Annual Report - Patel Engineering - 2008-2009

PATEL ENGINEERING LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

TO
THE MEMBERS,

The Directors are pleased to submit the Annual Report of the Company
together with the audited statement of accounts for the year ended March
31, 2009.

Financial Results:

Dividend:

For the year under review, the Directors have declared an interim Dividend
of Re. 0.80 per share on its Equity shares. In addition, the Directors have
recommended a final Dividend of Re. 0.95 per share. The total Dividend
payout for the year is Rs. 1.75 per share (previous year Rs. 1.50 per
share).

Operations & Business:

The Company continues to see a profitable growth in the financial year
2008-09.

For the year ended March 31, 2009, the Company earned a total income of
Rs.17,963.22 million, as increase of 34.56% over the previous year of
Rs.13,348.97 million. As per the Consolidated Accounts the total income was
Rs. 24,743.04 million, an increase of 32.79% over the previous year's
Rs.18,633.30 million.

The net profit of the Company for the year increased to Rs. 1,743.37
million as compared to Rs. 1,476.14 million in the previous year. As per
the Consolidated Accounts the net profit for the year was Rs. 1,804.78
million as compared to Rs. 1,519.05 million in 2007-2008.

The detailed report on the activities undertaken by the Company have been
dealt with in the Management Discussion and Analysis (MDA), forming part of
this annual report.

Unclaimed shares 1,346 unclaimed shares,relating to company's Follow on
Public issue 2006, were transferred to a separate demat account of the
Company, in compliance with Clause 5A of the Listing Agreement entered with
the Stock Exchanges and the voting rights on these shares are frozen till
the shares are claimed by the actual beneficiary.

(Rupees in Millions)
Consolidated Standalone
Particulars 2008-09 2007-08 2008-09 2007-08

Total Income 24,743.04 18,633.30 17,963.22 13,348.97
Profit before
depreciation &
extraordinary items 3,565.91 2,482.23 2,417.11 1,909.45

Add: Extraordinary - - - -
income

Less: Depreciation 1,195.61 627.13 440.72 327.27

Profit before tax 2,370.30 1,855.10 1,976.39 1,582.18

Tax and other
adjustments 565.52 336.05 233.02 106.04

Profit after tax 1,804.78 1,519.05 1,743.37 1,476.14

Add: Balance
in Profit & Loss A/c 2,389.83 1,588.79 2,404.32 1,557.44

Amount available
for Appropriation 4,194.61 3,107.84 4,147.69 3,033.58

Appropriation:

a. Proposed Dividend
(interim & final) 104.41 89.05 104.41 89.05

b. Tax on Dividend 17.74 15.21 17.74 15.21

c. General Reserve 225.50 288.75 200.00 200.00

d. Contingent Reserve - 325.00 - 325.00

e. Balance
carried forward 3,846.96 2,389.83 3,825.53 2,404.32

Employees Stock Option Scheme:

No options were granted during the year. Out of the total 425,000 options
granted on October 1, 2007 under ESOP Plan 2007, 42,500 options got vested
during the year under review and the same were fully exercised. 112,500
options got lapsed on account of resignations. 270,000 options stands
outstanding as on March 31, 2009. The next vesting is due on October 1,
2009.

Subsidiary Companies and Consolidated Financial Statements

a. Incorporation:

During the year under review 37 subsidiaries were incorporated, 13 in India
and 24 in abroad.

b. Acquisitions:

The company acquired 100% stake in Friends Nirman Pvt. Ltd., an Indian
Company in West Bengal, which will enable the company for building
workshop/yard for maintenance and supply of Plant & Machinery/equipment to
all sites of the Company in the North East.

The company also acquired 90% stake in Naulo Nepal Hydro Electric Pvt.
Ltd., a company incorporated in Nepal, holding a license for two hydro
power projects aggregating to 56.6 MW issued by Ministry of Water
Resources, Government of Nepal.

c. Disinvestments:

The Company reduced its holdings from 60% to 48% in Patel KNR
Infrastructures Pvt. Ltd. and Patel KNR Heavy Infrastructures Pvt. Ltd.
Consequently, both the Companies cease to be its subsidiary. Further, the
Company made disinvestments in 12 wholly owned subsidiaries, acquired by
Associate Company, Enpro Ltd.

d. Restructuring:

To focus attention, the Company has structured its business activities into
verticals such as urban infrastructure, roads, development, power, mining
(other than civil engineering) through its direct subsidiaries.
Accordingly, some of the direct subsidiary have now become step down
subsidiary.

