009. According to Mumbai International Airport (MIAL), the Chhatrapati Shivaji International Airport (CSIA) saw a record 2.53 million passengers in December 2009. This number is the highest-ever passenger volume handled by the airport in its history, with the previous high standing at 2.38 million passengers in January 2008. Power The Eleventh Plan target for additional power generation capacity of 78,577 MW which is more than the total capacity added in the previous three plans. Ultra Mega Power Project (UMPP) at Chattisgarh, Karnataka, Maharashtra, Orissa and Tamilnadu are in the pipeline. Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) to be continued during the Eleventh Plan with a capital subsidy of Rs. 28,000 Cr. Plan allocation for power sector excluding RGGVY doubled from Rs.2,230 Cr. in 2009-10 to Rs.5,130 Cr. in 2010-11. As per CII A T Kearney Study, Investments of about US$ 250 billion will need to be made in the power sector in the next 8-9 years to fuel planned growth. The demand for power is expected to grow at a steady rate of 7.5-8% annually till 2017, leading to the addition 80,000-85,000 MW of new capacity. The wind energy segment would continue to grow at 15-20% per annum with new opportunities in offshore capacities and large capacity turbines. The Power Ministry has set a target to add 78,700 MW of electricity generation capacity during the current five year plan. Currently, India generates about 1.50 lakh MW of power. Recent Government Policy initiatives:

• • • • •

Emphasis on Biomass. Wind power potential - success story for rapid development. More than 3800 MW added in the last four years. At over 5500 MW, Wind capacity 4th largest in the world. Development of Mini and Micro hydro electric projects. Solar power needs intensive R&D for cost reduction. Extensive development of solar dependent on CDM benefits to offset present high cost.

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• • • •

Nuclear power presently 3,900 MW. Share of nuclear power to be enhanced. No CO2 emissions. Mastery in fuel cycle and technology. Fuel Constraint. Rapid increase in share of nuclear power, depending on International Cooperation

Urban Infrastructure With almost 300 million Indians living in urban areas, the country has the second largest urban population in the world. It comprises about 30% of the total population and contributes to over 60% of the country's GDP. Essential Infrastructure facilities need to be provided to this growing urban population.

• The country has over 3,700 towns and cities. The urban population of the country has been growing at a rapid pace of over 31% over the last decade. This is significantly higher than the growth of the rural population (approximately 18 %).

• Employment in urban areas registered a growth of around 38% (over the last decade), substantially exceeding the rural employment growth rate of around 16%.

• A large number of Indian cities and towns need adequate infrastructure facilities, specifically in the areas of water management, roads, transportation, housing, sanitation, sewage etc.

• The government has initiated a number of steps to improve the physical and economic infrastructure and improve facilities in urban areas. In addition to the basic infrastructure projects, a number of urban transportation projects have also been taken forward, e.g. metro rails. In Union Budget 2010-11, allocation for urban development increased by more than 75 per cent from Rs.3,060 Cr. to Rs.5,400 Cr. Rs.1,270 Cr. has been allocated for Rajiv Awas Yojana as compared to Rs.150 Cr. last year. Government Initiatives The Infrastructure Finance Companies (IFC) are being included in the category of Non-Banking Finance Company (NBFC) by the Reserve Bank of India (RBI). The IFCs would require a capital adequacy ratio of 15 per cent and the similar criteria of NBFCs would be applied to IFCs as well. Further, RBI stated that at least 75 per cent of the assets of these institutions should be used in infrastructure and their net owned funds should be US$ 64.6 million or more. While presenting the Union Budget this year, the Finance Minister has announced the allocation of US$ 37.7 billion, around 46 per cent of the total plan outlay of US$ 81 billion for 2010-11 to infrastructure sectors. In the last fiscal, this proportion was about 30 per cent. The Government of India has envisaged capacity addition of 100,000 MW by 2012 to meet its mission of power to all. Recently, a ministerial group discussing large power plants with a capacity to generate 4,000 MW of power has approved, in principle, a proviso requiring such plants that will be awarded in the future to use local power generation equipment. The move is expected to provide a fillip to domestic manufacturing. The decision on so-called ultra mega power plants, or UMPPs, will also benefit domestic power generation equipment manufacturers such as state-owned Bharat Heavy Electricals Ltd (BHEL) and Larsen and Toubro Ltd (L&T), which has a joint venture with Mitsubishi Heavy Industries Ltd (MHI) of Japan. At least three joint ventures, between Toshiba Corp. of Japan and JSW Group; Ansaldo Caldaie SpA of Italy and GB Engineering Enterprises Pvt. Ltd; and Alstom SA of France and Bharat Forge Ltd are looking to start manufacturing power equipment in India. Further, the government is also implementing the National Solar Mission, aimed at setting up 20,000 MW of solar power capacity by 2020. The Asian Development Bank (ADB) has approved a financial assistance for US$ 200 million under the Assam Power Sector Enhancement Investment Programme. The project has some innovative features like franchisee-based distribution, off-grid electrification with renewable energy, reduction in CHG emissions through efficiency gains. The Road Transport and Highways Ministry has proposed priority sector status for road development, allowing private highway developers more funds from banks.

