JM MORGAN STANLEY PRIVATE LIMITED

Transcription

1 DRAFT RED HERRING PROSPECTUS Please read Section 60B of the Companies Act, % Book Built Issue The Draft red Herring Prospectus shall be updated upon filing with the RoC Dated January 8, 2007 AFCONS INFRASTRUCTURE LIMITED (Our Company was originally incorporated as Asia Foundations and Constructions Private Limited on November 22, 1976 under the Companies Act, The word private was deleted on March 18, 1977 pursuant to section 43A of the Companies Act, The name of our Company was changed to Afcons Infrastructure Limited on August 14, 1996 and it was converted into a public limited company on November 11, For details of changes in the name and registered office of the Company, please refer to Our History and Certain Corporate Matters on page 108 of this Draft Red Herring Prospectus) Registered Office: Afcons House, 16, Shah Industrial Estate, Veera Desai Road, Azad Nagar P.O., Mumbai Tel: (91 22) ; Fax: (91 22) Website: ipo@afcons.com Contact Person: P.R. Rajendran PUBLIC ISSUE OF 16,065,000 EQUITY SHARES OF Rs. 10 EACH OF AFCONS INFRASTRUCTURE LIMITED ( AFCONS OR THE COMPANY OR THE ISSUER ) FOR CASH AT A PRICE OF Rs. [ ] PER EQUITY SHARE (INCLUDING A SHARE PREMIUM OF Rs. [ ] PER EQUITY SHARE) AGGREGATING Rs. [ ] MILLION (THE ISSUE ). THE ISSUE COMPRISES A NET ISSUE OF 15,743,700 EQUITY SHARES TO THE PUBLIC AND A RESERVATION OF 321,300 EQUITY SHARES FOR ELIGIBLE EMPLOYEES. THE ISSUE WOULD CONSTITUTE 18.37% OF THE POST ISSUE PAID UP CAPITAL OF THE COMPANY. THE NET ISSUE WOULD CONSTITUTE 18.0 % OF THE POST ISSUE PAID UP CAPITAL OF THE COMPANY. PRICE BAND: Rs. [ ] TO Rs. [ ] PER EQUITY SHARE OF FACE VALUE OF RS. 10 EACH THE FACE VALUE OF THE EQUITY SHARES IS RS. 10 EACH. THE ISSUE PRICE IS [ ] TIMES THE FACE VALUE AT THE LOWER END OF THE PRICE BAND AND [ ] ATIMES THE FACE VALUE AT THE HIGHER END OF THE PRICE BAND. In case of revision in the Price Band, the Bidding/Issue Period will be extended for three additional working days after revision of the Price Band subject to the Bidding/Issue Period not exceeding 10 working days. Any revision in the Price Band and the revised Bidding/Issue Period, if applicable, will be widely disseminated by notification to National Stock Exchange of India Limited ( NSE ) and Bombay Stock Exchange Limited ( BSE ), by issuing a press release, and also by indicating the change on the website of the BRLM, CBRLMs and at the terminals of the Syndicate Members. In terms of Rule 19(2)(b) of the Securities Contracts Regulations Rules, 1957, this being an issue for less than 25% of the post-issue capital, the Issue is being made through the 100% Book Building Process wherein at least 60% of the Net Issue shall be allocated on a proportionate basis to QIB Bidders. 5% of the QIB Portion shall be available for allocation on a proportionate basis to Mutual Funds only, and the remainder of the QIB Portion shall be available for allocation on a proportionate basis to all QIB Bidders, including Mutual Funds, subject to valid Bids being received at or above the Issue Price. Further, not less than 10% of the Net Issue shall be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 30% of the Net Issue shall be available for allocation on a proportionate basis to Retail Individual Bidders, subject to valid Bids being received at or above the Issue Price. We have not opted for IPO grading of this Issue. RISK IN RELATION TO FIRST ISSUE This being the first issue of equity shares of the Company, there has been no formal market for the Equity Shares of the Company. The face value of the shares is Rs. 10 each and the Floor Price is [ ] times of the face value and the Cap Price is [ ] times of the face value. The Issue Price (as determined by the Company in consultation with the BRLM and the CBRLMs on the basis of assessment of market demand for the Equity Shares by way of book building) should not be taken to be indicative of the market price of the Equity Shares after the Equity Shares are listed. No assurance can be given regarding an active and/or sustained trading in the Equity Shares or regarding the price at which the Equity Shares will be traded after listing. GENERAL RISKS Investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds in this Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the Risk Factors carefully before taking an investment decision in this Issue. For taking an investment decision, investors must rely on their own examination of the Company and the Issue including the risks involved. The Equity Shares offered in the Issue have not been recommended or approved by the Securities and Exchange Board of India ( SEBI ), nor does SEBI guarantee the accuracy or adequacy of this Draft Red Herring Prospectus. Specific attention of the investors is invited to the section titled Risk Factors beginning on page xii of this Draft Red Herring Prospectus. ISSUER S ABSOLUTE RESPONSIBILITY The Company having made all reasonable inquiries, accepts responsibility for and confirm that this Draft Red Herring Prospectus contains all information with regard to the Company and the Issue, which is material in the context of the Issue, that the information contained in this Draft Red Herring Prospectus is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this Draft Red Herring Prospectus as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. LISTING ARRANGEMENT The Equity Shares offered through this Draft Red Herring Prospectus are proposed to be listed on the NSE and BSE. We have received an in-principle approval from the NSE and the BSE, for the listing of the Equity Shares pursuant to letters dated [ ] and [ ], respectively. For the purposes of the Issue, the Designated Stock Exchange shall be [ ]. BOOK RUNNING LEAD MANAGER CO-BOOK RUNNING LEAD MANAGERS REGISTRAR TO THE ISSUE [ ] ENAM FINANCIAL CONSULTANTS PRIVATE LIMITED 801/ 802, Dalamal Towers Nariman Point Mumbai , India Tel: (91 22) Fax: (91 22) afcons.ipo@enam.com Website: Contact Person: Aishwarya Mehra BID/ISSUE OPENS ON: [ ] CLSA INDIA LIMITED 8/F Dalamal House Nariman Point Mumbai Tel: (91 22) Fax: (91 22) afcons.ipo@clsa.com Website: Contact Person: Varun Kumar JM MORGAN STANLEY PRIVATE LIMITED 141, Maker Chambers III, Nariman Point Mumbai , India Tel.: (91 22) Fax.: (91 22) afcons.ipo@jmmorganstanley. com Website: Contact Person: Utkarsh Katoria ISSUE PROGRAMME SBI CAPITAL MARKETS LIMITED 202, Maker Towers E, Cuffe Parade, Mumbai Tel: (91 22) Fax: (91 22) afcons.ipo@sbicaps.com Website : Contact Person : Swaminathan B BID/ISSUE CLOSES ON: [ ] [ ] 1

2 TABLE OF CONTENTS DEFINITIONS AND ABBREVIATIONS.....iii CERTAIN CONVENTIONS; USE OF MARKET DATA.....ix FORWARD-LOOKING STATEMENTS....x RISK FACTORS.....xi SUMMARY SUMMARY FINANCIAL INFORMATION.. 7 THE ISSUE GENERAL INFORMATION CAPITAL STRUCTURE...29 OBJECTS OF THE ISSUE 43 BASIS FOR ISSUE PRICE...46 STATEMENT OF TAX BENEFITS.48 INDUSTRY 56 BUSINESS.81 REGULATIONS AND POLICIES.104 HISTORY AND CERTAIN CORPORATE MATTERS 108 OUR MANAGEMENT 122 OUR PROMOTERS.139 RELATED PARTY TRANSACTIONS..194 DIVIDEND POLICY INDEBTEDNESS.204 FINANCIAL STATEMENTS..207 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS GOVERNMENT APPROVALS..349 OTHER REGULATORY AND STATUTORY DISCLOSURES TERMS OF THE ISSUE..370 ISSUE STRUCTURE ISSUE PROCEDURE RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES MAIN PROVISIONS OF ARTICLES OF ASSOCIATION MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION DECLARATION

3 DEFINITIONS AND ABBREVIATIONS Term AIL, our Company, the Company, We, Us, Our, the Issuer Description Unless the context otherwise requires, refers to Afcons Infrastructure Limited, a company incorporated under the Companies Act, 1956 and having its registered office at Afcons House, 16 Shah Industrial Estate, Azad Nagar P.O., Veera Desai Road, Andheri (W), Mumbai , India. Company Related Terms Term Articles/Articles Association Auditors Board of Directors/Board of Directors Memorandum/ Memorandum of Association Registered Office of the Company SPCL CIL Description The Articles of Association of the Company. The statutory auditors of our Company; Mr. J. C. Bhatt, Chartered Accountant and M/s. C.C.Chokshi & Co., Chartered Accountants (Joint Auditors) The board of directors of the Company or a committee constituted thereof. Directors of the Company, unless otherwise specified. The Memorandum of Association of the Company. Afcons House, 16 Shah Industrial Estate, Azad Nagar P.O., Veera Desai Road, Andheri (W), Mumbai Shapoorji Pallonji & Co. Limited, a company incorporated under the Companies Act, and having its registered office at 70, Nagindas Master Road, Fort, Mumbai Cyrus Investments Limited, a company incorporated under the Companies Act, and having its registered office at Esplanade House, Hazarimal Somani Marg, Fort, Mumbai SICL Sterling Investment Corporation Private Limited, a company incorporated under the Companies Act, and having its registered office at 70, Nagindas Master Road, Fort, Mumbai FIL Issue Related Terms Floreat Investments Limited, a company incorporated under the Companies Act, and having its registered office at 70, Nagindas Master Road, Fort, Mumbai Term Allotment/Allot/Allotted Allottee Banker(s) to the Issue Bid Bid Amount Bid /Issue Closing Date Description Unless the context otherwise requires, the allotment of Equity Shares pursuant to this Issue to the successful Bidders. The successful Bidder to whom the Equity Shares are being/have been Allotted. [ ] An indication to make an offer during the Bidding/Issue Period by a prospective investor to subscribe to the Company s Equity Shares at a price within the Price Band, including all revisions and modifications thereto. The highest value of the optional Bids indicated in the Bid cum Application Form and payable by the Bidder on submission of the Bid in the Issue. The date after which the Syndicate will not accept any Bids for this Issue, which shall be notified in an English national newspaper, a Hindi iii

4 Term Bid cum Application Form Bidder Bidding/Issue Period Bid/Issue Opening Date Book Building Process BRLM/Book Running Lead Manager/ Enam CBRLMs/ Co Book Running Lead Managers CAN/Confirmation Allocation Note Cap Price CLSA Cut-off Price Designated Date of Designated Stock Exchange Draft Red Herring Prospectus Eligible Employees Employee Reservation Equity Shares Escrow Account Escrow Agreement Description national newspaper and a Marathi newspaper with wide circulation. The form in terms of which the Bidder shall make an offer to subscribe to the Equity Shares of our Company and which will be considered as the application for issue of the Equity Shares pursuant to the terms of this Draft Red Herring Prospectus. Any prospective investor who makes a Bid pursuant to the terms of the Red Herring Prospectus and the Bid cum Application Form. The period between the Bid Opening Date /Issue Opening Date and the Bid Closing Date/Issue Closing Date inclusive of both days and during which prospective Bidders can submit their Bids. The date on which the Syndicate shall start accepting Bids for the Issue, which shall be the date notified in a widely circulated English national newspaper, a Hindi national newspaper and a Marathi newspaper with wide circulation. The book building process as provided under Chapter XI of the SEBI Guidelines, in terms of which the Issue is being made. Book Running Lead Manager to the Issue, in this case being Enam Financial Consultants Private Limited, Co Book Running Lead Managers to the Issue, in this case being CLSA India Limited, JM Morgan Stanley India Private Limited and SBI Capital Markets Limited The note or advice or intimation of allocation of Equity Shares sent to the Bidders who have been allocated Equity Shares after discovery of the Issue Price in accordance with the Book Building Process. The higher end of the Price Band, above which the Issue Price will not be finalised and above which no Bids will be accepted. CLSA India Limited, having its registered office at 8 th Floor, Dalamal House, Nariman Point, Mumbai Any price within the Price Band finalised by the Company in consultation with the BRLM and the CBRLMs. A Bid submitted at Cutoff Price is a valid Bid at all price levels within the Price Band. The date on which the Escrow Collection Banks transfer funds from the Escrow Account(s) to the Public Issue Account after the Prospectus is filed with the RoC, following which the Board of Directors shall allot Equity Shares to successful Bidders. [ ] This Draft Red Herring Prospectus issued in accordance with Section 60B of the Companies Act, which does not contain complete particulars on the price at which the Equity Shares are offered and the size of the Issue. Permanent employees of the Company who are Indian Nationals based in India and are present in India on the date of submission of the Bidcum-Application Form. The portion of the Issue being up to 321,300 Equity Shares available for allocation to Eligible Employees. Equity shares of the Company of face value of Rs. 10 each, unless otherwise specified in the context thereof. An account opened with an Escrow Collection Bank(s) and in whose favour the Bidder will issue cheques or drafts in respect of the Bid Amount when submitting a bid. Agreement entered into amongst the Company, the Registrar, the Escrow Collection Bank(s), the BRLM, the CBRLMs and the Syndicate Members for collection of the Bid Amounts and for remitting refunds, if iv

5 Term Description any, of the amounts collected, to the Bidders. Escrow Collection Bank(s) The banks, which are clearing members and registered with SEBI as Banker(s) to the Issue, at which the Escrow Account will be opened and in this case being [ ]. First Bidder The Bidder whose name appears first in the Bid cum Application Form or Revision Form. Floor Price The lower end of the Price Band, below which the Issue Price will not be finalised and below which no Bids will be accepted. IPO Initial Public Offering Issue Public Issue of 16,065,000 Equity Shares of Rs. 10 each of the Issuer for cash at a price of Rs. [ ] per Equity Share (including a share premium of Rs. [ ] per Equity Share) aggregating Rs. [ ] Issue Price The final price at which Equity Shares will be Allotted in the Issue, as determined by the Company in consultation with the BRLM and the CBRLMs, on the Pricing Date. Issue Account An account opened with the Banker(s) to the Issue to receive monies from the Escrow Accounts for the Issue on the Designated Date. JMMS JM Morgan Stanley Private Limited, having its resgistered office at 141, Maker Chambers III, Nariman Point, Mumbai , India Margin Amount The amount paid by the Bidder at the time of submission of their Bid, which may range from 10% to 100% of the Bid Amount. Mutual Funds A mutual fund registered with SEBI pursuant to the SEBI (Mutual Funds) Regulations, 1996, as amended from time to time. Mutual Funds Portion 5% of the QIB Portion or 472,311 Equity Shares (assuming the QIB Portion is for 60% of the Net Issue Size) available for allocation to Non- Institutional Bidders Net Issue The Issue less the Employee Reservation Portion Non-Institutional Bidders All Bidders that are not QIBs or Retail Individual Bidders and who have Bid for Equity Shares for an amount more than Rs 100,000 Non-Institutional Portion The portion of this Net Issue being not less than 1,574,370 Equity Shares available for allocation to Non Institutional Bidders Pay- in Date The Bid/Issue Closing Date or the last date specified in the CAN sent to Bidders, as applicable. Pay-in-Period With respect to Bidders whose Margin Amount is 100% of the Bid Amount, the period commencing on the Bid Opening Date and extending until the Bid Closing Date; and Price Band Pricing Date With respect to Bidders whose Margin Amount is less than 100% of the Bid Amount, the period commencing on the Bid Opening Date and extending until the closure of the Pay in Date. The price band with a minimum price (Floor Price) of Rs. [ ] and the maximum price (Cap Price) of Rs. [ ], including any revisions thereof. The date on which the Company in consultation with the BRLM and the CBRLMs finalize the Issue Price. Promoter Our Promoter being Shapoorji Pallonji & Co., Limited, Sterling Investment Corporation Private Limited, Cyrus Investments Limited and Floreat Investments Limited Promoter Group Companies Prospectus Public Issue Account Unless the context otherwise requires, refers to those companies mentioned in the section titled Our Promoter on page 139 of this Draft Red Herring Prospectus. The Prospectus, to be filed with the RoC containing, inter alia, the Issue Price that is determined at the end of the Book Building Process, the size of the Issue and certain other information. An account opened with the Banker(s) to the Issue to receive monies v

6 Term Description from the Escrow Account for this Issue on the Designated Date. QIB Margin Amount An amount representing at least 10% of the Bid Amount. QIB Portion The portion of the Net Issue to public being not less than 9,446,220 Equity Shares each at the Issue Price, required to be allocated to QIBs. Qualified Institutional Public financial institutions as defined in Section 4A of the Companies Buyers or QIBs Act, FIIs, scheduled commercial banks, mutual funds registered with SEBI, venture capital funds registered with SEBI, foreign venture capital investors registered with SEBI, state industrial development corporations, insurance companies registered with the Insurance Regulatory and Development Authority, provident funds with a minimum corpus of Rs. 250 million, pension funds with a minimum corpus of Rs. 250 million, and multilateral and bilateral development financial institutions. Refund Account(s) Account(s) opened with an Escrow Collection Bank from which refunds if any, shall be made. Registrar /Registrar to the Registrar to the Issue, in this case being [ ] Issue Retail Individual Bidders Individual Bidders (including HUFs) who have Bid for Equity Shares for an amount less than or equal to Rs. 100,000 in any of the bidding options in the Issue. Retail Portion The portion of the Net Issue to the public being not less than 4,723,110 Equity Shares available for allocation to Retail Individual Bidder(s). Revision Form The form used by the Bidders to modify the quantity of Equity Shares or the Bid Price in any of their Bid cum Application Forms or any previous Revision Form(s). RHP or Red Herring The red herring prospectus issued in accordance with Section 60B of the Prospectus Companies Act, which does not have complete particulars on the price at which the Equity Shares are offered and the size of the Issue. The Red Herring Prospectus which will be filed with the RoC at least three days before the Bid Opening Date and will become a Prospectus after filing with the RoC after the Pricing Date. SBI CAP SBI Capital Markets Limited 202, having its registered office at Maker Towers E, Cuffe Parade, Mumbai Stock Exchanges NSE and BSE Syndicate The BRLM, the CBRLM and the Syndicate Members. Syndicate Agreement The agreement to be entered into among the Company and the Syndicate in relation to the collection of Bids in this Issue. Syndicate Members Enam Securities Private Limited, JMMS Financial Services and SBICAP Securities Limited TRS or Transaction The slip or document issued by the Syndicate Members to the Bidder as Registration Slip proof of registration of the Bid. Underwriters Underwriting Agreement Technical and Industry Terms The BRLM, the CBRLMs and the Syndicate Members. The agreement among the members of the Syndicate and the Company to be entered into on or after the Pricing Date. BOT BOOT BOLT BOQ COD EPC Term Description Build, Operate and Transfer Build, Own, Operate and Transfer Build, Operate, Lease and Transfer Bill of Quantities Commercial Operation Date Engineering, Procurement and Construction vi