A statement containing brief financial details of the subsidiaries is
included in the Annual Report. The Central Government in exercise of the
powers conferred by Section 212(8) of the Companies Act, 1956 has accorded
its approval vide its letter No. 47/318/2009-CL-III dated 29th April 2009
and 19th June, 2009 for exemption from attaching the Accounts of the
subsidiaries to the Balance Sheet of the Company. The Company shall provide
copies of the Annual Report and other documents of its subsidiary companies
as required under Section 212 of the Act to the members on their request.

As required under the Listing Agreement with the Stock Exchanges,
consolidated financial Statement have been prepared in accordance with the
Accounting Standard AS- 21, 23 and 27 issued by the Institute of Chartered
Accountants of India.

Corporate Social Responsibility:

The Company continues to believe in strengthening and uplifting the society
at large. The Company focuses on education, development of children, and
primary health care. During the year, the Company contributed to Kunverji
Mulji Kelvani Trust, the trust that runs a school and provides vocational
training to girls. The trust has set up a play school for financially
deprived children in Rajkot. The Company also contributed to Cancer
Patients Aid Association, St. Joseph Leprosy Patients Society, Holy Spirit
Hospitals towards cancer patients rehabilitation and Umrao Institute of
Medical Science, to name a few.

Directors:

Mr. Jambunathan and Mr. P.C. Purohit were appointed as Additional Directors
of the Company with effect from March 30, 2009. Approval of the members for
appointing them as Directors of the Company is sought vide requisite
resolution in the Notice dated June 27, 2009, convening the Annual General
Meeting. The Directors commend the resolutions for approval by the members.

Mr. Rohit Patel, Mr. S.K. Desai, Mr. Dinesh V. Patel and Mr. Rajat Patel
ceased to be Directors of the Company with effect from March 30, 2009, on
account of their resignation. The Board wishes to place on record its
appreciation for the valuable guidance extended by them during their
association with the Company.

In accordance with the requirements of the Companies Act, 1956, Mr. K.
Kannan and Mr. Pravin Patel, Directors of the Company are due for
retirement by rotation and are eligible for re-appointment.

Mr. Rupen Patel's tenure of appointment as Managing Director expires on
August 31, 2009 and it is proposed to re-appoint him in his existing
capacity as Managing Director, on the terms and conditions as set out in
the Notice of the Annual General Meeting. The attention of the members is
invited to the relevant item in Notice of the said meeting and the
Explanatory Statement thereto.

Ms. Sonal Patel's tenure of appointment as Whole time Director expires on
August 31, 2009 and it is proposed to re-appoint her in her existing
capacity as Whole time Director, on the terms and conditions as set out in
the Notice of the Annual General Meeting. The attention of the members is
invited to the relevant item in Notice of the said meeting and the
Explanatory Statement thereto.

Corporate Governance:

Pursuant to Clause 49 of the Listing Agreement, Management Discussion and
Analysis, Corporate Governance Report together with the Auditors'
Certificate on compliance of conditions of Corporate Governance form part
of this Annual Report.

Conservation Of Energy, Technology Absorption, Foreign Exchange Earnings
and Outgo:

The Company does not have manufacturing activities and therefore the
information required under Section 217(1)(e) of the Companies Act, 1956,
read with the Companies (Disclosure of Particulars in the Report of the
Board of Directors) Rules, 1988, is not furnished. The information on
Foreign Exchange Earnings and Outgo is as follows:

Foreign Exchange Earned: Rs. 951.02 million
Foreign Exchange Used : Rs. 881.48 million

Particulars Of Employees:

The information as per Section 217(2A) of the Companies Act, 1956, read
with Companies (Particulars of Employees) Rules, 1975 as amended forms part
of this Report. However, as per the provisions of Section 219(1) (b) (iv)
of the Companies Act, 1956, the Report and the Accounts are being sent to
all shareholders, excluding the Statement of Particulars under section
217(2A). Any shareholder, interested in obtaining a copy of this statement,
may write to the Company Secretary at the registered office of the Company.