Annual Report 2009-10

35

Era Infra Engineering Limited - Engineering, Procurement & Construction (EPC) Division The surge in construction activity has led to exponential growth in infrastructure development across the country. This has naturally resulted in an increase in demand in construction activities, raising the potential bar manifold, which in turn has enabled the EPC Division of your company to foray into some of the most lucrative and growing segments of the infrastructure space. This division executes infrastructure development contracts across the spectrum for both external customers as well as for captive consumption. EPC - Future Strategy This Division is now looking at diversifying further by addressing projects across newer infrastructure segments such as refineries, hydroelectricity, irrigation and ports, multilevel car parking, which are considered to be among the fastest growing segments of the Indian Infrastructure Industry. The EPC Division shall continue to consolidate its presence in the existing sectors through execution of more large-sized projects and by entering into more strategic alliances to further enhance its pre-qualification strengths. Presence Across Other Sectors: Apart from the important forays, the Division has also established a significant presence across other key vital sectors including steel, housing, highways, airport, railways etc. Sector Industries Project Birla Tyres Details Construction of factory building for tyre unit-II at Balasore, Orissa. Procurement of plant, design supply and installation of 132kv substation kairu, nangal mohanpur & pali against package G-07 "B". Civil & structural works and associated facilities at a smelter plant. Angul for Phase II Extension Civil & structural works in an aluminum refinery, Damanjodi for Phase II Expansion. Construction of Buildings and associated works at Manesar. Structural work for setting up Basic Oxygen Furnace (BOF) & Continuous Casting Shop at Bhilai Steel Plant, Bhilai, Chhattisgarh. Cast in Situ RCC Bored Piling in SMS III Complex at Bhilai Steel Plant, Chhattisgarh. Development of Minto Road Area (SH: Construction of 140 Nos. Type V & 104 Nos. Type VI flats at pocket-VI, DDU Marg, New Delhi. Duration 14 months

Haryana Vidyut Prasaran Nigam Ltd.

10 months

National Aluminum Company Ltd.

7 months

National Aluminum Company Ltd.

7 months

National Automotive Testing, R&D Steel Authority of India Ltd.

10 months

24 months

Steel Authority of India Ltd.

22 months

Housing

Central Public Works Department

22 months

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Era Infra Engineering Limited

Sector Power

Project Bharat Heavy Electricals Ltd.

Details Piling and Foundations works including Supply of All Materials except those proposed to be supplied by BHEL for 2 X 500 MW units (UNIT 6 & 7) at Anapara-D Thermal Power Plant at Anapara Sonebhadra, UP. Construction of General Civil Works for Main Plant and Auxiliary Plant Buildings for Unit No. 1 of 2 X 600 MW North Chennai TPS, Athipattu Triuvallur Dist. Chennai. "Main Plant, CW, Make-up, Offsite Civil Works Chimney & Chimney Elevator" Package for Nabinagar Thermal Power Plant Project ( 4 X 250 MW) at Nabinagar.

Duration 16 months

Bharat Heavy Electricals Ltd.

20 months

NTPC- Rail Bijlee Nigam

31 months

Building

Prasar Bharti

Construction of Soochna Bhawan, Phase-V at CGO Complex, Lodhi Road, New Delhi.

24 months

Social Infra

NDMC

Civil, structural finishing & electrical works for new & existing subway in outer circle of Connaught place for redevelopment of Connaught place, New Delhi.