7 Term MCGM MHADA MoP MTPA NABARD NHAI NHDP O&M PPA PPP RCC RFQ RFP SPV s TEU Description Municipal Corporation of Greater Mumbai. Mumbai Housing and Area Development Authority Ministry of Power Million tonnes per annum National Bank for Agricultural & Rural Development National Highways Authority of India National Highways Development Project Operations and Maintenance Power Purchase Agreement Public Private Partnership Roller Compacted Concrete Request for Qualification Request for Proposal Special Purpose Vehicle(s) Twenty Feet Equivalent Unit Conventional/General Terms Term Description AGM Annual General Meeting AS Accounting Standards issued by the Institute of Chartered Accountants of India AY Assessment Year BIFR Board for Industrial and Financial Reconstruction BSE Bombay Stock Exchange Limited CAGR Compounded Annual Growth Rate CDSL Central Depository Services (India) Limited Companies Act The Companies Act, 1956, as amended from time to time Depositories Act The Depositaries Act, 1996, as amended from time to time Depository A body corporate registered under the SEBI (Depositaries and Participant) Regulations, 1996, as amended from time to time Depository Participant A depository participant as defined under the Depositories Act, 1996 DGFT Director General of Foreign Trade EBITDA Earnings Before Interest, Tax, Depreciation & Ammortisation ECS Electronic Clearing System EGM Extraordinary General Meeting EPS Earning Per Share Electronic Transfer of Refunds through ECS, NEFT, Direct Credit or RTGS as applicable Funds FDI Foreign Direct Investment FEMA Foreign Exchange Management Act, 1999, as amended from time to time and the regulations framed thereunder FII Foreign Institutional Investor (as defined under Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000) registered with SEBI under applicable laws in India FIPB Foreign Investment Promotion Board, Government of India Financial Year /fiscal year/fy/ fiscal Period of twelve months ended March 31 of that particular year, unless otherwise stated GIR Number General Index Registry Number Government/ GOI The Government of India HUF Hindu Undivided Family I.T. Act The Income Tax Act, 1961, as amended from time to time vii

8 Term Description Indian GAAP Generally Accepted Accounting Principles in India MICR Magnetic Ink Character Recognition NAV Net Asset Value NEFT National Electronic Funds Transfer NOC No Objection Certificate Non Residents/NR Non-Resident is a Person resident outside India, as defined under FEMA and includes a Non-Resident Indian. NRE Account Non-Resident External Account NRI/Non-Resident Indian Non-Resident Indian, is a Person resident outside India, who is a citizen of India or a Person of Indian origin and shall have the same meaning as ascribed to such term in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, NRO Account Non-Resident Ordinary Account NSDL National Securities Depository Limited OCB/ Overseas Corporate Body A company, partnership, society or other corporate body owned directly or indirectly to the extent of at least 60% by NRIs, including overseas trusts in which not less than 60% of beneficial interest is irrevocably held by NRIs directly or indirectly as defined under Foreign Exchange Management (Deposit) Regulations, OCBs are not allowed to invest in this Issue. p.a/p.a Per Annum PAT Profit after tax PBT Profit before tax P/E Ratio Price/Earnings Ratio PAN Permanent Account Number Person/Persons Any individual, sole proprietorship, unincorporated association, unincorporated organization, body corporate, corporation, company, partnership, limited liability company, joint venture, or trust or any other entity or organization validly constituted and/or incorporated in the jurisdiction in which it exists and operates, as the context requires PIO/ Person of Indian Origin Shall have the same meaning as is ascribed to such term in the Foreign Exchange Management (Investment in Firm or Proprietary Concern in India) Regulations, Re. One Indian Rupee RBI The Reserve Bank Of India Reserve Bank of India The Reserve Bank of India Act, 1934, as amended from time to time Act/RBI Act RoC/Registrar of The Registrar of Companies, Maharashtra at Mumbai located at Everest Companies House, Marine Lines, Mumbai Rs. Indian Rupees RTGS Real Time Gross Settlement Process SCRA Securities Contract (Regulation) Act, 1956, as amended from time to time. SCRR Securities Contract (Regulation) Rules, 1957, as amended from time to time. SEBI The Securities and Exchange Board of India constituted under the SEBI Act, 1992 SEBI Guidelines SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued by SEBI on January 27, 2000, as amended, including instructions and clarifications issued by SEBI in relation thereto from time to time. SEBI Takeover Securities and Exchange Board of India (Substantial Acquisition of Regulations Shares and Takeover) Regulations, 1997, as amended from time to time SICA Sick Industrial Companies (Special Provisions) Act, 1985 viii

9 UIN Term Description Unique Identification Number ix

10 CERTAIN CONVENTIONS; USE OF MARKET DATA Unless stated otherwise, the financial data in this Draft Red Herring Prospectus is derived from our restated consolidated and unconsoliadated financial statements prepared in accordance with Indian GAAP and included in this Draft Red Herring Prospectus. Our current fiscal year commenced on April 1, 2006 and ends on March 31, In this Draft Red Herring Prospectus, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding-off. There are significant differences between Indian GAAP and U.S. GAAP. Accordingly, the degree to which the Indian GAAP financial statements included in this Draft Red Herring Prospectus will provide meaningful information is entirely dependent on the reader s level of familiarity with Indian accounting practices. Any reliance by Persons not familiar with Indian accounting practices on the financial disclosures presented in this Draft Red Herring Prospectus should accordingly be limited. We have not attempted to explain those differences or quantify their impact on the financial data included herein, and we urge you to consult your own advisors regarding such differences and their impact on our financial data. Any percentage amounts, as set forth in Risk Factors, Business, Management s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Draft Red Herring Prospectus, unless otherwise indicated, have been calculated on the basis of our restated consolidated and unconsoliadated financial statements prepared in accordance with Indian GAAP. All references to India contained in this Draft Red Herring Prospectus are to the Republic of India, all references to the US, USA, or the United States are to the United States of America, and all references to UK are to the United Kingdom. For definitions, please see the section titled Definitions and Abbreviations on page iii of this Draft Red Herring Prospectus. In the section entitled Main Provisions of Articles of Association, defined terms have the meaning given to such terms in the Articles. Use of Market data Unless stated otherwise, industry data used throughout this Draft Red Herring Prospectus has been obtained from industry sources such as CRIS INFAC (February 2006), NHAI website accessed on December 9, 2006 and 10th Five Year Plan. Industry sources generally state that the information contained in those publications has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although we believe that industry data used in this Draft Red Herring Prospectus is reliable, it has not been independently verified. Currency of Presentation In this Draft Red Herring Prospectus, all references to Rupees and Rs. are to the legal currency of India, all references to U.S. Dollars, and US$ are to the legal currency of the United States of America. x

11 FORWARD-LOOKING STATEMENTS We have included statements in this Draft Red Herring Prospectus, that contain words or phrases such as will, aim, will likely result, believe, expect, will continue, anticipate, estimate, intend, plan, contemplate, seek to, future, objective, goal, project, should, will pursue and similar expressions or variations of such expressions that are forward-looking statements. All forward-looking statements are subject to risks, uncertainties and assumptions 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, among others: Implementation risks involved in our projects; Political and regulatory environment; Our ability to raise capital for our future projects; Our ability to meet our debt service obligations; Continuation of tax benefits available to us; Our ability to successfully implement our strategy, growth and expansion plans; Our exposure to market risks; Changes in the value of the Rupee and other currencies; The monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates; Changes in the foreign exchange control regulations in India; Foreign exchange rates, equity prices or other rates or prices; and The performance of the financial markets in India. For further discussion of factors that could cause our actual results to differ, see the section titled Risk Factors on page xii of this Draft Red Herring Prospectus. By their nature, certain risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. We, the members of the Syndicate and their respective affiliates do not have any obligation to, and do not intend to, update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI requirements, we, the BRLM and the CBRLMs will ensure that investors in India are informed of material developments until such time as the grant of listing and trading permission by the Stock Exchanges. xi

12 RISK FACTORS An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information in this Draft Red Herring Prospectus, including the risks and uncertainties described below, before making an investment in our Equity Shares. If any of the following risks actually occur, our business, results of operations and financial condition could suffer and the price of our Equity Shares and the value of your investment in our Equity Shares could decline. Unless otherwise stated in the relevant risk factors set forth below, we are not in a position to specify or quantify the financial or other implications of any of the risks mentioned herein. Internal Risk Factors There are criminal cases pending against the Company and our Directors: There are two criminal cases pending against the Company and our Directors, which are as follows: Criminal case pending against the Company under section 29(1)(e) and 29(2)(e) of the Karnataka Sales Tax Act, 1957 before the Judicial Magistrate First Class, Bangalore. Complaint pending against Mr. Pallonji Shapoorji Mistry, Mr. Shapoorji Pallonji Mistry and Mr. Cyrus Pallonji Mistry for allegedly committing an offence of dishonouring hundies under sections 406, 417, 422, 423 and 468 read with section 120B of the Indian Penal Code, before the Judicial Magistrate-II, Chennai. For more details on the above litigations, see the section entitled Outstanding Litigation and Material Developments on page 337 of this Draft Red Herring Prospectus. A significant part of our business transactions are with Indian governmental or government-funded entities or agencies and any change in the Indian government policies or focus may affect our business and results of operations. Our business is dependent on infrastructure projects undertaken by governmental authorities and other entities funded by governments or international and multilateral development finance institutions. Contracts awarded by Indian central, state, local governmental authorities and government bodies accounted for approximately % of our order book as of September 30, For a breakdown of our recent historical revenues, see the section entitled Business beginning on page 81 of this Draft Red Herring Prospectus. Government focus on and sustained increase in budgetary allocation for investments in the infrastructure sector, and the development of a structured and comprehensive infrastructure policy that encourages greater private sector participation as well as increased funding by international and multilateral development financial institutions in infrastructure projects in India, have resulted in or are expected to result in the commencement of several large infrastructure projects in India. If there is any change in the government or in governmental policies, practices or focus that results in a slowdown in infrastructure projects, our business and results of operations may be adversely affected. In addition, for projects of value less than Rs.1,000 million, government agencies in India may grant purchase preference to public sector construction companies whose bid for the project is within 10% of the lowest bidder, and give such public sector enterprises an option to match the lowest bid. Unfavourable geopolitical, economic or other developments in our intenational markets could adversely affect our results of operations in those markets We have undertaken overseas projects in the past and as of September , overseas projects constitute 8.65 % of our Order Book. Our strategy includes sustained focus on key international markets especially the Middle East and Africa. These operations are subject to risks associated with xii

13 uncertain political and economic environments, government instability, and legal systems, laws and regulations, that are different from the legal systems that we are familiar with in India. If any of these risks materialize our results of operations could be adversely affected. Our profitability and results of operations may be adversely affected in the event of increases in the price of raw materials, fuel costs, labour or other inputs. The cost of raw materials, fuel, labour and other inputs constitutes a significant part of our operating expenses. Our construction operations require various construction raw materials including steel and cement. Fuel costs for operating our construction and other equipment also constitute a significant part of our operating expenses, especially in the case of our infrastructure projects. Our ability to pass on increases in the purchase price of raw materials, fuel and other inputs may be limited in the case of fixed-price contracts or contracts with limited price escalation provisions. Under the terms and conditions of fixed-price contracts, we generally agree to provide services for the part of the project contracted to us for a fixed price, subject to contract variations pursuant to changes in the client s project requirements. Fixed-price contracts contain limited or no price escalation clauses covering increases in the cost of raw materials. We derived approximately 26.65% and 8.19% of our contract revenue in the year ended March 31, 2006 and in the six months ended September 30, 2006, respectively, from such fixed-price contracts. Fixed-price contracts accounted for approximately 19.89% of our Order Book as of September 30, Our actual expense in executing a fixed-price contract may vary substantially from the assumptions underlying our bid for several reasons, including: unanticipated increases in the cost of raw materials, fuel, labour or other inputs; unforeseen construction conditions, including the inability of the client to obtain requisite environmental and other approvals, resulting in delays and increased costs; delays caused by local weather conditions; and suppliers or subcontractors failures to perform. Unanticipated increases in the price of raw materials, fuel costs, labour or other inputs not taken into account in our bid can also have compounding effects by increasing costs of performing other parts of the contract. These variations and other risks generally inherent to the construction industry may result in our profits on a project being less than as originally estimated or may result in our experiencing losses. Depending on the size of a project, these variations from estimated contract performance could have a significant effect on our results of operations. Our construction contracts are dependent on adequate and timely supply of key raw materials such as steel and cement at commercially acceptable prices. Timely and cost effective execution of our projects is dependant on the adequate and timely supply of key raw materials. We have not entered into any long-term supply contracts with our suppliers. Additionally, we typically use third-party transportation providers for the supply of most of our raw materials. Transportation strikes by, for example, members of various Indian truckers unions and various legal or regulatory restrictions placed on transportation providers have had in the past, and could have in the future, an adverse effect on our receipt of supplies. Further, transportation costs have been steadily increasing, and the prices of raw materials themselves can fluctuate. In addition, the availability of supplies may not be commensurate with the rate of growth being experienced by the infrastructure sector. If we are unable to procure the requisite quantities of raw materials in time and at commercially acceptable prices, the performance of our business and results of operations may be adversely affected. We have high working capital requirements. If we experience insufficient cash flows to allow us to make required payments on our debt or fund working capital requirements, there may be an adverse effect on our results of operations. xiii

14 Our business requires a great deal of working capital. In many cases, significant amounts of working capital are required to finance the purchase of materials, the hiring of equipment and the performance of engineering, construction and other work on projects before payments are received from clients. In certain cases, we are contractually obligated to our clients to fund the working capital requirements of our projects. Our working capital requirements may increase if, under certain contracts, payment terms do not include advance payments or such contracts have payment schedules that shift payments toward the end of a project or otherwise increase our working capital burdens. In addition, our working capital requirements have increased in recent years because we have undertaken a growing number of projects within a similar timeframe and due to the growth of the Company s business generally. All of these factors may result, or have resulted, in increases in our working capital needs. It is customary in the industry in which we operate to provide bank guarantees or performance bonds in favour of clients to secure obligations under contracts. In addition, letters of credit are often required to satisfy payment obligations to suppliers and sub-contractors. If we are unable to provide sufficient collateral to secure the letters of credit, bank guarantees or performance bonds, our ability to enter into new contracts or obtain adequate supplies could be limited. Providing security to obtain letters of credit, bank guarantees and performance bonds increases our working capital needs. We may not be able to continue obtaining new letters of credit, bank guarantees, and performance bonds in sufficient quantities to match our business requirements. Our expansion plans require significant expenditure and if we are unable to obtain the necessary funds for expansion, our business may be adversely affected. We will need significant additional working capital and long-term capital to finance our future business plans and, in particular, our plan for expansion and purchase of capital equipment as referred to in Objects of the Issue on page 43 of this Draft Red Herring Prospectus. Due to various factors, including certain extraneous factors such as changes in tariff regulations, interest rates, insurance and other costs or borrowing and lending restrictions, if any, we may not be able to finance our expansion plans, or secure other financing when needed, on acceptable commercial terms. Any such situation would adversely affect our business and growth prospects. Delays associated with the collection of receivables from our clients may adversely affect our business and results of our operations. There may be delays associated with the collection of receivables from our clients, including government owned, controlled or funded entities and related parties. As of the year ended March 31, 2006 and as of September 30, 2006, Rs. 1, million, or 60.27% and 1, million, or %, of our accounts receivable were outstanding for a period of more than six months respectively. Our operations involve significant working capital requirements and delayed collection of receivables could adversely affect our liquidity and results of operations. In addition, we may be subject to additional regulatory or other scrutiny associated with commercial transactions with government owned, controlled or funded entities. Our business is subject to a significant number of tax regimes and changes in legislation governing the rules implementing them or the regulator enforcing them in any one of those jurisdictions could negatively and adversely affect our results of operations. We currently have operations and staff spread across many states of India. Consequently, we are subject to the jurisdiction of a number of tax authorities and regimes. The revenues recorded and income earned in these various jurisdictions are taxed on differing bases, including net income actually xiv