Auditors:

M/S. Vatsaraj & Co. Chartered Accountants, who are the statutory auditors
of the Company, hold office until the ensuing Annual General Meeting and
are eligible for reappointment. The members are requested to consider their
re-appointment for the current financial year 2009-10 and authorise the
Board of Directors to fix their remuneration. The retiring auditors have,
under Section 224(1B) of the Companies Act, 1956, furnished certificates of
their eligibility for the appointment.

Fixed Deposits:

The Company has not accepted any Fixed Deposits and as such, no amount of
principal or interest was outstanding as of the Balance Sheet date.

Directors' Responsibility Statement:

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors,
based on the representations received from the Operating Management,
confirm that

In the preparation of the annual accounts, the applicable accounting
standards have been followed and that there are no material departures;

They have in the selection of the accounting policies, consulted the
Statutory Auditors and have applied them consistently and made judgments
and estimates that are reasonable and prudent so as to give a true and fair
view of the state of affairs of the Company at the end of the financial
year viz., March 31, 2009 and of the profit of the Company for the year
ended on that date.

They have taken proper and sufficient care, to the best of their knowledge
and ability, for the maintenance of adequate accounting records in
accordance with the provisions of the Companies Act, 1956, for safeguarding
the assets of the Company and for preventing and detecting fraud and other
irregularities.

They have prepared the annual accounts on a going concern basis.

Acknowledgements:

The Directors wish to place on record their appreciation for their
continued support and cooperation by Shareholders, Financial Institutions,
Banks, Government authorities and other stakeholders. Your Directors also
acknowledge the support extended by all the employees for their dedicated
service.
On behalf of the Board of Directors,

Pravin Patel
Chairman
Date : June 27, 2009
Place: Mumbai

MANAGEMENT DISCUSSION & ANALYSIS:

PRESENTING THE DISCUSSION ON THE ECONOMY AND THE OPPORTUNITIES IN THE
INFRASTRUCTURE SECTOR IN INDIA:

The unprecedented global slowdown and the subsequent deleveraging and risk
aversion by banks have affected capital, foreign exchange, money, debt and
credit markets significantly. The Indian economy has been adversely
affected by the global financial turmoil. However, the macroeconomic impact
of the crisis is relatively subsided due to the immense strength exhibited
by domestic demand. Since October'08, regulators and policy makers have
aggressively taken all possible fiscal and monetary measures to ensure that
the gross domestic product (GDP) continues to grow at 7-8% this fiscal.

Last financial year saw fervent monetary policy measures by the government.
During this period, the Reserve Bank of India (RBI) followed an
increasingly easier monetary policy. Other than cuts in key policy rates by
100-150 basis points, the cash reserve ratio (CRR)-the most immediate
measure of liquidity infusion-has been brought down to 5%.

As per some estimates, these monetary measures have infused about Rs. 1.4
trillion of liquidity into the banking system. Moreover, the government has
also adopted a policy of moral suasion with the public sector banks to
reduce their lending rates. The policy options with the government could
also be seen in another light.

In the annual policy review in mid-April '09, RBI has forecasted that the
economy will grow by 6% this fiscal while inflation would rise to around
4%, with the assumption of normal monsoon. Meanwhile, the Indian economy
managed to clock at 6.7% growth in 2008-09 despite the dismal performance
of the manufacturing sector.

The biggest challenge for the re-elected Congressled United Progressive
Alliance (UPA) will be to take the Indian economy out of crisis and put it
back on the double-digit growth path at the earliest. In fact, the newly
elected Finance Minister, Shri Pranab Mukherjee has already said that that
the government will have to focus on implementing and strengthening the
infrastructure investments.

Even as the economic slowdown remains a concern, the company is confident
of keeping a healthy pace of growth on the basis of a strong order book,
anticipation of likely increase in infrastructure spending and more
revenues from other asset business.

Business/Financial Review:

* Revenue from Operations increased by 32% from Rs. 18,596.43 million to
Rs. 24,598.45 million.