14 months

Era Infra Engineering Limited - BOT & EPC Division Encouraged by the success of private participation in the infrastructure development space, the government expects a substantial increase in the share of private sector investments in infrastructure - from 19% of total in the 10th plan to around 30% of the total in the 11th plan. The government, on its part, has made an effort to facilitate the entry of private enterprise in infrastructure development through changes in the legal framework and through unbundling of different segments of infrastructure, so that the public and the private sectors can take up the components most suited to their capacities. Overview Your company's BOT & EPC Division chose to focus on the fast-growing highways, railways, power, bus terminals, underground parking, airports and other infrastructure development projects. This Division is focused on Engineering (basic and detailed), Procurement (of man, material and machinery) & Construction (execution of works contracts). The strategy has paid off and the Division has in hand several prestigious projects including: Project EPC Contract for Muzaffarnagar-Haridwar Details Construction of four lane of NH - 58 in the state of UP and Uttarakhand. 80 Km in length with three green fields bypasses. Also a bridge on Ganga river, Elephant Bridge on Haridwar-Dehradun section. Annual Report 2009-10 37

EPC Contract for Haridwar-Dehradun BOT & EPC - Future Strategy

Four laning of Haridwar - Dehradun section of NH 58 in the state of Uttarakhand, 39 Km in length.

To become a large and diversified infrastructure company it was felt necessary to add in our portfolio long term assets which will not only give a constant cash flow to the company but will also stabilize and balance our business dynamics. Today we have many large BOT road projects which will be completed over the next couple of years. Apart from road BOT projects, we are now looking at other new arenas like automated parking lots, large-scale housing projects, railway freight corridor projects, hydropower, regional airports, ports, bus terminals, among others. To take our plans forward, we have formal strategic alliances with foreign players from Switzerland and Ukraine for taking up EPC contracts in this segment. The company is also formulating bidding strategies for the airport and port segment and is identifying opportunities and prospects for joint development partners in Africa, UAE and Korea to competitively connect to these markets. In addition to the above initiatives, Era also intends to expand its presence in large value railway projects, roads and other segments, where it has already demonstrated its strengths. Era Infra Engineering Limited - Equipment Management & Concrete (EMC) Division Equipment Management Gauging the critical role of contemporary equipment in facilitating excellent project execution, Era Equipment Management seeks to address the ever growing demand for procurement, operations & maintenance and rentals of construction equipment. The Division caters to the demand for high-end machinery for both captive consumption and external clients through regional equipment hubs under the style and name of Era Machine Mart. Overview Prudently leveraging the expertise and experience of its parent company, this Division has successfully forayed into the southern, eastern & western regions of India

Orders Bagged Order from Alpine Samsung HCC JV. Order from Alpine HCC JV Order from Gammon India Ltd Order from Larsen & Toubro

Details For providing various equipments like Transit Mixer, Wheel Loader and Motor Grader for their DMRC, New Delhi project. For supply of equipments like Transit Mixer and Wheel Loader for their DMRC, New Delhi project. For providing various machines and equipments for their NHAI road project at Gaya, Bihar. For providing a Hydraulic Piling Rigs Machine for their Tata Steel Plant project at Jamshedpur, Jharkhand and IISCO Steel Plant Project at Asansol, West Bengal. For providing Hydraulic Piling rig machines for their IISCO Steel Plant Project at Asansol, West Bengal.

Order from Pallonji & Co. Ltd.

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Era Infra Engineering Limited

Future Strategy Strong upturn in Industrial and Infrastructure capital expenditure will continue to create demand-supply gap for modern equipment & maintenance services, which will benefit the Division. To exploit this opportunity we would make further investments in this division. We plan to invest more than Rs. 500 Cr. in this division over the next two financial years to strengthen our equipment bank. Ready Mix Concrete (RMC) Division To keep pace with the growth in construction activities across the country, there is a growing need for timely delivery of quality Ready Mix Concrete within easy reach of the construction sites. Era Infra has set up its RMC Division to meet this increasing demand and is focused on commercial sale of RMC. Overview Era RMCs development plan has kick-started on a strong note and the division is currently operating with six commercial plants as on the date of this report: S.No 1 2 3 4 Project Name Greater Noida (UP) Sahibabad (UP) IMT - Manesar Site (H.R) Faridabad-78 Adresss I-43/44, Site-V, Surajpur Industrial Area, Kasna , Gr.Noida, U.P . A-43/2, Site -IV, Sahibabad Industrial Area , Ghaziabad (U.P.) Near , J.K.Lakshmi Plant, Bhangrolla Vill., IMT-Manesar, HR C/o Redwood Residency, Era Landmark (i) Ltd, Sector-78, Faridpur Village, Faridabad (Haryana) Village-Kanwra, Next to Richa Knit, Old Faridabad, Jasana Road, Nahar Par, Faridabad (Haryana) Rect. & Killa Nos 54/20/2, 54/21/1 & 55/16/2/1 , Village Dhaturi, Sonepat (Haryana)