15 earned, net income deemed earned and revenue-based tax withholding. The final determination of our tax liabilities involves the interpretation of local tax laws and related authorities in each jurisdiction as well as the significant use of estimates and assumptions regarding the scope of future operations and results achieved and the timing and nature of income earned and expenditures incurred. We are involved in various disputes with the tax authorities. For more details, see Outstanding Litigation Taxation related matters on page 340 of this Draft Red Herring Prospectus. Changes in the operating environment, including changes in tax law, could impact the determination of our tax liabilities for any given tax 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. The central and state tax scheme in India is extensive and subject to change from time to time. Any adverse changes in any of the taxes levied by the central or state governments may adversely affect our competitive position and profitability. Projects included in our Order Book may be delayed, cancelled or not fully paid for by our clients, which could materially harm our cash flow position, revenues and earnings. Our Order Book does not necessarily indicate future earnings related to the performance of that work. Order Book projects represent business that is considered firm, but cancellations or scope or schedule adjustments may occur. We may also encounter problems executing the project as ordered, or executing it on a timely basis. Moreover, factors beyond our control like contractual risks which are under the control of our clients may postpone a project or cause its cancellation, including delays or failures to obtain necessary permits, authorizations, permissions, right-of-way, and other types of difficulties or obstructions. Due to the possibility of cancellations or changes in project scope and schedule, as a result of exercises of our clients discretion, problems we encounter in project execution, or reasons outside our control or the control of our clients, we cannot predict with certainty when, if or to what extent an Order Book project will be performed. Delays in the completion of a project can lead to clients delaying or refusing to make payment to us of some or all of the amounts we expect to be paid in respect of the project. Even relatively short delays or surmountable difficulties in the execution of a project could result in our failure to receive, on a timely basis or at all, the final payments due to us on a project. These payments often represent a significant portion of the margin we expect to earn on the project. In addition, even where a project proceeds as scheduled, it is possible that the contracting parties may default or otherwise fail to pay amounts owed. Any delay, reduction in scope, cancellation, execution difficulty, payment postponement or payment default in regard to Order Book projects or any other uncompleted projects, or disputes with clients in respect of any of the foregoing, could materially harm our cash flow position, revenues and earnings. Given the long-term nature of the projects we undertake, we face various kinds of implementation risks. Most infrastructure construction projects involve agreements that are long-term in nature. Long-term agreements have inherent risks associated with them that may not necessarily be within our control and accordingly our exposure to a variety of implementation and other risks, including construction delays, material shortages, unanticipated cost increases, cost overruns, inability to negotiate satisfactory arrangements with joint venture partners, and disagreements with our joint venture partners is enhanced. For example, business circumstances may materially change over the life of one or more of our agreements and we may not have the ability to modify our agreements to reflect these changes. Further, being committed under these agreements may restrict our ability to implement changes to our business plan. This limits our business flexibility, exposes us to an increased risk of unforeseen business and industry changes and could have a material adverse effect on our business, financial condition and results of operations. As our revenue structure under each such agreement is set over the life of the agreement (and fluctuates subject to the built-in adjustment mechanisms contained in such agreement), our profitability is largely xv

16 a function of how effectively we are able to manage our costs during the terms of our agreements. The nature of the industry is such where quantity variations are an integral part of many contracts. Uncertainty attached to this factor may result in adverse impact in revenues and profitability. If we are unable to effectively manage costs, our business, financial condition and results of operations may be materially and adversely affected. An inability to manage our growth could disrupt our business and reduce our profitability. We have experienced high growth in recent years and expect our construction and infrastructure business to continue to grow as we gain greater access to financial resources. We expect this growth to place significant demands on us and require us to continuously evolve and improve our operational, financial and internal controls across our organization. In particular, continued expansion increases the challenges involved in: preserving a uniform work culture, values and work environment across our projects; developing and improving our internal administrative infrastructure, particularly our financial systems, operational, communications, internal control and other internal systems; recruiting, training and retaining technical and marketing personnel and key managerial personnel; maintaining high levels of client satisfaction; and adhering to health, safety, and environmental standards. Any inability to manage our growth may have an adverse effect on our business and results of operations. Any inability to attract, recruit and retain skilled personnel could adversely affect our business and results of operations. Our ability to meet future business challenges depends on our ability to attract, recruit and retain talented and skilled personnel. We are highly dependent on our senior management, our Directors and other key personnel, including skilled project management personnel. A significant number of our employees are skilled engineers and we face strong competition to recruit and retain skilled and professionally qualified staff. Due to the limited pool of available skilled personnel, competition for senior management and skilled engineers in our industry is intense. We may experience difficulties in attracting, recruiting and retaining an appropriate number of managers and engineers for our business needs. We may also need to increase our pay structures to attract and retain such personnel. Our future performance will depend upon the continued services of these persons. The loss of any of the members of our senior management, our Directors or other key personnel or an inability to manage the attrition levels in different employee categories may materially and adversely impact our business and results of operations. Contracts awarded to us by governments or government-backed entities may be unilaterally terminated for convenience. One of the standard conditions in contracts typically awarded by governments or government-backed entities is that the government or entity, as the client, has the right to terminate the contract for convenience, without any reason, at any time after providing us with notice that may vary from a period of 30 to 90 days. In the event that a contract is so terminated, our results of operations may be adversely affected. xvi

17 We face significant competition in our business from other civil engineering and construction companies. We operate in a competitive environment. Our competition varies depending on the size, nature and complexity of the project and on the geographical region in which the project is to be executed. We compete against various civil engineering and construction companies. For more information concerning our competitors in specific industry and project segments, please see Business beginning on page 81 of this Draft Red Herring Prospectus. While many factors affect the client decisions, price is a key deciding factor in most of the tender awards. We may be unable to compete with larger engineering construction companies for complex, high-value contracts as well as projects that are of comparatively lesser value, many of whom may have greater financial resources, better technology, larger manpower, economics of scale and operating efficiencies. If we are unable to bid for and win engineering construction projects, both large and small, or compete with larger competitors, we could fail to increase, or maintain our volume of order intake and our results of operations may be materially adversely affected. There can be no assurance that we can continue to effectively compete with our competitors in the future, and failure to compete effectively may have an adverse effect on our business, financial condition and results of operations. Our inability to qualify for and win large contracts and compete with other civil engineering and construction companies could adversely affect our margins and results of operations. Substantially all our contracts are obtained through a competitive bidding process. Pre-qualification is key to our winning major projects. In selecting contractors for such projects, clients generally limit the tender to contractors they have pre-qualified based on several criteria, including experience, technical ability, past performance, reputation for quality, safety record, financial strength and the size of previous contracts in similar projects, although the price competitiveness of the bid is usually the most important selection criterion. We are currently qualified to bid for projects up to certain values, depending on the client, and therefore may not be able to compete with other construction companies for larger, higher-value projects. Our ability to bid for and win major projects is dependent on our ability to show experience working on such large engineering, procurement and construction contracts and develop strong engineering capabilities and credentials to execute more technically complex projects. The auditors report appearing in this Draft Red Herring Prospectus have been qualified by the auditors Our Auditors in their report on our consolidated and unconsolidated financial statement for the years ended March 31, 2002, 2003, 2004, 2005, 2006 and six months ended September 30, 2006 have put certain qualifications. For more details please refer to the Financial Statements appearing on page 207 of this Draft Red Herring Prospectus. We depend on forming successful joint ventures to qualify for the bidding process as well as for executing certain projects. In order to be able to bid for some large scale projects, we enter into memoranda of understanding or joint venture agreements with various other companies to meet capital adequacy, technical or other requirements that may be required as part of the pre-qualification for bidding or execution of the contract. In cases where we are unable to forge an alliance with appropriate companies to meet such requirements, we may lose out on opportunities to bid. Where we have formed a joint venture, our Company can claim benefits flowing to the joint venture to the extent of its share in the joint venture as agreed among the joint venture partners. However, the liability of joint venture partners is joint and several. Therefore, we would be liable for completion of the entire project if our joint venture partner were to default on its duty to perform. Additionally, our joint venture partners may not have adequate financial resources to meet their indemnity obligations to xvii

18 us. In the event that we were to face a situation where our joint venture partner defaulted on their duties to perform and we were unable to recover indemnities payable by them, it could have an adverse effect on our business and results of operations Our portfolio is relatively concentrated in certain large-scale projects. There are various risks associated with the execution of large-scale integrated projects. Large contracts may take up a large part of our portfolio, increasing the potential volatility of our results through increased exposure to individual contract risks. Managing large-scale integrated projects may also increase the potential relative size of cost overruns and negatively affect our operating margins. Largescale integrated projects may cause us to assume portions of the project that have potentially lower profit margins. In addition, we often execute large-scale integrated projects as joint ventures with other companies. Should the other members of our joint ventures default on their duties to perform, we would remain liable for the completion of the project. Our 12 largest contracts in terms of outstanding value represented approximately % of our Order Book as of September 30, For a breakdown of our recent historical revenues, see the section entitled Management s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 316 of this Draft Red Herring Prospectus. We believe that our contract portfolio will continue to be concentrated to a similar degree in the future. If we do not achieve our expected margins or suffer losses on one or more of these large contracts, this could have an adverse effect on our results of operations. We may not be able to participate in certain NHAI road projects Currently, we are undertaking three road projects for NHAI and as of September 30, 2006, the outstanding contract value aggregating to Rs million constituting 2.9% of our Order Book. Owing to non-resolution of certain disputes with NHAI arising from delays in execution of road projects, we propose to participate in such projects only through the BOT/ BOOT route in association with Shapoorji Pallonji group and other established entities, which would function as a concessionaire whilst we would execute the EPC job. Owing to this strategy, our participation in the number of road projects with NHAI may reduce, which may have an adverse impact on our operations. Our Promoters will continue to retain majority control in the Company after the Issue, which will enable them to influence the outcome of matters submitted to shareholders for approval. Upon completion of the Issue, the Promoters and Promoter Group Companies will beneficially own % of our post-issue equity share capital. As a result, the Promoters will have the ability to control our business including matters relating to any sale of all or substantially all of our assets, the timing and distribution of dividends and the election or termination of appointment of our officers and Directors. This control could delay, defer or prevent a change in control of the Company, impede a merger, consolidation, takeover or other business combination involving the Company, or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company even if it is in the Company s best interest. In addition, for so long as the Promoters continue to exercise significant control over the Company, they may influence the material policies of the Company in a manner that could conflict with the interests of our other shareholders. The Promoters may have interests that are adverse to the interests of our other shareholders and may take positions with which we or our other shareholders do not agree. Our insurance coverage may not adequately protect us against all material hazards. Our Company has covered itself against certain risks. Our significant insurance policies consist of among others contractors all risk policy for our projects, special contingency policy for plant, machinery and equipments, marine transit policy, fire policy for buildings, furniture and fixtures, workmen s compensation group personal accident policy etc. In addition, we have obtained separate insurance coverage for personnel related risks, motor vehicle risks and loss of movable assets risks. Under certain of our contracts and sub-contracts, we are required to obtain insurance for the project xviii

19 undertaken by us, which, in some cases, we have not obtained or we permitted such insurance policies to lapse prior to the completion of the project. While we believe that the insurance coverage we maintain would reasonably be adequate to cover all normal risks associated with the operation of our business, there can be no assurance that any claim under the insurance policies maintained by us will be honoured fully, in part or on time, nor that we have taken out sufficient insurance to cover all material losses. Further, we may not have obtained insurance cover for some of our projects that do not require us to maintain insurance. To the extent that we suffer loss or damage for which we did not obtain or maintain insurance, that is not covered by insurance or exceeds our insurance coverage, the loss would have to be borne by us and our results of operations and financial performance could be adversely affected. Timely and successful completion of our projects is dependent upon our performance and, in case of many projects, the cooperation of our joint venture partners and sub-contractors. Typically, construction contracts are subject to specific completion schedule requirements with liquidated damages chargeable in the event that a project falls behind schedule. We often enter into joint ventures to take on a project or sub-contract part of the work in a project to various subcontractors. In those instances, the completion of the contract for our client depends in part on the performance of us and of our joint venture partners and sub-contractors. Delay or failure on our part or on the part of a joint venture partner or sub-contractor to complete its work on a project on time, for any reason, could result in delayed payment to us or termination of the contract, which in turn may affect our cash flow and results of operations. Furthermore, failure to adhere to contractually agreed timelines for any reason could cause damage to our reputation and client base, result in our being required to pay liquidated damages or lead to forfeiture of security deposits or invocation of performance guarantees. Damage to our reputation could adversely affect our ability to pre-qualify for projects, which in turn may adversely affect our business and results of operations. Additionally, joint venture partners or sub-contractors may not have adequate financial resources to meet their indemnity obligations to us. Losses may derive from risks not addressed in our indemnity agreements or insurance policies, or it may no longer be possible to obtain adequate insurance against some risks on commercially reasonable terms. Failure to effectively cover ourselves against risks for any of these reasons could expose us to substantial costs and potentially lead to material losses. The occurrence of any of these possibilities may also adversely affect industry perception of our operations and the perception of our suppliers, clients and employees, leading to an adverse effect on our business, results of operations and financial condition. Our indebtedness and the conditions and restrictions imposed on us by our financing agreements could adversely affect our ability to conduct our business. As of September 30, 2006, we had total secured and unsecured loans of Rs. 4, million. We may incur additional indebtedness in the future. Our indebtedness could have several important consequences, including but not limited to the following: a portion of our cash flow will be used towards repayment of our existing debt, which will reduce the availability of cash to fund working capital needs, capital expenditures, acquisitions and other general corporate requirements; our ability to obtain additional financing in the future at reasonable terms may be restricted; fluctuations in market interest rates may affect the cost of our borrowings, as some of our loans are at variable interest rates; and we may be more vulnerable to economic downturns, may be limited in our ability to withstand competitive pressures and may have reduced flexibility in responding to changing business, regulatory and economic conditions. xix

20 Most of our financing arrangements are secured by our movable and immoveable assets.. Our accounts receivable and inventories are subject to charges created in favour of specific secured lenders. Many of our financing agreements also include various conditions and covenants that require us to obtain lender consents prior to carrying out certain activities and entering into certain transactions. Failure to meet these conditions or obtain these consents could have significant consequences for our business. Specifically, we must seek, and may be unable to obtain, lender consents to incur additional debt, change our capital structure, increase or modify our capital expenditure plans, create additional charges on or further encumber our assets or merge with or acquire other companies, whether or not there is any failure by us to comply with the other terms of such agreements. Compliance with the various terms of our loans is, however, subject to interpretation and we cannot assure you that we have requested or received all consents from our lenders that would be advisable under our financing documents. As a result, it is possible that a lender could assert that we have not complied with all the terms under our financing documents. Any failure to service our indebtedness, comply with a requirement to obtain a consent or perform any condition or covenant could lead to a termination of one or more of our credit facilities, acceleration of amounts due under such facilities and cross-defaults under certain of our other financing agreements, any of which may adversely affect our ability to conduct our business and have a material adverse effect on our financial condition and results of operations. Our operations are subject to physical hazards and similar risks that could expose us to material liabilities, loss in revenues and increased expenses. While construction companies, including us, conduct various scientific and site studies during the course of bidding for projects, there are always anticipated or unforeseen risks that may come up due to adverse weather conditions, geological conditions, specification changes and other reasons. Additionally, our operations are subject to hazards inherent in providing engineering and construction services, such as risk of equipment failure, work accidents, fire or explosion, including hazards that may cause injury and loss of life, severe damage to and destruction of property and equipment, and environmental damage. We may also be subject to claims resulting from defects arising from engineering, procurement and/or construction services provided by us within the warranty periods stipulated in our contracts, which typically range from 12 to 60 months from the date of commissioning. Actual or claimed defects in equipment procured and/or construction quality could give rise to claims, liabilities, costs and expenses, relating to loss of life, personal injury, damage to property, damage to equipment and facilities, pollution, inefficient operating processes, loss of production or suspension of operations. Our policy of covering these risks through contractual limitations of liability, indemnities and insurance may not always be effective. In some of the jurisdictions in which we operate, environmental and workers compensation liability may be assigned to us as a matter of law. As per AS 7 of the Indian Accounting Standards, construction companies are required to recognize, in the respective accounting period, potential losses that may be incurred in the foreseeable future. These liabilities and costs could have a material adverse effect on our business, results of operations and financial condition. We could be adversely affected if we fail to keep pace with technical and technological developments in the construction industry. Our recent experience indicates that clients are increasingly developing larger, more technically complex projects in the civil construction and infrastructure sector. To meet our clients needs, we must regularly update existing technology and acquire or develop new technology for our engineering construction services. In addition, rapid and frequent technology and market demand changes can often render existing technologies and equipment obsolete, requiring substantial new capital expenditures and/or write-downs of assets. Our failure to anticipate or to respond adequately to changing technical, market demands and/or client requirements could adversely affect our business and financial results. xx

21 Our business is subject to a variety of environmental laws and regulations. Any failure on our part to comply with applicable environmental laws and regulations could have an adverse effect on our business. Our operations are subject to numerous environmental protection laws and regulations, which are complex and stringent. We regularly perform work in and around sensitive environmental areas such as rivers, lakes, coastlines and forests. The client may not be able to obtain and handover possession of the site due to problems related to displacement and rehabilitation of the project affected people. Significant fines and penalties may be imposed for non-compliance with environmental laws and regulations and certain environmental laws provide for strict liability for remediation of releases of hazardous substances, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. Furthermore, we incur significant expenditure relating to operating methodologies and standards in order to comply with applicable environmental laws and regulations. Our clients are generally responsible for obtaining environmental permits required to proceed with the project. Any failure or inability by our clients to retain the requisite permits may have an adverse effect on our business and results of operations. Such laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for our own acts including those that were in compliance with all applicable laws at the time such acts were performed. Sanctions for failure to comply with these laws, rules and regulations, many of which may be applied retroactively, may include administrative, civil and criminal penalties, revocation of permits and corrective action orders. Our inability to obtain, renew or maintain the statutory and regulatory permits and approvals required to operate our business could have a material adverse effect on our business. We require certain statutory and regulatory permits and approvals for our business. There can be no assurance that the relevant authorities will issue such permits or approvals in the timeframe anticipated by us or at all. Failure by us to renew, maintain or obtain the required permits or approvals may result in the interruption of our operations and may have a material adverse effect on our business, financial condition and results of operations. If we are unable to obtain the requisite licenses in a timely manner, or at all, our operations may be affected. Claims made by us against our clients for payment have increased over the last few years and failure by us to recover adequately on future claims could have a material adverse effect on our financial condition, results of operations and cash flows. Our project claims have increased in recent years. Project claims are claims brought by us against our clients for additional work and costs incurred in excess of the contract price or amounts not included in the contract price. These claims typically arise from changes in the initial scope of work or from delays caused by the client. These claims are often subject to lengthy arbitration, litigation or other dispute resolution proceedings. The costs associated with these changes or client caused delays include additional direct costs, such as labour and material costs associated with the performance of the additional work, as well as indirect costs that may arise due to delays in the completion of the project, such as increased labour costs resulting from changes in labour markets. We have used significant additional working capital in projects with cost overruns pending the resolution of the relevant project claims. Project claims may continue in the future. For further information, please refer to the section titled Outstanding Litigation and Material Developments on page 337 of this Draft Red Herring Prospectus. Failure to recover amounts under these claims could have a material adverse impact on our liquidity, financial condition and results of operations. We have certain contingent liabilities that may adversely affect our financial condition. xxi