* Operating profit (excluding other income) increased by 100 bps.

* Profit before tax increased by 28% from Rs. 1,855.10 million to
Rs. 2,370.30 million.

* Profit after tax increased by 18.8% from Rs. 1,519.00 million to
Rs. 1,804.80 million.

* The EPS (fully diluted) increased from Rs. 25.47 to Rs. 30.25.

* Net worth of the company now stand at Rs. 10,388.05 million.

Our order backlog as end of March 31, 2009 increased to Rs. 72,000 million,
translating into a growth of 19% on a year on year (y-on-y) basis. The
share of power project in the order backlog stand around 45% followed by
irrigation around 40% and transportation and urban infrastructure
accounting around 15%. Order intake during the fiscal was brisk at
Rs. 30,000 million as against Rs. 19,000 million in the financial year (FY)
end March 2008.

Major Orders Awarded:

* Rs. 7,990 million from the Narmada Valley Development Authority for Bargi
diversion project. The project would be executed in a joint venture with
SEW constructions and is estimated to be completed in the next 36 months.

* Bagged the single largest irrigation project in India, the Pranahita-
Chevella lift irrigation package 6 of Rs.38,590 million from the Government
of Andhra Pradesh in consortium with BHEL and Navyuga construction.

* Bagged orders worth Rs. 6,955.70 million from the Andhra Pradesh State
Government for the modernization of the Krishna Delta System.

The company is awaiting further award of projects worth Rs. 25,000 million
where its bid is the lowest (L1).

As part of our business strategy, the company continued to focus on high
margin business in hydropower and irrigation. Further, tender bidding for
projects too remained selective in bidding for high margin projects backed
by Central and State governments. Further, focus remained on utilising
company's niche technology and improving operating margins. Thus, the
company stayed away from projects, which were unattractive and very
competitive in nature.

Hydropower and irrigation remain our high focus area. Going forward, the
company will continue to focus on projects in areas which the government
spending is highest. Moreover, we will continue our strategy to acquire
niche technology companies and grow them. Likewise, we would continue to
look at under-developed markets for our next phase of business.

Opportunities Ahead:

Even with somewhat slower rate of growth, the Indian economy is still
expanding significantly, and substantial investment in infrastructure
continues to be required in order to sustain India's economic progress. The
country's capacity to absorb and benefit from new technology and industries
depends on the availability, quality and efficiency of more basic forms of
infrastructure including energy, water and transportation. In some areas,
roads, rail lines, ports and airports are already operating at capacity, so
expansion is a necessary prerequisite to further economic growth.

The government recognises this imperative. During the current Eleventh
Five-Year Plan period (2007-2012), more than Rs. 22,500 billion worth of
investment is planned to flow into infrastructure by 2012. Construction
projects account for a substantial portion of the proposed investments,
making the engineering and construction sector one of the biggest
beneficiaries of the infrastructure boom.

Power, roads & bridges, and water & irrigation are likely to account for-
70% of the infra outlay and-80% of the construction outlay in the Eleventh
Plan. In the power space, in the Eleventh Plan, nearly half the hydropower
opportunity is pending assignment and is likely to be awarded in the coming
months, while majority of thermal power orders for the plan period have
already been awarded to developers/EPC and civil contractors. The bidding
and project awards for the Twelfth Five Plan (2012-17) power projects is
also likely to commence from end FY10 or FY 11.

Power:

India's power generation is estimated to grow at a CAGR of 12% in Eleventh
Five-year plan to maintain its GDP growth. Besides 100,000 MW of power
generation capacity is likely to get added in the country over FY07-FY12
ensuring an estimated capex of Rs. 200 billion for civil works.

Given the scarcity of power in India, it is evident that significant
opportunities will arise for participants across the entire value chain
(including civil contracting companies). Approximately 15-20% of the total
project cost in case of a thermal power project and 70% in case of hydro
power projects are related to civil contracting, thereby translating into
sizeable opportunities for the contracting companies.

A total of 78 GW new generation capacity is envisaged to come on-stream in
the Eleventh Plan, of which, 15 GW comprises hydro projects. Except for the
hydro projects, which have been delayed (54% of the total hydro power
projects), engineering, procurement and construction (EPC) contracts for
almost all the other projects have been awarded.