5

Faridabad (H.R.) - I

6

Murthal

Future Strategy This division is looking for more & more complex projects and with its six plants in operation they are all set for an excellent growth. In future they are planning to open 60 more units on pan India basis to strengthen its presence in the market in three to four years time period. Risk and Concerns The contracting and construction markets in our country are competitive and require substantial resources and capital investment in equipment, technology and skilled personnel. We are increasingly moving towards larger projects with stringent pre-qualification requirements where intense competition is expected to continue and may even increase as a result of the entry of foreign construction companies into the Indian market. This is likely to lead to significant challenges to our maintaining historical growth rates and acceptable profit and margins. Our contracts are awarded after a competitive bidding processes and satisfaction of other prescribed pre-qualification criteria. Our exposure to BOT Projects, particularly in the area of Road and Transportation wherein revenues from toll-based projects are a function of actual traffic volume, has increasingly led to additional risks associated with such projects, including traffic volume risks, availability risks and financial closure risks. Adverse deviations between actual traffic volumes from projected volumes, delays in completion of related projects components or failure to achieve a financial closure could result in significant loss of revenue. Annual Report 2009-10 39

Internal Control Systems Company has adequate internal control procedures & systems to commensurate with the nature and size of its business. The Company's internal control system primarily covers aspects such as: 1. Company over operating parameters and various factors relating to production. 2. Efficient use and protection of resources. 3. Accuracy and Promptness of financial reporting. 4. Compliance of laws and regulations. Company has a well-defined organizational structure, well documented policies, guidelines and clearly defined authority levels. Risk Management The assets of your Company are adequately secured/ covered under appropriate policies and your management reviews it from time to time. (Rs. in lacs) Financial Performance (Operational Results 2009-10 vs 2008-09) Particulars Total Income Interest & Financial Charges Expenses Depreciation Total Expenditure Profit Before Tax (PBT) Provision for Tax Profit After Tax (PAT) Equity Capital Reserve & Surplus Earnings per Share : Basic Diluted Material Developments in Human Resources To meet new challenges, we count on our dedicated competent human resource comprising engineers, management and financial professionals, the invaluable tools that have facilitated our Company's progression into fast growing and highly profitable sectors helped embark on sustained research and development and rolled out comprehensive marketing programs. The Company is proud of its creative personnel team comprising highly experienced, skilled and committed employees and it recognizes the invaluable contribution made by each of them. At present there are two thousand nine hundred and one (2901) employees in the company. There was no strike or labour unrest during the period under review. We have also introduced a performance linked incentive scheme to motivate our employees, as also to increase the productivity of the people. This is a monthly scheme to drive the workforce of the company towards maximizing their contribution to the best interest of the organization. This will not only help in motivating the employees in terms of monetary benefits but will also boost their competence and capabilities towards their work performance. Cautionary Statement Statements in the Management Discussions and Analysis describing the Company's objectives, projections, estimates, expectations are" forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company's operations includes economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax, corporate and other laws and other incidental factors. 40 Era Infra Engineering Limited 17.49 17.49 16.11 16.11 2009-10 344,048.73 25,641.82 276,297.53 7,151.27 309,090.61 34,958.12 11,843.55 23,114.57 3583.33 142,123.36 2008-09 243,914.37 17,283.33 196,329.43 4,594.21 218,206.97 25,707.31 5,445.85 20,261.46 2,871.00 85,018.24 % Change 41.05 48.36 40.73 55.65 41.65 35.98 117.47 14.08 24.81 67.16