22 Clients of construction companies usually demand performance guarantees from construction companies as a safety net against potential defaults by the construction companies. Additionally, construction companies are usually required to have letters of credit issued by their lenders in favour of their suppliers and other vendors. Hence, construction companies often carry substantial contingent liabilities for the projects they undertake. As of September 30, 2006, contingent liabilities appearing in our financial statements are as follows: Contingent Liabilities As on September 30, 2006 (Rs. In millions) Estimated amount of contracts remaining to be executed on capital account and not provided Claims against the Company not acknowledged as debt Bank guarantees given on behalf of subsidiaries 1.28 In respect of sales tax demands raised by sales tax authorities in matters of disallowance of labour and service charges, consumables for which appeal is pending before various appellate authorities In respect of income tax matters in appeals In respect of excise duty demands in appeals In the event that any of these contingent liabilities materialize, our financial condition may be adversely affected. Our results of operations could be adversely affected by disputes with our employees. As of November 30, 2006, we employed around 1,473 full-time employees. In addition, as of such date, we contracted for around 2,695 temporary labourers on our project sites. While we believe that we maintain good relationships with our employees and contract labour, there can be no assurance that we will not experience future disruptions to our operations due to disputes or other problems with our work force, which may adversely affect our business and results of operations. Our employees are organized under three trade unions and significant management time could be lost in dealing with conflicting aspiration of the three trade unions. Further, the settlement with one of these Unions expired on December 31, 2006 and the other expires on March 31, 2007 whilst the charter of demands by one is pending settlement since The number of contract labourers varies from time to time based on the nature and extent of work contracted to sub-contractors. We enter into contracts with sub-contractors to complete specified assignments. We may however be still liable for any noncompliance or violations by our sub-contractors. Further, any upward revision of wages required by the government to be paid to contract labourers, or offer of permanent employment or the unavailability of the required number of contract labourers, may adversely affect our business and results of our operations. There are outstanding litigations against the Company, our Directors, our Promoters and our Promoter Group entities. We are defendants in certain legal proceedings incidental to our business and operations. These legal proceedings are pending at different levels of adjudication before various courts and tribunals. Additionally, there are certain instances of regulatory non-compliance by us. In the event of rulings against us by courts or tribunals in these proceedings or levy of penalties by statutory authorities, we may need to make payments to others or book provisions against probable future payments, which could increase our expenses and our current liabilities. xxii

23 There are certain claims pending in various courts and authorities at different levels of adjudication against our Directors and our Promoter Group entities. For further details of outstanding litigations against the Company, our Directors, our Promoters and our Promoter Group, please see the section titled Outstanding Litigations and Material Developments on page 337 of this Draft Red Herring Prospectus. We have entered into transactions with related parties. We have entered into certain transactions with related parties, including our Promoter Group, Directors and our employees. For detailed information on our related party transactions, see the section titled Related Party Transactions on page 194 of this Draft Red Herring Prospectus. We had negative cash flows from operating activities and have incurred losses in the past We had negative consolidated and unconsolidated cash flows for the each of the previous four financial years and six months ended September 30, We incurred loses for the financial years ending March 31, 2002, 2003 and 2004 on a consolidated basis. For more details, see the section titled Financial Statements on page 207 of this Draft Red Herring Prospectus. Certain of our Promoter Group entities have incurred losses. Some of our Subsidiaries have in recent years, incurred losses, as set forth in the table below: Name of Subsidiaries Fiscal 2006 Fiscal 2005 Fiscal 2004 Profits / (Losses) in Rs. Million AFCONS Arethusa Offshore Services Private Limited (0.525) (0.78) (1.767) Hazarat & Company Private Ltd (0.01) (0.01) Afcons Pauling Joint Venture (partnership entity) (1.83) 2.62 (0.62) Some of our Promoter Group entities have, in recent years, incurred losses or have negative net worth, as set forth in the table below: Name of Promoter Group entity Fiscal 2006 Fiscal 2005 Fiscal 2004 Profits / (Losses) in Rs. Million Abhipreet Trading Private Limited (0.08) 0.02 (0.10) Afcons Overseas Constrcution & Investments (0.01) (0.006) (0.004) Private Limited Afcons BOT Constructions (0.005) (0.006) (0.006) Afcons Dredging & Marine Services Limited (0.03) (0.05) (0.04) Bracewall Builders Private Limited (0.01) - - Calligra Finance Private Limited (0.02) - - Cama Properties Limited (0.04) (0.01) (0.01) Chinsha Properties Limited (0.02) (0.01) (0.02) Cyrus Chemical Private Limited 0.53 (0.36) (0.40) Cyrus Engineers Private Limited (1.27) Delna Finance and Investments Private Limited (1.75) (1.63) (0.01) Eastview Estates Private Limited (0.03) - - Faery Estates Private Limited (0.46) (0.02) (0.01) Floral Finance Private Limited (0.10) (0.09) (0.08) Flooraise Developers Private Limited (0.01) - - Flotilla Investments Private Limited (0.13) (0.13) (0.13) Forvol International Services Limited (4.56) Grandview Estates Private Limited (0.01) (0.01) (0.01) High Street Developers Private Limited (0.01) - - Khajarana Ganesh Properties Limited (0.10) (0.003) (0.003) Kolland Developers Private Limited (0.03) - - Magpie Finance Private Limited (0.17) 0.04 (0.07) Manjri Stud Farm Private Limited (69.16) (70.09) (27.45) Mazsons Builders and Developers Private Limited (0.04) (0.05) (0.02) Meriland Estates Private Limited (0.15) (0.15) 0.05 xxiii

24 Name of Promoter Group entity Fiscal 2006 Fiscal 2005 Fiscal 2004 Milvin Investments Private Limited (2.73) (0.55) (0.09) Palchin Real Estates Private Limited (0.12) (0.09) (0.20) Ramili Investments Private Limited (0.05) (0.04) (0.04) Shachin Real Estates Private Limited 0.21 (0.08) 0.19 S.C. Impex Private Limited (0.28) (0.27) (0.25) Shapoorji & Co., Private Limited (0.05) Shapoorji & Co. (Rajkot) Private Limited (5.48) (0.25) (0.33) Shapoorji Data Processing Private Limited (3.54) (1.00) (1.31) Shapoorji Drilling Enterprises Private Limited (0.02) (0.02) (0.03) Shapoorji Hotels Private Limited (0.01) (0.01) (0.01) SP Aluminum Systems Private Limited (0.54) (0.61) (0.61) SP Infocity Developers Private Limited (0.01) - - SP Fabricators Private Limited (0.68) Shapoorji Pallonji Ports Private Limited (0.01) 0.01 (0.01) Shapoorji Pallonji & Co., (Rajkot) Limited (0.22) (0.07) (0.03) Skyscape Developers Private Limited (0.01) - - Sterling Generators Private Limited (29.18) (0.89) (0.53) Sunny View Estates Private Limited (15.78) (0.15) (0.02) United Motors (India) Limited (78.18) Windward Developers Private Limited (0.06) - - The following Promoter Group Companies had a negative networth as of March 31, 2006: 1. Delna Finance and Investments Private Limited 2. Khajarana Ganesh Properties Limited 3. Magpie Finance Private Limited 4. Manjri Stud Farm Private Limited 5. Shapoorji Data Processing Private Limited 6. Sharus Building Services Private Limited For a detailed description of our Promoter Group entities, please see the section titled Our Promoters on page 139 of this Draft Red Herring Prospectus. We have in the last 12 months issued Equity Shares. We have in the last 12 months made the following issuances of Equity Shares. We have allotted 20 million Equity Shares each to two of our Promoters, FIL and SICL at par by way of conversion of convertible preference shares in terms of the issue of the preference shares. For further details regarding such issuances of Equity Shares, please see the section titled Capital Structure beginning on page 29 of this Draft Red Herring Prospectus. We have not entered into any definitive agreements to use a substantial portion of the net proceeds of the Issue. Further, the utilization of the Issue proceeds is not subject to monitoring by an independent agency We intend to use the net proceeds of the Issue for purchase of capital equipment, repayment of debt and general corporate purposes and strategic initiatives. See Objects of the Issue on page 43 of this Draft Red Herring Prospectus. We have not entered into any definitive agreements to utilize the net proceeds of the Issue for approximately Rs. 1,250 million of our proposed capital expenditure. The purposes for which the net proceeds of the Issue are to be utilized have not been appraised by an independent entity and are based on our estimates and on third-party quotations. In addition, our capital expenditure plans are subject to a number of variables, including possible cost overruns and changes in management s views of the desirability of current plans, among others. There can be no assurance that we will be able to conclude definitive agreements for investments in capital equipment or for investments in any special purpose vehicles or joint venture or otherwise on commercially acceptable terms. The objects of the Issue have not been appraised by any bank or financial institution. The deployment of funds is entirely at the discretion of our management and our Board of Directors and is not subject to xxiv

25 monitoring by any independent agency. We intend to rely on our internal systems and controls to monitor the use of such proceeds. Any further issuance of Equity Shares by the Company or sales of Equity Shares by any significant shareholders may adversely affect the trading price of the Equity Shares. Any future issuance of our Equity Shares by the Company including our employee stock option scheme, could dilute your shareholding. Any such future issuance of our Equity Shares or sales of our Equity Shares by any of our significant shareholders may also adversely affect the trading price of our Equity Shares, and could impact our ability to raise capital through an offering of our securities. In addition, any perception by investors that such issuances or sales might occur could also affect the trading price of our Equity Shares. Upon completion of the Issue, the entire post-issue paid-up capital held by our Promoters will be locked up for a period of one year and 20% of our post-issue paid-up capital held by certain of our Promoters will be locked up for a period of three years from the date of allotment of Equity Shares in the Issue. For further information relating to such Equity Shares that will be locked up, please see Notes to the Capital Structure in the section Capital Structure beginning on page 29 of this Draft Red Herring Prospectus. Our Promoters and certain Promoter Group entities are engaged in business activities similar to ours. Our Promoter Directors and certain Promoter Group entities are engaged in business activities similar to those undertaken by our Company such as construction and civil engineering and this could be a potential source of conflict of interest. External Risk Factors Demand for our construction services depends principally on activity and expenditure levels in the building and infrastructure sectors. Demand for our construction services is principally dependent on sustained economic development in the regions in which we operate. In addition, demand for our infrastructure services is largely dependent on government policies relating to infrastructure development and budgetary allocations made by governments for such development, as well as funding provided by international and multilateral development financial institutions for infrastructure projects. Investment by the private sector in infrastructure projects is dependent on the potential returns from such projects and is therefore linked to government policies relating to private sector participation and the sharing of risks and returns from such projects. A reduction of capital investment in the building or infrastructure sectors for any reason could have a material adverse effect on our business, results of operations and financial condition. Our operations are sensitive to weather conditions. We have business activities that could be materially and adversely affected by severe weather. Severe weather conditions may require us to evacuate personnel or curtail services and may result in damage to a portion of our fleet of equipment or to our facilities, resulting in the suspension of operations, and may further prevent us from delivering materials to our project sites in accordance with contract schedules or generally reduce our productivity. Our operations are also adversely affected by difficult working conditions and extremely high temperatures during summer months and during monsoon, which restrict our ability to carry on construction activities and fully utilize our resources. We record contract revenues for those stages of a project that we complete, after we receive certification from the client that such stage has been successfully completed. Since revenues are not recognized until we make progress on a contract and receive such certification from our clients, revenues recorded in the first half of our financial year between April and September are traditionally substantially lower compared to revenues recorded during the second half of our financial year. During xxv

26 periods of curtailed activity due to adverse weather conditions, we may continue to incur operating expenses, but our revenues from operations may be delayed or reduced. Natural calamities could have a negative impact on the Indian economy and cause our business to suffer. India has experienced natural calamities such as earthquakes, a tsunami, floods and drought in the past few years. Natural calamities could have a negative impact on the Indian economy and may cause suspension, delays or damage to our current projects and operations, which may adversely affect our business and our results of operations. We are subject to risks arising from interest rate fluctuations, which could adversely affect our business, financial condition and results of operations. Changes in interest rates could significantly affect our financial condition and results of operations. As of September 30, 2006, Rs. 3, million or 74.76% of our total borrowings from banks and financial institutions were at floating rates of interest. If the interest rates for our existing or future borrowings increase significantly, our cost of servicing such debt will increase. This may adversely impact our results of operations, planned capital expenditures and cash flows. The price of our Equity Shares may be volatile, or an active trading market for our Equity Shares may not develop. Prior to this Issue, there has been no public market for our Equity Shares. The trading price of our Equity Shares may fluctuate after this Issue due to a variety of factors, including our results of operations and the performance of our business, competitive conditions, general economic, political and social factors, volatility in the Indian and global securities markets, the performance of the Indian and global economy, significant developments in India s fiscal regime and other factors. There can be no assurance that an active trading market for our Equity Shares will develop or be sustained after this Issue, or that the price at which our Equity Shares are initially offered will correspond to the prices at which they will trade in the market subsequent to this Issue. NOTES TO RISK FACTORS: 1. Public issue of 16,065,000 Equity Shares for cash at a price of Rs. [ ] per Equity Share (including a share premium of Rs. [ ] per Equity Share) aggregating Rs. [ ] million comprising. The Issue would constitute 18.37% of the post issue paid-up capital of the Company. The Net Issue would constitute 18.00% of the post issue paid-up capital of the Company. 2. The average cost of acquisition of Equity Shares by our Promoters which has been calculated by taking the average amount paid by them to acquire our Equity Shares is as follows: CIL Rs SICL Rs FIL Rs For details, please see section titled Capital Structure on page 29 of this Draft Red Herring Prospectus. 3. Our net worth before the Issue as of March 31, 2006 and September 30, 2006 respectively was Rs. 2,119 million and Rs. 2,176 million respectively on a consolidated basis and the book value per Equity Share as of as of March 31, 2006 and September 30, 2006 respectively was Rs Equity Share and Rs respectively on a consolidated basis. xxvi

27 4. For details on relating to related party transactions in the section titled Related Party Transactions on page 194 of this Draft Red Herring Prospectus. 5. For details of the interests of our Directors and Key Managerial Personnel, please refer to the section titled Our Management on page 122 of this Draft Red Herring Prospectus. For details of the interests of our Promoters and Promoter Group, please refer to the section titled Our Promoters on page 139 of this Draft Red Herring Prospectus. 6. Investors may contact the BRLM and the CBRLMs for any complaints, information or clarification pertaining to the Issue. The BRLM and the CBRLMs are obliged to provide the same to investors. 7. Our Company was originally incorporated as Asia Foundations and Constructions Private Limited on November 22, 1976 under the Companies Act, The word private was deleted on March 18, 1977 pursuant to section 43 A of the Companies Act, The name of our Company was changed to Afcons Infrastructure Limited on August 14, 1996 and it was converted into a public limited company on November 11, Before making an investment decision in respect of this Issue, Investors are advised to refer to the section titled Basis for Issue Price on page 46 of this Draft Red Herring Prospectus. 9. We, the BRLM and the CBRLMs are obliged to keep this Draft Red Herring Prospectus updated and inform the public of any material change / development until the listing and trading of the Equity Shares offered under the Issue commences. xxvii

28 SUMMARY Overview We are a civil engineering and construction company in India and we are the flagship infrastructure construction company of the Shapoorji Pallonji group, a well-known and reputed name in the construction industry. We have an experience of over four decades in construction industry, which includes a wide variety of infrastructure projects like marine works, bridges, fly-overs, roads, general civil engineering works including industrial structures, nuclear power projects, tunneling, pipelines, LNG storage tanks and special foundation works such as piling, diaphragm wall, pre-stressed anchors, drilling and grouting and other ground improvement works throughout India. We have also successfully completed and are currently engaged in execution of projects in Middle East and Africa. Over the years we have developed an expertise in marine works and we believe that we have an established reputation and expertise in this service line through successful execution of more than 150 structures along the Indian coastline. We have also successfully completed more than 100 bridges, flyovers, viaducts, two LNG storage tanks, underground and elevated train corridors and have executed 2,000 lane kilo meters of road works. We enter into contracts primarily through a competitive bidding process at the domestic and the international level. We have worked on projects for Qatar Petroleum, Shell, Reliance Industries Limited, Mumbai Port Trust, Konkan Railway Corporation Limited, Delhi Metro Rail Corporation (DMRC) and are currently undertaking projects for National Highway Authority of India, Ministry of Transport and Communication, Sultanate of Oman. Of the above clients, we have several repeat orders from Reliance Industries Limited, Konkan Railway Corporation Limited, National Thermal Power Corporation and DMRC. Some of the important projects successfully completed by us in the recent past include: Engineering, procurement, installation and commissioning of cofferdams for pump house of Ras Laffan common cooling sea water system for Qatar Petroleum Technical Directorate; Construction of jetty for docking LNG carriers and other marine works at Hazira for Shell; Construction of underground station including the tunnel at Barakhamba Road and elevated structure (via duct) between Tis Hazari Tri Nagar rail corridor for Delhi Metro Rail Corporation Limited; and Sewage Marine outfalls at Bandra and Worli, Mumbai for Dywidag International GmbH (as a nominated sub-contractor). The projects being currently executed by us include: Construction of marine, civil and pipeline works for Reliance Infrastructure Limited at Jamnagar; Design and construction of special bridge across River Chenab in Jammu & Kashmir for Konkan Railway Corporation Limited (in joint venture); Construction of single line tunnel on Katra Laole section of Udhampur Srinagar Baramulla rail link project for Konkan Railway Corporation Limited; Construction of an Oil Jetty at Port Louis Harbour, Mauritius; and Construction of new bridge over River Sone for East Central Railways. We focus on technology and constantly strive to develop new technologies and innovations in-house to execute large and complex civil engineering and construction works in a cost-efficient and timely manner. For instance, we developed the micro piling technology as early as 1970 and subsequently patented this technology for underpinning works to strengthen existing structures. We have successfully been using the in-house developed Sahayadri Lift Barge for over 15 years now for our shallow as well as deep water projects. The Sahayadri Lift Barge has a hydraulic lift crane capable of lifting 1200 tonnes.. In the years ended March 31, 2005 and 2006, our consolidated income was Rs. 5, million and Rs. 7, million, respectively, representing an annual growth rate of %. In the six months 1