Delay in hydro projects is primarily on account of natural causes-issues
related to relief & rehabilitation and problems with local governments on
the sharing of royalty, leading to uncertainty as to when these projects
will take off.

As per the Twelfth Plan, capacity addition of 82 GW is budgeted, of which,
30 GW is expected to be hydro. Since a power project takes three-four years
for construction, projects for the Twelfth Plan must be awarded from FY10
end. This would mean opportunities for construction companies would
resurface from FY11.

It is also expected that the share of private sector in the Twelfth Plan
will be much higher than in the past. Given that some of the construction
companies have ventured into asset ownership and development in power, it
is expected that some of these companies will bag projects as and when they
are awarded in the Twelfth Plan.

Large potential for hydro projects:

Hydro power has a potential to generate 1,75,000 MW in India, that is, five
times the current capacity Of the total generation capacity of 132,329 MW
as on March '07, -26% came from the hydro segment. In the Eleventh Plan,
18% (or 16,533 MW) of the total envisaged capacity of 92,557 MW is expected
to arise from hydro plants. In the past, geological uncertainty, contract
management, resettlement & rehabilitation and delays in land acquisition
have led to cost overruns in the hydro segment. However, the government now
plans to accelerate the pace of development in hydro projects by
simplifying measures such as approval procedures and ensuring early
financial closure.

Generation capacity anticipated in the Eleventh Plan:

Hydro projects to account for 18% of planned capacity (in MW):

Hydro Thermal Nuclear Wind/ Total
Renewable
In-stalled capacity
as March 31, 2007:
34,654 86,015 3,900 7,761 132,329
Additions during 11th plan
16,533 58,644 3,380 14,000 92,557
Total capacity anticipated
as on March 31, 2012
51,207 144,658 7,280 21,761 224,906
Source: Plan Documents.

Major Power Projects Under Execution.

Some Hydro Projects being presently constructed:

Loharinagpala:

Construction of Power House (4 x 150 IVIW) & Head Race Tunnel situated in
Uttar Kashi, in the state of Uttaranchal awarded by NTPC.

Tapovan:

NTPC awarded the project of construction of Penstock & Power House at
Joshimath, in the state of Uttaranchal.

Kameng:

Construction of civil works of head race tunnel, surge shaft, pressure
tunnels, power house, tail race tunnels, Tenga Dam, River diversion, Tenga
intake and Head race tunnel and civil works of bichom dam in Arunachal
Pradesh, awarded by NEEPCO.

Teesta:

Awarded by National Hydroelectric Power Corporation Ltd. A contract of
civil works for the construction of diversion work, barrage and spillways,
intake, penstocks, surface powerhouse and other associated civil works at
Teesta Low Dam.

Koyna Dam:

Construction of civil works and foot power house project at Koynanagar in
Satara District.

Parbati Hydro Electric Project:

Construction of diversion cum spillway tunnels including gates and hoists,
coffer dams, rockfill dam, spillway, intake structures and its appertunant
works awarded by National Hydroelectric Power Corp. Ltd.

Rampur Hydro Electric Project:

Construction of civil works for HIRT, surge shafts, pressure shafts, valve
house, power house complex, TRT adits and Hydromechanical works. Project
awarded by Sutlaj Jal Vidyut Nigam Ltd.

Irrigation:

Of the total irrigation potential of -140 mn hectares (mn ha) in India, it
is estimated that only -103 mn ha has been created at the end of the Tenth
Five Year Plan and only -87 mn ha is utilised. With only 43% of net sown
area being irrigated, clearly a lot needs to be done if we are to witness a
second 'Green Revolution'.

With growing water demand due to population growth, increasing
urbanisation, changing lifestyles, and economic growth, the per capita
availability of water in India has declined, making India water stressed.

The increased emphasis on irrigation was evident from the plan outlay of
Rs. 957.3 billion for irrigation in the Tenth Plan, over 50% increase over
the previous plan. The investment in irrigation in the Eleventh Plan is
projected to increase to Rs. 2,533 billion. Among 28 states in India,
around 10 states are expected to account for more than 85% of total outlays
set aside for irrigation during the Eleventh Plan.