29 ended September 30, 2006, our consolidated income was Rs. 4, million. In the years ended March 31, 2005 and 2006, we incurred a consolidated loss of Rs. (14.71) million and earned a consolidated net profit for the year of Rs million respectively, while our consolidated net profit for the six months ended September 30, 2006 was Rs million. Our order book, which includes the projects awarded to us but where we have not yet commenced work and the unfinished and uncertified portions of our commenced projects was Rs. 30,303.4 million as of September 30, 2006, out of which, domestic projects and international projects accounted for Rs. 27, million and Rs. 2, million respectively. We have added contracts aggregating Rs million to our order book during the period October 1, 2006 to December 31, 2006 which are all domestic projects. As of September 30, 2006, our work force consisted of approximately 1,473 full time employees and more than 2,695 temporary labour based around India, enabling us to mobilize our skilled employee resources depending on the location and the necessary expertise for projects undertaken by us. Our equipments and skilled employee resources, together with our civil engineering capabilities enable us to successfully implement modern civil engineering construction methodologies. We enjoy the ISO 9001:2000 BVQI accreditation and have received several awards, certifications and appreciation letters from clients for our operations and projects such as the appreciation letter from Shell for the construction of jetty for docking of LNG carriers and other marine works at Hazira, We are committed to adhering to health, safety and environment policies and practices in the execution of our projects. We have received the Safety Award 2005 by the National Safety Council of India in respect for the Sone Bridge, Bihar and ISO 14001:2004 and OHSAS 18001:1999 certifications by BVQI for the construction of elevated viaduct for Delhi Metro Rail Project. We are a part of the Shapoorji Pallonji Group, which is one of the leading conglomerates in India with over 140 years of experience in the construction industry. Its business interests ranges from construction, building materials and real estate to aluminum, finance, biotech, power and fuel oil additives. The Shapoorji Pallonji Group also has a significant presence overseas having been involved in real estate development and construction since We are the flagship company of the Shapoorji Pallonji Group in the infrastructure construction sector. Corporate History and Structure We began our operations as a civil construction firm in 1959 as a partnership between the Rodio Foundation Engineering Limited, Switzerland and Hazarat & Company, India. Consequent to the exit of Rodio Foundation Engineers and Hazarat & Co, we were reorganized as a company with the name Asia Foundations and Constructions Private Limited in 1976 engaged in the business of contractors and engineers. We became a deemed public limited company as per Section 43A(1) of the Companies Act from March 18, Shipping Credit and Investment Corporation of India (SCICI) became a 20% shareholder of our Company in 1993, which shareholding was transferred to ICICI pursuant to the merger of SCICI with ICICI. We changed the name of our Company from Asia Foundations and Constructions Limited to Afcons Infrastructure Limited with effect from August 14, We became a full fledged public company on November 11, In 1998 ICICI subscribed to further shares in our Company which made ICICI the single largest shareholder with 47.37% equity stake in our Company. Shapoorji Pallonji Group acquired 53.96% shareholding in our Company in 2000 where 47.37% was acquired from ICICI Ltd. and 6.59% was acquired from the Hazarat family. We have 3 subsidiaries and 1 joint venture company. We also operate through various unincorporated joint ventures formed for specific projects. Our Strengths Significant experience and strong track record With over four decades of experience as a civil engineering and construction firm, we believe we have become one of the significant players in the Indian construction industry. We believe that we have established a track record for executing large and complex civil engineering and construction and infrastructure contracts in a timely manner with quality work. We have also completed several projects ahead of schedule including the LNG terminal project at Dahej, Moolchand underpass at Delhi and 2

30 Cable stayed bridge for Goa Industrial Infrastructure Corporation. We have received ISO 9001:2000 certification for the quality management system that we apply to the design and construction of civil engineering projects. Our portfolio of completed construction projects includes over 150 marine works, 100 bridges/ flyovers, 2,000 lane kilometres of roads, general civil engineering works relating to industrial structures including 2 LNG storage tanks and civil work for 2 nuclear power projects. We believe that the breadth and depth of our experience, among other factors, which among other things, enables us to pre-qualify for a greater number of potentially higher-margin projects. Diversified business and versatile capabilities We have a presence in the different sectors within the Indian construction industry and in different geographical regions in India. We have also been operating in the Middle East for over three decades and have expanded into other parts of Asia such as Sri Lanka and Nepal. This variety of project types in our portfolio enables us to keep our business diversified and reduces our dependence on any one segment or nature of project and allows us to deal with cyclical risks associated with the industry. The diversified business interests also allows us to participate in various projects where we believe we can add value. We believe that through our diversified and long standing experience we have been able to develop the ability to adapt to and operate in different work conditions and find solutions to complex construction projects. For example, while undertaking work in relation to the Calcutta metro rail project, we were able to construct a tunnel in soft soil using a special blade sheld technique. Similarly, we used the jet-grouting technology for making a tunnel at Liliguma for South Eastern Railways. We have successfully executed projects in diverse work conditions, including overseas. We have entered into renewed partnerships for new projects with various existing joint venture partners and have also received repeat orders from clients demonstrating our ability to work efficiently with various partners. Focus on technology We are a technology driven company, with a focus on innovation and development of technologies for the execution of complex civil construction and engineering projects. We believe our quick adaptability and solution oriented approach to construction complexities coupled with our technological capabilities enable us to execute projects in an efficient manner. Some of the technological innovations achieved by us include micropiling for underpinning works to strengthen structures, stabilizing of hill slopes by prestressed anchors, river training using underwater geofabric, development of Sahayadri Lift Barge, which has a capacity of lifting 1,200 tonnes, which was developed more than 15 years back and design and construction of jack up platforms as early as We believe that we are the first Indian company to have indigenously constructed an underground metro station for DMRC at Barakhamba, New Delhi.. We believe that our sustained focus on technology provides us with a key competitive strength. In- house developed expertise in marine works We entered into marine construction in 1963 and over the years have developed an expertise in marine works. We have constructed more than 150 structures along the Indian coastline which includes jetties, wharves, slipways, relieving platforms and dry docks. While most of the marine and harbour projects in India have historically relied on the conventional end-on-method whereby construction was undertaken from the shore or along the shoreline, we have successfully commissioned marine projects using a variety of floating devices units and jack up platforms. The development of design and fabrication work for such innovative floating devices and jack up platforms was done in-house. We own a fleet of strategic construction equipments including cranes, marine flotilla including jack up platform, barges and pontoons. We have successfully developed many of our important equipments such as the Sahayadri Lift Barge and jack up platforms in-house that have allowed us to customize the equipment to the specific conditions in which we operate. We believe that the increased focus on development of marine infrastructure by both the Government and private sector will allow us to leverage our expertise to achieve higher growth. Long term relationship with reputed clients 3

31 We have developed long-term relationships with our clients and have received repeat orders from several of our domestic and international clients. We believe that our client centric approach enables us to develop an established and long term association with many of our clients. We have successfully executed several projects overseas and have received repeat orders showing our ability to work in multicultural environments and with diverse set of clients. For example after our successful association for the Jamnagar Phase - I project, Reliance Infrastructure Limited has placed cost plus basis contracts with us for several structures including modification of jetty job. Other clients from whom we have received repeat orders also include Konkan Railway Corporation Limited, National Thermal Power Corporation, Cochin Port Trust, Nuclear Power Corporation and DMRC.. Experienced management team and staff We have an experienced and dedicated management team and a skilled workforce. Our employees include over 707 engineers and 269 skilled operators and technicians. We believe that a large pool of skilled engineering and technical workers is essential to the efficient and effective execution of our projects. In addition, our senior management comprises highly qualified people with extensive experience in our business, with engineering or technical backgrounds, which we believe, enhances our ability to successfully execute large and complex construction projects. Our key managerial personnel on an average have more than 25 years of experience in the construction industry. Our staff force also has diversified experience in various types of construction projects, which allows us to staff our projects with the most appropriate people. Parentage We are a part of the Shapoorji Pallonji Group, which is one of the leading conglomerates in India and has been operating for over 140 years in the construction industry. We draw on the expertise and commercial acumen of our parent company in the construction industry for our own business development. Owing to the long-standing history of the Shapoorji Pallonji Group, we believe it enjoys strong brand recognition. Further, we believe that our customers, along with Indian financial institutions, associate the Shapoorji Pallonji Group with quality, reliability and the ability to complete projects on schedule. We believe that the financial strength of the Shapoorji Pallonji Group and its track record and visibility, especially in overseas markets allow us to secure and execute bigger projects. Our Strategy Continue to focus on the high growth opportunities in the Indian construction and infrastructure sector. We believe that the increasing levels of investment in infrastructure by governments and private parties will be a major driver for growth in our domestic business in the foreseeable future. Additionally, the GoI has taken steps to encourage additional investments in infrastructure and construction sector, such as formulating plans to create SEZs in various areas of India and providing economic benefits to private sector participants for projects executed on a BOT basis. We intend to take advantage of such growing opportunities in infrastructure development by strengthening our existing expertise and continuing to pursue growth opportunities in India. We shall continue our focus on marine projects, speciality bridges and metro projects and strive to enhance our share in sectors such as Hydro/Tunnels and Oil and Gas pipelines, where we have recently entered. Focus on opportunities in the international market Apart from pursuing opportunities in India, our objective is to expand and strengthen our overseas operations further by focusing on the regions where we already have a presence, such as the Middle East and Africa, by capitalizing on our local experience, established contacts with local clients and suppliers, and familiarity with local working conditions. Middle East is experiencing a recent increase in construction activities, which makes it an attractive market for us. In addition, we propose to pursue opportunities in newer regions like Algeria and Sudan where large infrastructure initiatives are being made with the aid of multilateral institutions and in Yemen which is experiencing increased construction activities because of the recent discovery of large oil reserves. We currently propose to focus on the medium size contracts where local competition is lesser and we have the capability to 4

32 compete with large multi national players for such projects. We believe that the overseas projects executed by us allow us to earn better margins. Overseas projects also assist us in building our services and technology portfolio through the global exposure and international benchmarking of projects. Further, we also use overseas assignments as a retention measure for our employees. In pursuing our strategies, we seek to identify markets where we believe we can provide cost and operational advantages to our clients and distinguish ourselves from other competitors. In order to expand our operations, we also seek to identify joint venture/ consortium partners whose resources, capabilities and strategies are complementary to ours and who are likely to enhance our business operations in such regions. We shall continue our focus on marine projects, specialty bridges and strive to enhance our share in sectors such as Hydro/Tunnels and Oil and Gas pipelines, where we have recently entered. Increased focus on EPC contracts and design & build contracts. As of September 30, 2006, engineering, procurement, construction (EPC) and design & build contracts constituted % of our total order book. We intend to use our engineering capabilities to enable us to provide value added engineering services for clients and win more EPC contracts. Owing to complex nature of projects being envisaged, there is an increased demand for engineering capabilities. We believe that EPC projects will enable us to realize greater added value on construction projects through provision of comprehensive integrated solutions.. Leverage on the strength of the Shapoorji Pallonji Group The Shapoorji Pallonji Group is already an established player in the construction and real estate industry catering to diverse sectors. We are the flagship company of the Shapoorji Pallonji Group in the infrastructure construction sector. We intend to build upon and draw on its established presence and the financial strengths. Accordingly, we also intend to bid for and participate in large BOT infrastructure projects, including road projects in consortium with a Shapoorji Pallonji entity, which would function as the concessionaire with the construction/ EPC job being executed by us. We will participate and expand in those sectors where we derive the necessary strengths from the Shapoorji Pallonji Group in terms of technical expertise, execution skills and an established presence. Enhance profitability and capital efficiency Infrastructure construction is a highly competitive, capital-intensive activity. We believe that the optimal utilisation of financial, human and other resources is a key element for achieving success in this industry, and we shall continue focusing on the strategy of concentrating on a limited number of high-value/ high margin projects in order to maintain execution quality, reliability and timeliness. Going forward, our strategy will be to continue focusing on our capital utilisation and structure to optimise returns, by actively analysing and identifying projects and assigning priority to projects, which are likely to maximise returns. We also intend to improve capital efficiency by striving for accelerated completion of projects and better contract and relationship management with the client. We propose to continue to mitigate our risks by including effective and equitable dispute resolution clauses in our contracts. Participitate in road projects only in consortium with BOT/ BOOT entities We believe that our ability to effectively manage our cash flows and resultant profitability is adversely affected owing to high level of commodization of the road contracts directly awarded by agencies like NHAI in the competitive bidding route and high level of delays experienced in execution of these projects on account of delays in acquiring land. Typically under the BOT/ BOOT route, 80% of the land is acquired prior to the award of contracts and therefore, the likelihood of delays in execution and consequent adverse impact on cash flow is reduced. Therefore, currently, we propose to participate in road projects only through the BOT/ BOOT route in association with Shapoorji Pallonji group and other established entities, which would function as a concessionaire whilst we would execute the EPC job. 5

33 Attract, train and retain qualified personnel We understand that maintaining quality, minimising costs and ensuring timely completion of engineering and construction projects depends largely on the skill and workmanship of our employees. As competition for qualified personnel is increasing among construction companies in India, particularly with the entry of international engineering and construction companies into the Indian market and as we pursue greater growth opportunities, we seek to attract, train and retain qualified personnel by increasing our focus on training our staff in advanced engineering and construction technology and skills. We frequently conduct well-designed training programmes for our staff. A total of 16,984 training man-hours have been spent on employee training between periods April 2005 to November We also offer our engineering and technical personnel a wide range of work experience and learning opportunities by providing them with an opportunity to work on a variety of large, complex construction projects and forming cross functional teams with the objective of giving them an opportunity to innovate. In addition, we give our employees opportunities to work on wide variety of projects including overseas assignments. Develop and maintain strong alliances with strategic partners. We have strategic alliances for the execution of our projects with companies including Dywidag, Germany, Per Aarsleff, Denmark, Kajima, Japan and Walter Mining, Australia. We intend to continue to establish strategic alliances and share risks with companies, whose resources, skills and strategies are complementary to and are likely to enhance our business opportunities, including the formation of joint ventures and consortia to achieve competitive advantage. In the light of our focus on technology, we also seek partners who can assist us in improving our technological capabilities in execution of our projects. 6

34 SUMMARY FINANCIAL INFORMATION The following table sets forth summary financial information derived from our restated consolidated and unconsolidated financial statements as of and for the fiscal years ended March 31, 2002, 2003, 2004, 2005 and 2006 and as of the six months ended September 30, 2006, which are included in this Draft Red Herring Prospectus under the section titled "Financial Statements" on page 207 of this Draft Red Herring Prospectus. The restated consolidated and unconsolidated financial statements have been prepared in accordance with the SEBI Guidelines and have been restated as described in the auditors' report attached thereto. The summary financial information presented below should be read in conjunction with the financial statements included in this Draft Red Herring Prospectus, the notes thereto and the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 316 of this Draft Red Herring Prospectus. SUMMARY STATEMENT OF ASSETS AND LIABILITIES, AS RESTATED Particulars FIXED ASSETS As at September 30, 2006 As at March 31, 2006 As at March 31, 2005 As at March 31, 2004 (Rupees in millions) As at As at March March 31, 31, Gross Block 2, , , , , , Less: Depreciation 1, , , , Net Block 1, , , Less: Revaluation Reserve Net Block after adjustment for Revaluation Reserve 1, , , Capital Work In Progress TOTAL - (A) 1, , , INVESTMENTS - (B) CURRENT ASSETS, LOANS AND ADVANCES Inventories Work-in-Progress , , Unbilled Revenue 3, , , Sundry Debtors 1, , , , , Cash & Bank Balances Loans & Advances 1, , , , , Other Current Assets TOTAL - (C) 7, , , , , ,

35 Particulars As at September 30, 2006 As at March 31, 2006 As at March 31, 2005 As at March 31, 2004 (Rupees in millions) As at As at March March 31, 31, LIABILITIES AND PROVISIONS Secured Loans 1, , Unsecured Loans 3, , , , Current Liabilities 2, , , , , , Provisions Deferred Tax Liability (Net) TOTAL - (D) 7, , , , , , NET WORTH - (A+B+C- D) 2, , , , , REPRESENTED BY 1. Share Capital 1, , , (Refer note 1 below) 2. Reserves & Surplus Less: Revaluation Reserve Reserves & Surplus (Net of Revaluation Reserves) Total 2, , , , , Less: Miscellaneous Expenses (to the extent not written off) NET WORTH 2, , , , , ) The above statement should be read with the Notes on Adjustments to Restated Financial Statements, Significant Accounting policies and Notes to Accounts as appearing in Annexures IIIB and IV respectively. 8

36 SUMMARY STATEMENT OF PROFIT AND LOSS ACCOUNT, AS RESTATED Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 March 31, 2005 For the Financial Year Ended March 31, 2004 March 31, 2003 (Rupees in millions) March 31, 2002 INCOME : Income from Operations 3, , , , , , Other Income Total Income 4, , , , , , EXPENDITURE : Cost of Construction 2, , , , , , Payments to and Provision for employees Other Expenses , Financial Lease Rentals Interest and Financial charges Depreciation Less : Depreciation on the amount added on Revaluation transferred from Revaluation Reserve Total Expenditure 3, , , , , , Less: Company's Share of Loss in jointly controlled entity (Unaudited) Profit\(Loss) before prior period adjustments, extraordinary items and tax (355.68) Provision for tax: - Current Tax (9.24) (14.28) (2.63) (1.97) (2.10) - - Wealth Tax (0.01) (0.02) (0.02) (0.02) (0.02) (0.02) - Deferred Tax (24.20) (60.29) (11.30) (13.90) (9.43) - - Fringe Benefit Tax (4.60) (10.40) Foreign Tax - (6.68) Total Provision for Tax (38.05) (91.67) (13.95) (15.89) (11.55) (0.02) Profit\(Loss) after tax (355.70) Adjustments:

37 Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 March 31, 2005 For the Financial Year Ended March 31, 2004 March 31, 2003 (Rupees in millions) March 31, 2002 Impact of material adjustment for restatement in corresponding years (Refer Annexure IIIA) - (10.49) (13.61) Adjusted Net Profit\(Loss) (369.31) (Short)/ Excess Provision for taxes in respect of earlier years (Refer note 1 below) (1.66) Balance Brought Forward from Previous Year (347.09) (164.55) (195.28) (207.51) (256.63) Transfer From Debenture Redemption Reserve Profit \ (Loss) available for appropriation (300.91) (116.91) (164.55) (195.28) (207.51) (256.63) Particulars For the For the Financial Year Ended period from March 31, March 31, March 31, March 31, March 31, 2002 April 1, to September 30, 2006 Appropriations: Debit Balance in Profit and Loss account of APIL taken over on Amalgamation - (230.18) Balance carried to Summary Statement of Assets and Liabilities, as restated

38 STATEMENT OF CASH FLOW STATEMENT, AS RESTATED Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 (Rupees in millions) For the Financial Year Ended March 31, 2005 March 31, 2004 March 31, 2003 March 31, 2002 Cash Flow from Operating Activities Net Profit\(Loss) before prior period adjustments, extraordinary items and tax, as restated (369.29) Adjusted for : Depreciation (Profit)\Loss on Sale of Fixed Assets - (1.51) Interest Expenses Interest income (34.02) (204.60) (50.20) (91.67) (31.73) (29.63) Lease Rental Expense Bad irrecoverable debtor/ Unbilled Revenue/ Advance w/off Share of Loss/(Profit) in a firm in which the Company is a partner (2.49) Share of Loss in Jointly Controlled Entity (Unaudited) Deferred revenue expenditure paid during the year - - (0.96) (0.57) (90.25) - Provision for diminution in the value of long term inv w/back/ provided (13.61) Dividend Income - (0.18) (0.18) (0.14) (0.17) (4.20) Excess provision no longer required written back (37.95) (19.47) (15.66) (17.47) - - (Profit) on Sale /Disposal of Shortterm investment - (0.88) (0.34) (Profit) on Sale /Disposal of Longterm investment - (7.58) (0.26) Amount received on transfer of tenancy rights - (60.00) Deferred revenue expenditure written off Provision for Projected Losses (11.45) Operating Profit\(Loss) before (22.09) prior period items and Working Capital Changes Adjustment for: (Increase)/Decrease in Trade receivables (15.64) (26.91) (505.93) (224.17) (257.97) (Increase)/Decrease in inventories (64.50) (128.46) (65.66) (45.22) 11

39 Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 (Rupees in millions) For the Financial Year Ended March 31, 2005 March 31, 2004 March 31, 2003 March 31, 2002 (Increase)\Decrease in Work-in- Progress - - 1, (605.61) (470.05) (140.52) (Increase) in Unbilled Revenue (1,137.85) (1,187.38) (2,674.81) (Increase) in Loans and Advances (47.67) (23.56) (60.50) (255.05) (67.38) Increase/(Decrease) in trade, other payables and provisions (144.09) (31.83) Adjustment on account for amalgamation for net current assets Adjustment on account for amalgamation for loans given to Subsidiary Company - (276.81) Direct Taxes paid (43.13) (21.97) (78.81) (10.00) (55.00) Prior period expenses Net Cash from Operating Activities - (A) (315.74) (538.74) (711.65) (284.58) (646.04) Cash Flow from Investing Activities Purchase of Fixed Assets (485.06) (298.82) (222.57) (259.10) (205.76) (249.39) Sale of Fixed Asset Purchase of Investments - (280.61) (1.90) Sale of Investments Sale of Subsidiary (Loss)/Profit in a firm in which the Company is partner - (1.83) 2.49 (0.62) (0.06) (1.34) Share of Loss in Jointly Controlled Entity - (9.61) Dividend received Interest received Amount received on transfer of tenancy rights Net Cash from Investing Activities - (B) (471.55) (211.63) (168.87) (151.67) (186.17) (228.06) Cash Flow from Financing Activities Proceeds from Issue of Preference Shares Proceeds from long term borrowings - 2, , Repayment of long term borrowings - (1,526.08) (1,742.14) (559.77) (205.81) (251.57) Proceeds from short term borrowings - net (5.02) 1, Interest paid (234.22) (376.30) (336.61) (308.87) (283.33) (218.67) Lease rentals paid (9.82) (13.23) (0.66) (0.49) (23.11) (43.30) 12

40 Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 (Rupees in millions) For the Financial Year Ended March 31, 2005 March 31, 2004 March 31, 2003 March 31, 2002 Dividend paid (0.01) (6.83) Corporate dividend tax (0.70) Net Cash from Financing Activities - (C) (35.31) Net Increase in Cash and Cash Equivalent (A+B+C) (87.40) (100.78) Cash and Cash Equivalent at the beginning of year Cash and cash equivalents taken over on amalgamation Cash and Cash Equivalent at the end of year (87.40) (100.78) Reconciliation of Cash and Cash Equivalents As per Balance Sheet Less: Interest accrued on Bank Deposits - (0.06) - (0.31) (0.80) (1.05) As per Cash flow statement

41 SUMMARY STATEMENT OF CONSOLIDATED ASSETS AND LIABILITIES, AS RESTATED Particulars FIXED ASSETS As at September 30, 2006 As at March 31, 2006 As at March 31, 2005 As at March 31, 2004 (Rupees in millions) As at March 31, 2002 As at March 31, 2003 Gross Block 2, , , , , , Less: Depreciation 1, , , , , , Net Block 1, , , , Less: Revaluation Reserve Net Block after adjustment for Revaluation Reserve 1, , , Capital Work In Progress TOTAL - (A) 1, , , , INVESTMENTS - (B) CURRENT ASSETS, LOANS AND ADVANCES Inventories Work-in-Progress , , Unbilled Revenue 4, , , Sundry Debtors 1, , , , , Cash & Bank Balances Loans & Advances 1, , Other Current Assets TOTAL - (C) 7, , , , , , LIABILITIES AND PROVISIONS Secured Loans 1, , Unsecured Loans 3, , , , Current Liabilities 2, , , , , , Provisions Deferred Tax Liability (Net) Minority Interest 14

42 Particulars (Rupees in millions) As at As at As at March As at March As at March As at March September March 31, 31, , , , , TOTAL - (D) 7, , , , , , NET WORTH - (A+B+C-D) 2, , , , REPRESENTED BY 1. Share Capital 1, , , (Refer note 1 below) 2. Reserves & Surplus Less: Revaluation Reserve Reserves & Surplus (Net of Revaluation Reserves) Total 2, , , , , Less: Miscellaneous Expenses (to the extent not written off) NET WORTH 2, , , ,

43 SUMMARY STATEMENT OF CONSOLIDATED PROFIT AND LOSS ACCOUNT, AS RESTATED Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 (Rupees in millions) For the Financial Year Ended March 31, March 31, March 31, March 31, INCOME : Income from Operations 3, , , , , , Other Income Total Income 4, , , , , , EXPENDITURE : Cost of Construction 2, , , , , , Payments to and Provisions for employees Other Expenses , Financial Lease Rentals Interest and Financial charges Depreciation Less : Depreciation on the amount added on Revaluation transferred from Revaluation Reserve Total Expenditure 4, , , , , , Profit\ (Loss) before prior period adjustments, extraordinary items and tax (7.66) (36.04) (19.79) (447.60) Provision for tax: - Current tax (9.35) (14.66) (2.77) (2.19) (2.24) (0.54) - Wealth Tax (0.01) (0.02) (0.02) (0.02) (0.02) (0.02) - Deferred Tax (24.20) (60.28) (11.21) (13.92) (9.27) - - Fringe Benefit Tax (4.70) (10.40) Foriegn Tax - (6.68) Total Provision for Tax (38.26) (92.04) (14.00) (16.13) (11.53) (0.56) Profit\ (Loss) after tax, before prior period adjustments and extraordinary items (21.66) (52.17) (31.32) (448.16) Adjustments: Impact of material adjustment for restatement in corresponding years (Refer Annexure IIIA) - (10.49) (16.92) Adjusted Profit\ (Loss) after tax, before prior period adjustments and extraordinary items (11.17) (52.17) (14.40) (465.08) (Short)/ Excess Provision for taxes in respect of earlier years (Refer note (3.54) 0.09 (1.61) (0.03) 16

44 below) Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 (Rupees in millions) For the Financial Year Ended March 31, March 31, March 31, March 31, Prior Period Expenses (0.21) 1.39 Profit\ ( Loss) after taxation and before minority Interest (14.71) (52.08) (16.22) (463.72) Minority Interest 0.04 (0.08) Profit\ ( Loss) after Minority Interest (3.39) (35.83) (5.44) (439.85) Balance Brought Forward from Previous Year (282.18) (329.76) (326.39) (290.56) (308.69) Transfer From Debenture Redemption Reserve Profit\ ( Loss) available for appropriation (233.16) (281.99) (329.78) (326.39) (291.23) (308.47) Appropriations: Proposed Final Dividend (0.11) Transfer from/ (to) General Reserve - (0.19) (0.11) Less: Deducted from general reserve as per contra Balance carried to Summary Statement of Assets and Liabilities, as restated 17

45 STATEMENT OF CONSOLIDATED CASH FLOW STATEMENT, AS RESTATED Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 (Rupees in millions) For the Financial Year Ended March 31, March 31, March 31, March 31, Cash Flow from Operating Activities Net Profit\(Loss) before prior period adjustments, extraordinary items and tax, as restated (36.04) (6.18) (461.21) Adjustment for : Depreciation (Profit) / Loss on sale / discard of - (1.51) (0.79) (0.23) fixed assets (net) Dividend income - (0.18) (0.18) (0.15) - (4.05) Interest income (34.44) (198.99) (30.89) (73.90) (17.50) (15.40) Interest expense Lease rentals expense Dividend adjustment (0.14) Bad/irrecoverable Debtors /Unbilled Revenue /Advances w/off / TDS W/off Provision for diminution in the (13.61) value of long-term investments (w/back)/provided Share of Loss in Jointly controlled entity (subject to audit)/ Associate Deferred revenue expenditure - - (0.96) (0.57) (90.25) - paid during the year Excess Provision for expenses of (42.17) (19.47) (19.89) (21.05) (48.07) 1.39 earlier years written back (Profit) / Loss on sale / disposal - (0.88) (0.34) of short term investments- Others (Profit) / Loss on sale / disposal - (7.58) (0.26) of long term investments- Others Amount received on transfer of - (60.00) tenancy rights Deferred revenue expenditure written off Prior Period Expenses (net) (0.21) - Provision for Projected Losses (11.46) Reversed Operating Profit before working capital changes (46.48) 18

46 Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 (Rupees in millions) For the Financial Year Ended March 31, March 31, March 31, March 31, Adjustment for: (Increase) / Decrease in trade (92.32) (501.42) (441.26) (96.13) receivables (Increase)/Decrease in (95.39) (128.09) (64.60) (37.52) inventories (Increase)/ Decrease in work-inprogress 0.19 (0.21) 1, (605.57) (343.15) (103.61) (Increase) / Decrease in unbilled (1,170.34) (1,070.35) (1,786.95) revenue (Increase)/Decrease in loans and (53.45) (294.34) (95.91) (69.51) (48.56) (78.70) advances Increase / (Decrease) in (1,043.35) trade,other payables and provisions Cash (used in) Operations (266.51) (570.18) (643.59) (308.13) (563.39) Direct taxes (paid) (42.93) (37.29) (52.56) Net cash from \ (used in) Operating Activities - (A) (309.44) (545.99) (680.88) (268.24) (615.95) Cash Flow from Investing Activities Purchase of fixed assets (499.96) (300.05) (222.84) (259.34) (211.50) (259.18) Sale of fixed assets Purchase of Investments - (280.61) (1.90) Sale of investments Sale of Subsidiary Amount received on disposal of long term investments Dividend received Interest received Amount received on transfer of tenancy rights Share of Loss in Associate (0.01) - Net Cash from \ (used in) Investing Activities - (B) (485.98) (206.49) (200.15) (167.81) (191.12) (236.57) Cash Flow from Financing Activities Proceeds from issue of Preference share Proceeds from long-term , , borrowings Repayment of long-term (476.89) (1,526.08) (1,742.14) (559.77) (205.81) (251.57) borrowings Proceeds from short term (5.02) 1, borrowings - net Interest paid (235.46) (376.45) (338.41) (309.36) (285.39) (228.30) Lease rentals paid - (13.23) (0.66) (0.64) (24.49) (55.14) 19

47 Particulars For the period from April 1, 2006 to September 30, 2006 March 31, 2006 (Rupees in millions) For the Financial Year Ended March 31, March 31, March 31, March 31, Dividend paid (0.11) (6.94) Corporate Dividend Tax paid (0.72) Net Cash from \ (used in) Financing Activities - (C) (60.49) Net Increase in Cash and Cash Equivalent (A+B+C) (86.95) (103.44) Cash and cash equivalents at the beginning of the year Cash and cash equivalents taken over on amalgamation Cash and cash equivalents at the end of the year (86.95) (103.44) Reconciliation of cash and cash equivalents As per Balance sheet Less: Interest accrued on Bank Deposits As per Cash flow statement

48 THE ISSUE Equity Shares offered by the Company Employee Reservation Portion 160,65,000Equity Shares 321,300 Equity Shares Therefore Net Issue to the Public 15,743,700 Equity Shares Of which A) Qualified Institutional Buyers (QIB) portion Of which Available for allocation to Mutual Funds only Balance for all QIBs including Mutual Funds At least 9,446,220 Equity Shares* 472,311 Equity Shares 8,973,909 Equity Shares B) Non-Institutional Portion At least 1,574,370 Equity Shares* C) Retail Portion At least 4,723,110 Equity Shares* Equity Shares outstanding prior to the Issue Equity Shares outstanding after the Issue 71,400,000 Equity Shares 87,465,000 Equity Shares Use of Proceeds by the Company See the section titled Objects of the Issue on page 43 of this Draft Red Herring Prospectus. * Allocation on a proportionate basis 21

49 GENERAL INFORMATION Registered Office Afcons House, 16, Shah Industrial Estate, Veera Desai Road, Azad Nagar P.O, Mumbai Tel No: (91 22) ; Fax: (91 22) Registration No: A We are registered with the RoC situated at Everest House, Marine Lines, Mumbai Board of Directors of the Issuer Name Designation C. P. Mistry Chairman K. Subrahmanian Managing Director P. S. Mistry Non-Executive Director S. P. Mistry Non-Executive Director J.J. Parakh Non-Executive Director A.N.Jangle Executive Director S. Paramasivan Executive Director A.H. Divanji Independent Director N. J. Jhaveri Independent Director N.D. Khurody Independent Director P. N. Kapadia Independent Director For further details of our Directors, see section titled Our Management on page122 of this Draft Red Herring Prospectus. Company Secretary and Compliance Officer P.R. Rajendran Afcons House, 16, Shah Industrial Estate, Veera Desai Road, Azad Nagar P.O., Mumbai Tel No: (91 22) ; Fax: (91 22) / ipo@afcons.com Investors can contact the Compliance Officer or the Registrar in case of any pre-issue or post-issue related problems such as non-receipt of letters of allocation, credit of allotted Equity Shares in the respective beneficiary account or refund orders, etc. Book Running Lead Manager Enam Financial Consultants Private Limited 801/ 802, Dalamal Towers Nariman Point Mumbai , India Tel: (91 22) Fax: (91 22) afcons.ipo@enam.com Website: Contact Person: Aishwarya Mehra Co Book Running Lead Managers 22

50 CLSA India Limited 8/F Dalamal House Nariman Point Mumbai Tel: (91 22) Fax: (91 22) Website: Contact Person: Varun Kumar Syndicate Members JM Morgan Stanley Private Limited 141, Maker Chambers III, Nariman Point Mumbai , India Tel.: (91 22) Fax.: (91 22) Website: Contact Person: Utkarsh Katoria SBI Capital Markets Limited 202, Maker Towers E, Cuffe Parade, Mumbai Tel: (91 22) Fax: (91 22) afcons.ipo@sbicaps.com Website : Contact Person : Swaminathan B Enam Securities Private Limited Khatau Building, 2nd Floor 44B Bank Street, Off Shaheed Bhagat Singh Road, Fort, Mumbai (India) Tel. No.: (91 22) Fax No. (91 22) JM Morgan Stanley Financial Services Private Limited Apeejay House, 3, Dinshaw Waccha Road, Churchgate Mumbai India Tel: (91 22) Fax: (91 22) SBICAP Securities Limited 191, Maker Tower F Cuffe parade Mumbai , India Tel (91 22) Fax: (91 22) Contact Person: Prasad Chitnis Legal Advisors to the Issue Amarchand Mangaldas & Suresh A. Shroff & Co. 5 th Floor, Peninsula Chambers, Peninsula Corporate Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai Tel: (91 22) Fax: (91 22) Registrar to the Issue [ ] Tel: [ ] Fax: [ ] [ ] Website: [ ] Contact Person: [ ] 23