Investment in Irrigation in 10th and 11th Five Year Plan (Rs. billion), at
FY 06-07 price.

10th Plan 11th Plan
(anticipated) (anticipated)

Centre 136.2 247.6
State 978.9 2,285.4
Total 1115.1 2,533.0

Source: Planning Commission.

Outlays in key states driving Investments in irrigation in 11th Five Year
Plan:

States State Outlays % Share
(Rs. billion)

Andhra Pradesh 343 17
Gujarat 292 1.4
Maharashtra 268 13
Karnataka 260 13
Uttar Pradesh 1.63 8
Madhya Pradesh 149 7
Bihar 79 4
Rajasthan 77 4
Orissa 65 3
Chhattisgarh 56 3
Tamil Nadu 33 2
Uttarakhand 27 1
West Bengal 26 1
Punjab 14 1

Source: Planning Commission.

Some Key Projects Under Execution

* Bheema Lift Irrigation Project:

Project undertaken with designing and execution in the state of Arunachal
Pradesh awarded by Govt. of Andhra Pradesh.

* Kalwakurthy Lift Irrigation Project:

Project executed on EPC basis along with designing and execution of pumping
stations in Andhra Pradesh. Works awarded by Govt. of Andhra Pradesh.

* Jawahar Lift Irrigation Project:

Project on EPC basis awarded by Govt. of Andhra Pradesh.

* Bargi Diversion Project:

The project will involve execution of the Sleemanabad Carrier Canal (Bargi
Right Bank Canal) for Bargi Diversion on turnkey basis for Narmada Valley
Development Authority.

* Pranahita- Chevella lift irrigation:

The single largest irrigation project in India, the Pranahita Chevella lift
irrigation-package from the Government of Andhra Pradesh in consortium with
BHEL and Navyuga construction.

Water Supply And Sanitation:

Water Supply And Sanitation (WSS) has seen a significant investment (Rs.648
billion) in Tenth Plan mainly contributed by Government. The Eleventh Plan
has again envisaged a huge investment plan (Rs. 1437 billion) for the
sector, which is likely to be funded from centre and sate government. Major
thrust in the WSS segment is on improving rural infrastructure, an area
that is expecting investments of Rs. 907 billion in the Eleventh Plan. As
far as the urban scene is concerned, it was estimated that Rs. 537 billion
is required to provide access to water supply to the entire urban
population by the end of the Eleventh Plan in 2012. A majority of this is
coming from Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

JNNURM covers 63 cities with population above one million as per the 2001
census, including 35 metro cities and other state capitals and culturally
important towns. JNNURM is expected to be implemented over a seven-year
period starting from 2005 to 2012, and entails a budget of Rs. 1,200
billion. The Centre has committed Rs. 500 billion as additional Central
Assistance (ACA) under JNNURM for its two sub-missions and two omnibus
schemes. The focus on WSS sector is evident in the fact that, of the 343
projects sanctioned before October 2008 (costing Rs. 328 billion), almost
75% funds relate to the WSS sector. We expect the government's focus to
translate into continued awards for construction companies.

Projects sanctioned under JNNURM till November 2008:

No. of projects Amount
(Rs. billion)

Urban Infrastructure & 365 358.0
Governance (sub-mission-I)

Basic Services for the Urban 284 180.0
Poor (sub-mission-II)

Urban Infrastructure Devel- 525 80.0
opment Scheme for Small
and Medium Towns (omnibus
scheme)

Integrated Housing and Slum 506 47.0
Development Programme
(omnibus scheme) Madhya
Pradesh

While project awards under Jalayagnam may slow down slightly in the next
six months due to state elections in AP, future opportunity to translate
into project awards for construction companies are contingent on state
government finances.

Investment in WSS in 10th and 11th Five Year Plan (Rs. billion), at FY06-07
price

10th Plan (anticipated) 11th Plan (anticipated)

Centre 423.2 420
State 214.7 963.1
Private 10.2 54.2
Total 648.1 1,437.3

Source: Planning Commission.