51 Bankers to the Issue and Escrow Collection Banks [ ] Bankers to the Company Bank of India Andheri Corporate Banking Branch, 28, S.V. Road, Andheri (West), Mumbai Tel: (91 22) Fax:(91 22) BNP Paribas 62, Homji Street, Fort, Mumbai Tel : (91 22) Fax : (91 22) Dena Bank Corporate Business Branch, C-10, G-Block, Bandra-Kurla Complex, Bandra (E), Mumbai Tel: (91 22) Fax: (91 22) ICICI Bank Limited ICICI Bank Towers, Bandra-Kurla Complex, Bandra (E) Mumbai Tel: (91 22) Fax: (91 22) ING Vysya Bank Limited Trade Finance Unit, Patel Chambers, Mumbai Tel: (91 22) Fax: (91 22) Oriental Bank of Commerce Corporate Group Finance Branch, Maker Tower "E" 18th Floor, Cuffe Parade, Mumbai Tel: (91 22) Fax: (91 22) State Bank of India Commercial Branch, NGN Vaidya Marg, Mumbai Tel : (91 22) Fax : (91 22) Union Bank of India 66/80, Mumbai Samachar Marg, Fort, Mumbai Tel: (91 22) Fax: (91 22) UTI Bank Limited Universal Bhavan Building, Sir P.M. Road,Fort, Mumbai Tel: (91 22) Fax: (91 22) UCO Bank 1 st Floor, Mafatlal Centre, Nariman Point, Mumbai Tel: (91 22) Fax: (91 22) Statement of Inter Se Allocation of Responsibilities for the Issue The following table sets forth the distribution of responsibility and coordination for various activities amongst the BRLMs: S. No. Activities Responsibility Co-ordinator 1 Capital structuring with the relative components and Enam/CLSA/ formalities JMMS/SBI CAP Enam 2 Due diligence of the Company s operations / Enam/CLSA/ management / business plans/legal documents etc. JMMS/SBI CAP Enam 3 Drafting and design of Issue Document and of statutory Enam/CLSA/ advertisement including memorandum containing salient JMMS/SBI CAP Enam features of the Prospectus. Compliance with stipulated requirements and completion of prescribed formalities 24

52 S. No. with Stock Exchange, Registrar of Companies and SEBI 4 Drafting and approval of all publicity material other than statutory advertisement as mentioned above including corporate advertisement, brochure, etc. 5 Appointment of Registrar, Bankers, Printer and Advertising agency 6 Institutional Marketing Strategy Finalisation of the list of investors for one to one meetings in consultation with the Company Preparation of roadshow presentation 7 Retail/HNI Marketing Strategy Finalize centres for holding conference for brokers etc Finalise media, marketing and PR strategy Follow up on distribution of publicity and issue materials including form, prospectus and deciding on the quantum of the Issue material Finalise Collection orders 8 Managing the Book and Co-ordination with Stock Exchanges Activities Responsibility Co-ordinator Enam/CLSA/ JMMS/SBI CAP Enam/CLSA/ JMMS/SBI CAP Enam/CLSA/ JMMS/SBI CAP Enam/CLSA/ JMMS/SBI CAP Enam/CLSA/ JMMS/SBI CAP 9 Pricing and allocation Enam/CLSA/ JMMS/SBI CAP 10 The post bidding activities including management of Enam/CLSA/ escrow accounts, co-ordination of non-institutional JMMS/SBI CAP allocation, intimation of allocation and despatch of refunds to bidders 11 The post Issue activities of the Issue will involve essential follow up steps, which must include finalisation of listing of instruments and dispatch of certificates and refunds, with the various agencies connected with the work such as Registrars to the Issue, Bankers to the Issue and the bank handling refund business. BRLMs shall be responsible for ensuring that these agencies fulfil their functions and enable him to discharge this responsibility through suitable agreements with the Issuer Company. Credit Rating As this is an offer of Equity Shares, there is no credit rating for this Issue. Trustees Enam/CLSA/ JMMS/SBI CAP As this is an issue of Equity Shares, the appointment of Trustees is not required. IPO Grading We have not opted for grading of this Issue. Monitoring Agency Enam Enam Enam JM Enam Enam There is no requirement to appoint a Monitoring Agency for the Issue in terms of clause of the SEBI DIP Guidelines as the Issue size is less than Rs. 500 crores. Book Building Process Book building, with reference to the Issue, refers to the process of collection of Bids on the basis of the Red Herring Prospectus within the Price Band. The Issue Price is finalized after the Bid/ Issue Closing Date. The principal parties involved in the Book Building Process are: 1. The Company; SBI SBI 25

53 2. BRLM; 3. CBRLMs; 4. Syndicate Member who is an intermediary registered with SEBI or registered as brokers with BSE/NSE and eligible to act as Underwriters. The Syndicate Member is appointed by the BRLM and the CBRLMs; and 5. Registrar to the Issue This being an issue for less than 25% of post issue equity capital of the Company, the SEBI Guidelines read with rule 19(2) (b) of the SCRR, have permitted an issue of securities to the public through the 100% Book Building Process, wherein not less than 60% of the Net Issue shall be allocated on a proportionate basis to QIBs, out of which 5% shall be available for allocation on a proportionate basis to Mutual Funds only. The remainder shall be available for allocation on a proportionate basis to QIBs including the Mutual Funds subject to valid bids being received at or above the Issue Price. If at least 60% of the Net Issue cannot be allocated to QIBs, then the entire application money will be refunded forthwith. Further, not less than 10% of the Net Issue shall be available for allocation on a proportionate basis to Non Institutional Bidders and not less than 30% of the Net Issue shall be available for allocation on a proportionate basis to Retail Individual Bidders, subject to valid Bids being received at or above the Issue Price. We will comply with the SEBI Guidelines and any other ancillary directions issued by SEBI for this Issue. In this regard, we have appointed the BRLM and the CBRLMs to manage the Issue and to procure subscriptions to the Issue. Pursuant to amendments to the SEBI Guidelines, QIB Bidders are not allowed to withdraw their Bid(s) after the Bid /Issue Closing Date and for further details see the section titled Terms of the Issue on page 370 of this Draft Red Herring Prospectus. The process of Book Building under SEBI Guidelines is subject to change from time to time and investors are advised to make their own judgment about investment through this process prior to making a Bid or Application in the Issue. Illustration of Book Building Process and Price Discovery Process (Investors should note that this example is solely for illustrative purposes and is not specific to the Issue) Bidders can bid at any price within the price band. For instance, assume a price band of Rs. 20 to Rs. 24 per share, offer size of 3,000 equity shares and receipt of five bids from bidders out which one bidder has bid for 500 shares at Rs. 24 per share while another has bid for 1,500 shares at Rs. 22 per share. A graphical representation of consolidated demand and price would be made available at the bidding centers during the bidding period. The illustrative book given below shows the demand for the shares of the Company at various prices and is collated from bids from various investors. Bid Quantity Bid Price (Rs.) Cumulative Quantity Subscription % 1, ,500 50% 1, , % 2, , % 2, , % The price discovery is a function of demand at various prices. The highest price at which the Company is able to offer the desired number of shares is the price at which the book cuts off i.e. Rs. 22 in the above example. The Company in consultation with BRLM and the CBRLMs, will finalise the Issue Price at or below such cut off price, i.e. at or below Rs. 22. All bids at or above the Issue Price and cut off bids are valid bids and are considered for allocation in the respective categories. Steps to be taken by the Bidders for bidding: 26

54 Check eligibility for bidding (please refer to the section titled Issue Procedure - Who Can Bid on page 376 of this Draft Red Herring Prospectus); Ensure that the Bidder has an active demat account and the demat account details are correctly mentioned in the Bid cum Application Form; If the Bid is for Rs. 50,000/- or more, ensure that you have mentioned your PAN and attached copies of your PAN card to the Bid Cum Application Form (see section titled Issue Procedure on page376 of this Draft Red Herring Prospectus; and Ensure that the Bid cum Application Form is duly completed as per instructions given in this Draft Red Herring Prospectus and in the Bid Cum Application Form. Underwriting Agreement After the determination of the Issue Price but prior to filing of the Prospectus with the RoC, we will enter into an Underwriting Agreement with the Underwriters for the Equity Shares proposed to be offered through this Issue. It is proposed that pursuant to the terms of the Underwriting Agreement, the BRLM and the CBRLMs shall be responsible for bringing in the amount devolved in the event that their respective Syndicate Members do not fulfill their underwriting obligations. The Underwriters have indicated their intention to underwrite the following number of Equity Shares: (This portion has been intentionally left blank and will be filled in before the filing of the Prospectus with the RoC) Name and Address of the Underwriters Enam Financial Consultants Private Limited 801, Dalamal Tower, Nariman Point, Mumbai India CLSA India Limited 8/F, Dalamal House, Nariman Point Mumbai India SBI Capital Markets Limited 202, Maker Towers E, Cuffe Parade, Mumbai India JM Morgan Stanley Private Limited 141, Maker Chambers III Nariman Point, Mumbai Indicative Number of Equity shares to be Underwritten [ ] [ ] [ ] [ ] Amount Underwritten (Rs. in Million) [ ] [ ] [ ] [ ] The above mentioned amount is indicative underwriting and this would be finalized after the pricing and actual allocation. 27

55 In the opinion of our Board of Directors (based on a certificate given by the Underwriters), the resources of the above mentioned Underwriters are sufficient to enable them to discharge their respective underwriting obligations in full. The above-mentioned Underwriters are registered with SEBI under Section 12(1) of the SEBI Act or registered as brokers with the Stock Exchange(s). Our Board of Directors, at its meeting held on [ ], has accepted and entered into the Underwriting Agreement mentioned above on behalf of the Company. Notwithstanding the above table, the BRLM, the CBRLMs and the Syndicate Member shall be responsible for ensuring payment with respect to Equity Shares allocated to investors procured by them. In the event of any default in payment, the respective Underwriter, in addition to other obligations defined in the underwriting agreement, will also be required to procure subscriptions for/subscribe to Equity Shares to the extent of the defaulted amount. 28

56 CAPITAL STRUCTURE Our Equity Share capital before the Issue and after giving effect to the Issue, as at the date of filing of this Draft Red Herring Prospectus with SEBI, is set forth below: A Authorized Capital* 124,000,000 Equity Shares Aggregate Value at Face Value (Rs.) 1,240,000,000 Aggregate Value at Issue Price (Rs.) - 101,000,000 Preference Shares 1,010,000,000 B. Issued, Subscribed And Paid-Up Capital before the Issue 71,400,000 Equity Shares fully paid-up before the 714,000,000 [ ] Issue 50,000, % Redeemable Cumulative 500,000,000 [ ] Preference Shares of Rs. 10 each 50,000, % Redeemable Cumulative Preference 500,000,000 [ ] Shares of Rs. 10 each 125,000 Zero Coupon Redeemable Preference Shares of Rs. 10 each 1,250,000 [ ] C. Present Issue in terms of this Draft Red Herring Prospectus 16,065,000 Equity Shares ** 160,650,000 [ ] D. Employee Reservation Portion Up to 321,300 Equity Shares E. Net Issue to the Public 15,743,700 Equity Shares F. Equity Capital after the Issue 87,465,000 Equity Shares G. Share Premium Account 3,213,000 [ ] 157,437,000 [ ] 874,650,000 [ ] Before the Issue 161,500,000 After the Issue - [ ] ** The Issue in terms of this Draft Red Herring Prospectus has been authorized pursuant to a resolution passed at the EGM dated December 22, * Details in relation to the change in authorized capital clause: Date March 18, 1977 January 30, 1982 December 31, 1988 April 6, 1991 Details of change The Authorised Share Capital Rs. 5,000,000 divided into 50,000 Equity Shares of Rs. 100 each. The Authorised Share Capital was increased from Rs. 5,000,000 divided into 50,000 Equity Shares of Rs. 100 each to Rs. 25,000,000 divided into 250,000 Equity Shares of Rs. 100 each. The Authorised Share Capital was increased from Rs. 25,000,000 divided into 250,000 Equity Shares of Rs. 100 each to Rs. 75,000,000 divided into 750,000 Equity Shares of Rs. 100 each. The Authorised Share Capital was increased from Rs. 75,000,000 divided into 750,000 Equity Shares of Rs. 100 each to Rs. 100,000,000 divided into 750,000 Equity Shares of Rs. 100 each and 250,000 unclassified shares of Rs. 100 each. 29

57 Date September 20, 1991 July 25, 1996 October 11, 1996 March 7, 2002 March 13, 2003 March 30, 2005 March 31, 2006 December 22, 2006 Details of change The Authorised Share Capital of Rs. 100,000,000 divided into 750,000 Equity Shares of Rs. 100 each and 250,000 unclassified shares of Rs. 100 each was changed to 750,000 Equity Shares of Rs. 100 each, 100,000 15% Redeemable Cumulative Preference Shares of Rs. 100 each and 150,000 unclassified shares of Rs. 100 each. The Authorised Share Capital of Rs. 100,000,000 divided into 750,000 Equity Shares of Rs. 100 each, 100,000 15% Redeemable Cumulative Preference Shares of Rs. 100 each and 150,000 unclassified shares of Rs. 100 each was changed to 9,000,000 Equity Shares of Rs. 10 each and 1,000,000 Preference Shares of Rs. 10 each. The Authorised Share Capital of Rs. 100,000,000 divided into 9,000,000 Equity Shares of Rs. 10 each and 1,000,000 Preference Shares of Rs. 10 each was increased to Rs. 150,000,000 divided into 13,000,000 Equity Shares of Rs. 10 each and 2,000,000 Preference Shares of Rs. 10 each. The Authorised Share Capital of Rs. 150,000,000 divided into 13,000,000 Equity Shares of Rs. 10 each and 2,000,000 Preference Shares of Rs. 10 each was increased to Rs. 330,000,000 divided into 33,000,000 shares of Rs. 10 each. The Authorised Share Capital of. Rs. 330,000,000 divided into 33,000,000 shares of Rs. 10 each was increased to Rs. 750,000,000 divided into 75,000,000 shares of Rs. 10 each. The Authorised Share Capital of Rs. 750,000,000 divided into 75,000,000 shares of Rs. 10 each was increased to Rs. 1,250,000,000 divided into 125,000,000 shares of Rs. 10 each. The Authorised Share Capital of Rs. 1,250,000,000 divided into 125,000,000 shares of Rs. 10 each was increased to Rs. 1,750,000,000 divided into 175,000,000 shares of Rs. 10 each. The Authorised Share Capital of Rs.1,750,000,000 divided into 175,000,000 shares of Rs.10 each was increased to Rs. 2,250,000,000 divided into 124,000,000 Equity Shares of Rs.10 each and 101,000,000 Preference Shares of Rs.10 each. Notes to Capital Structure 1. (a) Equity Share Capital History of the Company Date of Allotment November 22, 1976 No. of Shares Cumulative No. of Equity Shares Face Value (Rs.) Issue Price (Rs.) Nature of Payment of Consideration Reasons for Allotment Cash Alloted to Subscribers to Memorandum Cumulative Paid-Up Equity Capital (Rs.) 2,100 - Cumulative Equity Share Premium (Rs.) March 18, ,000 20, Consideration other than cash Alloted pursuant to acquisition of the partnership firm M/s Rodio Foundation Engineering Ltd. and Hazarat & Co. 20,02,100 - April 22, ,979 50, Cash Fresh issue of shares at par to employees 5,000,000-30

58 Date of Allotment April 10, 1982 January 25, 1986 April 15, 1989 February 1, 1990 November 26, 1993 July 25, 1996 November 7, 1996 January 19, 1998 March 27, 2003 No. of Shares Cumulative No. of Equity Shares Face Value (Rs.) Issue Price (Rs.) Nature of Payment of Consideration Reasons for Allotment 50, , Bonus Bonus in the ratio of 1:1 (by capitalizing from general reserves) 100, , Bonus Bonus in the ratio of 1:1 (by capitalizing from general reserves) 200, , Bonus Bonus in the ratio of 1:1 (by capitalizing from general reserves) 100, , Cash Fresh issue at par to Employee Trusts 1,25,000 6,25, Cash Fresh issue at par to SCICI Ltd. 62,50, N.A. Split of Equity Shares from the face value of Rs. 100 each to Rs. 10 each 12,50,000 7,500, Cash Rights issue in the ratio of 1:5 at a premium of Rs. 20 per share 3,900,000 11,400, Cash Private placement to ICICI Ltd. at a premium of Rs. 35 per share 20,000,000 31,400, Cash Alloted to CIL pursuant to conversion of 12% Redeemable Cumulative Convertible Preference Shares into Equity Shares at par. Cumulative Paid-Up Equity Capital (Rs.) 10,000,000-20,000,000-40,000,000 50,000,000-62,500,000-62,500,000 - Cumulative Equity Share Premium (Rs.) 75,000,000 25,000, ,000, ,500, ,000, ,500,000 31

59 Date of Allotment March 31, 2006 December 22, 2006 (b) Date of Allotment March 27, 2002 March 25, 2003 No. of Shares Cumulative No. of Equity Shares Face Value (Rs.) Issue Price (Rs.) Nature of Payment of Consideration Reasons for Allotment 20,000,000 51,400, Cash Alloted to FIL pursuant to conversion of 9.5% Redeemable Cumulative Convertible Preference Shares (initially allotted to SICL, but transferred to FIL) into Equity Shares at par. 20,000,000 71,400, Conversion Alloted to SICL pursuant to conversion of 7.5% Redeemable Cumulative Convertible Preference Shares (initially allotted to CIL, but transferred to SICL) into Equity Shares at par. Preference Share Capital History of the Company No. of Preference Shares Cumulative No. of Preference Shares Face Value (Rs.) Issue Price (Rs.) Nature of Payment of Consideration Reasons for Allotment 20,000,000 20,000, Cash 12% Redeemable Cumulative Convertible Preference shares of Rs. 10 each issued to CIL 20,000,000 40,000, Cash 9.5% Redeemable Non- Cumulative Convertible Preference Cumulative Paid-Up Equity Capital (Rs.) Cumulative Equity Share Premium (Rs.) 514,000, ,500, ,000, ,500,000 Cumulative Paid-Up Preference Share Capital (Rs.) 200,000, ,000,000 32

60 Date of Allotment No. of Preference Shares Cumulative No. of Preference Shares Face Value (Rs.) Issue Price (Rs.) Nature of Payment of Consideration Reasons for Allotment shares of Rs. 10 each issued to SICL Cumulative Paid-Up Preference Share Capital (Rs.) March 27, 2003 March 26, ,000, Conversion 12% Redeemable Cumulative Convertible Preference Shares of Rs. 10 each issued to CIL converted into equity shares at par 20,000,000 40,000,000* Cash 7.5% Redeemable Non- Cumulative Convertible Preference shares of Rs. 10 each issued to CIL 200,000, ,000,000 March 30, 2005 March 31, 2006 March 31, ,000,000 90,000, Cash 7.5% Redeemable Non- Cumulative Convertible Preference Shares of Rs. 10 each were issued to SICL.* 50,000, ,000, Cash 7.5% Redeemable Non- Cumulative Optionally Convertible Preference shares of Rs. 10 each were issued to FIL** - 120,000, Conversion 9.5% Redeemable Non- Cumulative Convertible 900,000,000 1,400,000,000 1,200,000,000 33