Asset Ownership:

It is very significant for a construction company also to own assets,
moving in this direction, the company has entered into power and road
construction.

i. Power Generation:

In this regard, as earlier reported, the company is in the process of
setting up a 1200 MW coastal thermal based power plant. A Detailed Project
Report (DPR) is presently being prepared. Further, the company has set up a
field office in Indonesia, where teams of engineers and geologists are
working to identify coal resources. The company is currently in the process
of finalising the acquisition of coal assets in Indonesia.

The company has also ventured as an Independent Power Producer (IPP) with a
120 MW Hydro project in Arunachal Pradesh for which a Preliminary
Feasibility Report has been completed and submitted to the authority.

ii. Real Estate In spite of the volatility of the global markets, India
remains a strong economic story, and nowhere is this more apparent than in
the real estate sector.

The company plans to unlock the value of its land bank it has accumulated
over the years. PEL's wholly owned subsidiary Patel Realty (India) Ltd. is
developing these projects on its behalf. A beginning has been made in the
following projects:

a. Patel Corporate Park-Mumbai:

Patel Corporate Park is a commercial office development measuring 80,000
sq.ft. The project is centrally located on the Patel Estate Road and is
completed and ready for lease.

b. Patel Estate-Mumbai:

Patel Estate is a contemporary office complex comprising one million sq.ft.
The project has already broken ground with the demolition of unused
buildings at the site and the completion of soil testing. Architectural
designs and planning have been completed. The plans have been approved and
the work is scheduled to commence shortly.

c. Patel Eco-City, Bangalore:

Located in the heart of Electronic City, Bangalore and spreading over 120
acres of land, Patel Eco City is an integrated township consisting of
Residential and Commercial Developments, Two Special Economic Zones and an
Information Technology Park. State High Level Clearance Committee (SHLCC)
and High Level Clearance Committee.

(HLCC) recommendations for the Electronic Hardware and Software Park to be
developed as a single Unit Complex have been obtained. Importantly, SEZ
approval has been obtained from Ministry of Commerce.

Analysis of risk factors:

Buoyant macroeconomic conditions in the country have been sustaining our
economic reforms and investments in infrastructure and construction
industry, which has been the second largest contributor to GDP growth.
However, any slowdown in government spending towards infrastructure
projects due to adverse conditions could hit company's growth plan.
However, the over the years the company has diversified its business
significantly in different regions around the world and thus any slowdown
would not have any significant impact.

But considering the long-term nature of the projects that company
undertakes, it faces various kinds of implementation risk that may not
necessarily be within company's control. Also, disagreements with joint
venture partners are inherent and may crop up at anytime. However, Patel
Engineering has established itself a strong player in the industry with a
solid track record of executing projects on time. Further, the company's
superior methodologies and improved processes and system enable the company
to understand and risk better.

On the raw material front, most of the contracts entered by the company
have an inbuilt escalation clause that compensates any increases in bid
input costs. Further, the company implements adequate procurement procedure
that include long-term contracts to cover price volatilities of key raw
materials.

Internal control systems:

The company has invested in adequate internal controls for the its business
processes across departments to ensure efficiency of operations, compliance
with internal policies and applicable laws and regulations thus protecting
the resources and assets and building a accurate reporting of financial
transactions. Further, the internal control system is supplemented by
extensive internal audits, regular reviews by management and standard
policies and guidelines to ensure the reliability of financial and all
other records.

Cautionary Statement:

Statement in this 'Management Discussion and Analysis' describing the
company's objectives, projections, estimates, expectations or predictions
may be 'forward looking statements' within the meaning of applicable
securities law and regulations. Actual results could differ materially from
those expressed or implied. Important factors that could make a difference
to the company's operations include demand supply conditions, finished
goods prices, availability and prices of raw materials, changes in the
government regulations, tax regimes, economic development within India and
the countries within which the company conducts business and other factors
such as litigations and labour negotiations.

As has been our story since 1949 and as India's economic development
gathers momentum, Patel Engineering will continue to contribute to the
nations development. Your Company will focus on Intelligently Engineering
infrastructure projects that are vital to the development of the country
and its people.

In doing so, your Company will continue to be faithful to its core values
of quality and corporate governance, and ensure that in the ultimate
analysis, you, the shareholders will always be proud to be a part of the
Patel Engineering Group.