61 Date of Allotment June 30, 2006 December 22, 2006 No. of Preference Shares Cumulative No. of Preference Shares Face Value (Rs.) Issue Price (Rs.) Nature of Payment of Consideration 1,25,000 12,01,25, Consideration other than cash Reasons for Allotment Preference Shares of Rs.10 each issued to SICL later transferred to FIL converted into Equity Shares at par. Zero Coupon Redeemable Preference Shares allotted to SICL and Pauling PLC, U.K. pursuant to amalgamation of AFCONS Pauling (India) Ltd. with the Company vide High Court Order dated May 6, ,01,25, Conversion 7.5% Redeemable Non- Cumulative Convertible Preference Shares of Rs. 10 each issued to CIL and later trasnferred to SICL converted into Equity Shares at par. Cumulative Paid-Up Preference Share Capital (Rs.) 120,12,50, , 12, 50,000 * On March 31, 2006 SICL transferred 7.5% Redeemable Non-Cumulative Convertible Preference Shares to FIL. The Company in an EGM held on December 22, 2006 has amended the terms and conditions of these Preference Shares to the following effect: (a) The Preference Shares so issued will be redeemable, non-convertible and cumulative Preference Shares; (b) The Preference Shares shall be redeemable at any time after 3 years but not later than 20 years from the date of variation of such rights by either the Company or the shareholders by exercising call and put option, respectively by giving 21 days notice; 34

62 (c) The holders of the Redeemable Preference Shares shall be entitled to a fixed cumulative preferential 7.25% per annum on the paid up preference capital in preference to the Equity Shares. ** On March 31, 2006 the Company allotted 7.5% Redeemable Non-Cumulative Optionally Convertible Preference shares of Rs. 10 each to FIL. The Company in an EGM held on December 22, 2006 has amended the terms and conditions of these Preference Shares to the following effect: (a) The Preference Shares so issued will be redeemable, non-convertible and cumulative Preference Shares; (b) The Preference Shares shall be redeemable at any time after 5 years but not later than 20 years from the date of variation of such rights by either the Company or the shareholders by exercising call and put option, respectively by giving 21 days notice; (c) The holders of the Redeemable Preference Shares shall be entitled to a fixed cumulative preferential 7.5% per annum on the paid up preference capital in preference to the Equity Shares. 2. Promoter Contribution and Lock-in Pursuant to the SEBI Guidelines, an aggregate of 20% of the fully diluted post-issue capital of the Company held by the Promoters shall be locked in for a period of three years from the date of Allotment in the Issue. All Equity Shares which are being locked in are eligible for computation of Promoter s contribution and lock in under clause 4.6 of the SEBI Guidelines. The details of such lockin are given below: Name Cyrus Investments Limited Number of Equity Shares Face Value Nature of Consideration Issue Price per Equity Share (Rs.) Date of Allotment 174,93, Cash 10 March 27, 2003 Reasons for Allotment Alloted to CIL pursuant to conversion of 12% Redeemable Cumulative Convertible Preference Shares into Equity Shares at par. % of post- Issue paidup capital Lock in period 20% 3 years 35

63 In terms of Clause of the SEBI Guidelines, in addition to 20% of the post-issue shareholding of the Company held by the Promoter and locked in for three years as specified above, the entire pre-issue share capital of the Company will be locked in for a period of one year from the date of Allotment in this Issue. In terms of Clause (a) of the SEBI Guidelines, the Equity Shares held by persons other than the Promoter prior to the Issue may be transferred to any other person holding the Equity Shares which are locked-in as per Clause 4.14 of the SEBI Guidelines, subject to continuation of the lock-in in the hands of the transferees for the remaining period and compliance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as applicable. Further, in terms of Clause (b) of the SEBI Guidelines, Equity Shares held by the Promoter may be transferred to and among the Promoter Group or to a new promoter or persons in control of the Company subject to continuation of the lock-in in the hands of the transferees for the remaining period and compliance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as applicable. In addition, the Equity Shares subject to lock-in will be transferable subject to compliance with the SEBI Guidelines, as amended from time to time. Locked-in Equity Shares held by the Promoter can be pledged only with banks or financial institutions as collateral security for loans granted by such banks or financial institutions provided that the pledge of the Equity Shares is one of the terms of the sanction of the loan. 3. Details of transactions in Equity Shares by the Promoters and Promoter Group Companies The following Equity Shares have been sold or purchased by the Promoter and the Promoter Group Companies, during the period of six months preceding the date on which the Draft Red Herring Prospectus is filed with SEBI. Transferee Transferor Date on which Shares purchased or sold CIL R. Babu October 3, 2006 CIL A.K. October 3, Mohanty 2006 CIL S. Devi October 3, 2006 CIL R.S. December Rising Mountain Properties Private Limited Afcons Dredging and Marine Services Limited Afcons Dredging and Marine Services Limited K. Subramanian held jointly with S. Sundari Shikare FIL CIL FIL FIL 21, 2006 December 21, 2006 December 28, 2006 December 28, 2006 December 28, 2006 Number of Shares Face value (Rs.) Consideration (Rs.) Purchase/Sale Price (per Equity Share) (Rs.) , , , , , ,00, ,363, ,901, ,53, ,530, , , S. Paramasivan FIL December 19, ,

64 Transferee Transferor Date on which Shares purchased or sold 28, 2006 A.N. Jangle FIL December Selvaraj N. jointly held with R. Selvaraj FIL 28, 2006 December 28, 2006 S. Sankar FIL December 28, 2006 S. Kuppuswamy FIL December 28, 2006 P. Sampath FIL December 28, 2006 H. J. Tavaria FIL December jointly held with 28, 2006 N.H. Tavaria J.J. Parakh jointly held with V.J. Parakh A. R. Mirza jointly held with R. K. Mirza M. J. Parakh jointly held with P M. Parakh N. J. Jhaveri jointly held with C. N. Jhaveri FK. Bhathena jointly held with D. F. Bhathena R.M. Nentin jointly held with G. M. Nentin jointly held with M. M. Nentin M. D. Saini jointly held with Kanta Saini S. C. Dixit jointly held with Lata Dixit M. S. Hingorani jointly held with K. M. Hingorani. FIL FIL FIL FIL FIL FIL FIL FIL FIL December 28, 2006 December 28, 2006 December 28, 2006 December 28, 2006 December 28, 2006 December 28, 2006 December 28, 2006 December 28, 2006 December 28, 2006 A.H. Daruwalla FIL December 28, 2006 B. Prasad jointly FIL December held with V. 28, 2006 Prasad P.R.Rajendran jointly held with S. Rajendran FIL December 28, 2006 Number of Shares Face value (Rs.) Consideration (Rs.) Purchase/Sale Price (per Equity Share) (Rs.) 16, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , W. Kabir jointly FIL December 9, ,

65 Transferee Transferor Date on which Shares purchased or sold held with N. 28, 2006 Kabir V.Manivannan jointly held with S. Manivannan N.S.Iyer jointly held with S. S. Iyer P. V. Bhat jointly held with V. K. Bhat Afcons Bot Constructions Pvt.Ltd. FIL FIL FIL FIL December 28, 2006 December 28, 2006 December 28, 2006 December 28, 2006 Number of Shares Face value (Rs.) Consideration (Rs.) Purchase/Sale Price (per Equity Share) (Rs.) 6, , , , , , ,016, ,162, Details of transactions in Preference Shares by the Promoters and Promoter Group Companies Transferee Transferor Date on which Shares purchase d or sold SIPL CIL December 21, 2006 Number of Shares Face value (Rs.) Consideratio n (Rs.) Purchas e/sale Price (per Equity Share) 20,000, ,000, Equity Shares held by top ten shareholders The details of the top ten shareholders of the Company and the number of Equity Shares held by them are as under: a) As on the date of, and ten days prior to filing of this Draft Red Herring Prospectus: S.No. Shareholder(s) Number of Equity Shares Percentage (%) 1. Cyrus Investments Limited 24,075, Sterling Investment Corporation Private 24,075, Limited 3. Floreat Investments Limited 13,015, Afcons Dredging and Marine Services Limited 4,016, Afcons BOT Constructions Private Limited 4,016, A.H. Divanji 81, J.A.Divanji 60, H. J. Tavaria as trustee of Afcons Shareholders 50, (Holiday Assistance) Trust No. 2* 9. H. J. Tavaria as trustee of Afcons Shareholders 50, (Holiday Assistance) Trust No. 3* 10. H. J. Tavaria as trustee of Afcons Shareholders (Educational Assistance) Trust No. 1* 50,

66 * See Our Management Employee Trusts on page 132 of this Draft Red Herring Prospectus. b) Two years prior to filing of this Draft Red Herring Prospectus: S.No. Shareholder(s) Number of Equity Shares Percentage (%) 1. Cyrus Investments Limited 25,412, Sterling Investments Corporation Private 4,075, Limited 3. A.H. Divanji 81, J.A. Divanji 60, H. J. Tavaria as trustee of Afcons Shareholders 50, (Holiday Assistance) Trust No. 1* 6. H.J. Tavaria as trustee of Afcons Shareholders 50, (Holiday Assistance) Trust No. 2* 7. H.J. Tavaria as trustee of Afcons Shareholders 50, (Holiday Assistance) Trust No. 3* 8. H.J. Tavaria as trustee of Afcons Shareholders 50, (Medical Benefit) Trust No. 1* 9. H.J. Tavaria as trustee of Afcons Shareholders 50, (Educational Assistance) Trust No. 1* 10. H.J. Tavaria as trustee of Afcons Shareholders (Educational Assistance) Trust No. 2* 50, * See Our Management Employee Trusts on page 132 of this Draft Red Herring Prospectus. 5. Shareholding Pattern of the Company The shareholding pattern of the Company before and after the Issue is as under: Category Pre-Issue Post Issue** No of Equity Shares Percentage No of Equity Shares Percentage Promoters (A) Shapoorji Pallonji & Co Limited Nil Nil Nil Nil Cyrus Investments 24, 075, ,075, Limited Sterling Investment 24, 075, ,075, Corporation Private Limited Floreat Investments 13,015, ,015, Limited Total (A) 61,166, ,166, Promoter Group (B) Afcons Dredging and 4,016, ,016, Marine Services Limited Afcons BOT Constructions 4,016, ,016, Private Limited Total (B) 8,032, ,032,

67 Category Pre-Issue Post Issue** No of Equity Shares Percentage No of Equity Shares Percentage Others (C) Employee Trusts* 1,191, ,191, Employees and Others 732, , Executive Directors/Non- 226, , Executive Directors Rising Mountain Properties 50, , Private Limited Total (C) 2,200, ,200, Public (D) Nil Nil 1,60,65, Total (A+B+C+D) 71,400, ,465, * See Our Management Employee Trusts on page 132of this Draft Red Herring Prospectus. ** On the assumption that the total shareholding of the categories of the shareholders listed out below will not change upon completion of the Issue. 6. Except for options granted under our employee stock option plan ( ESOP ), there are no outstanding warrants, options or rights to convert debentures, loans or other instruments into the Equity Shares. 7. Employee stock option scheme We have an employee stock option scheme in force, which is applicable to all our Directors, and employees: ESOP scheme Afcons Infrastructure Limited Employee Stock Option Scheme, 2006 Outstanding Options Remarks 721,150 The special resolution passed by our Company at its EGM dated December 22, 2006 approved the grant of up to 1,785,000 equity shares of the Company. (a) ESOP 2006 Particulars Details Options granted 721,150 Exercise price of options Rs. 17 per option Total options vested Nil Options exercised Nil Total number of equity shares that would 721,150 arise as a result of full exercise of options already granted Options forfeited/ lapsed/ cancelled Nil Variations in terms of options Nil Money realised by exercise of options N.A. Options outstanding (in force) 721,150 Person wise details of options granted to i) Directors and key managerial Refer Note 1 below employees ii) Any other employee who received a grant in any one year of options Nil 40

68 Particulars amounting to 5% or more of the options granted during the year iii) Identified employees who are granted options, during any one year equal to exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant Fully diluted EPS on a pre-issue basis Vesting schedule Lock-in Impact on profits of the last three years Details Nil (On a consolidated basis) (On a unconsolidated basis) Options would vest as follows: 20% Within one year of date of grant* 25% Within two year of date of grant 25% Within three year of date of grant 30% Within four year of date of grant For employees retiring within four years of grant options would vest from the date of grant as follows: 50% Within one year of date of grant 50% Within two year of date of grant No lock-in period for exercised options Nil * For employees who have not completed minimum two years of service, the vesting shall commence from the expiry of two years from the date of grant and the balance shall vest every year thereafter in the same formula mentioned above. Note 1: Details regarding options granted to our Directors and our key managerial employees are set forth below: Name of director/ Key Managerial Personnel No. of options granted under ESOP 2006 No. of options exercised under ESOP 2006 No. of options outstanding under ESOP 2006 No. of Equity Shares held K. Subrahmanian 35,040 Nil 35,040 23,168 A. N. Jangle 14,460 Nil 14,460 17,549 S. Paramasivan 26,280 Nil 26,280 19,859 N. Selvaraj 21,900 Nil 21,900 20,549 N.S. Iyer 10,510 Nil 10,510 13,239 W. Kabir 10,510 Nil 10,510 9,929 P. R. Rajendran 13,140 Nil 13,140 10,409 M. Jayaram 13,140 Nil 13,140 - S. Sankar 17,520 Nil 17,520 16,549 K. Ramesh 13,140 Nil 13,140 - V. K. Bhat 13,140 Nil 13,140 9,929 R. Kalyanakrishnan 8,760 Nil 8,760 - J. D. Bakshi 8,760 Nil 8,760 - V. Prasada Rao 13,140 Nil 13, The Company, its Directors, the BRLM and the CBRLMs have not entered into any buy-back and/or standby arrangements for purchase of the Equity Shares from any person. 8. The Company has not raised any bridge loan against the proceeds of the Issue. For details on use of proceeds, see the section titled Objects of the Issue on page 43 of this Draft Red Herring Prospectus. 41

69 9. At least 60% of the Net Issue shall be allocated to QIBs on a proportionate basis. 5% of the QIB Portion shall be available for allocation to Mutual Funds only and the remaining QIB Portion shall be available for allocation to the QIB Bidders including Mutual Funds subject to valid Bids being received at or above the Issue Price. Further, not less than 10% of the Net Issue will be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 30% of the Net Issue will be available for allocation to Retail Individual Bidders, subject to valid Bids being received from them at or above the Issue Price. Undersubscription, if any, in the Non-Institutional and Retail Individual categories would be allowed to be met with spill over from any other category at the discretion of the Company, the BRLM and the CBRLMs. The Issue includes the Employee Reservation Portion of up to 321,300 Equity Shares which are available for allocation to Eligible Employees. 10. Only Eligible Employees would be entitled to apply in this Issue under the Employee Reservation Portion, on competitive basis. Bid/ Application by Eligible Employees can be made also in the Net Issue and such Bids shall not be treated as multiple Bids. 11. Under-subscription, if any, in the Employee Reservation Portion will be added back to the Non Institutional Portion and Retail Portion at the discretion of the BRLM and the CBRLMs. In case of under-subscription in the Net Issue, spill-over to the extent of under-subscription shall be permitted from the Employee Reservation Portion. Under-subscription, if any, in any category, except the QIB Portion, would be met with spill over from other categories at our discretion in consultation with the BRLM and the CBRLMs. 12. A Bidder cannot make a Bid for more than the number of Equity Shares offered in this Issue, subject to the maximum limit of investment prescribed under relevant laws applicable to each category of investor. 13. There would be no further issue of capital whether by way of issue of bonus shares, preferential allotment, and rights issue or in any other manner during the period commencing from submission of the Draft Red Herring Prospectus with SEBI until the equity shares offered hereby have been listed. 14. The Company presently does not have any intention or proposal to alter capital structure for a period of six months commencing from the date of opening of this Issue, by way of split/ consolidation of the denomination of Equity Shares or further issue of Equity Shares or securities convertible into Equity Shares, whether on a preferential basis or otherwise. However, during such period or at a later date, we may issue Equity Shares pursuant to our employee stock option plan or issue equity shares or securities linked to equity shares to finance an acquisition, merger or joint venture by us or as consideration for such acquisition, merger or joint venture, or for regulatory compliance or such other scheme of arrangement if an opportunity of such nature is determined by our Board to be in our interest. 16. We have not issued any Equity Shares out of revaluation reserves or for consideration other than cash except as stated in the Equity Share Capital History table above. 17. There will be only one denomination of the Equity Shares of the Company unless otherwise permitted by law and the Company shall comply with such disclosure and accounting norms as may be specified by SEBI from time to time. 18. An oversubscription to the extent of 10% of the Issue can be retained for the purposes of rounding off. 19. As of December 31, 2006, we had 624 members. 42

70 OBJECTS OF THE ISSUE The objects of the Issue are to achieve the benefits of listing on the Stock Exchanges and the raising of capital for our capital expansion plans. We believe that listing will enhance the Company s brand name, its visibility among investors and would provide liquidity to our existing shareholders. We intend to use the proceeds of the Issue after deducting underwriting and management fees, selling commissions and other expenses associated with the Issue (the Net Proceeds ) for the following purposes: Purchase capital equipment; Repayment of debt; General corporate purposes and strategic initiatives. Our fund requirements are based on our current business plan and are based on management estimates. In view of the dynamic nature of our industry, we may have to revise our business plans from time to time and consequently our fund requirements may also change. This may include rescheduling of our capital expenditure programmes and /or reducing or increasing the amount of repayment of debt. Proposed use of net proceeds from the Issue The following table summarizes the use and the year wise implementation of Net Proceeds of the Issue: (in Rs. Million) S.No. Particulars FY 2007 FY 2008 Total 1. Investment in capital equipment - 1,250 1, Prepayment/repayment of debt General Corporate Purposes and strategic initiatives [ ] [ ] [ ] Total [ ] [ ] [ ] Whilst we intend to utilize the Net Proceeds of the Issue in the manner provided above, in the event of a surplus, we will use such surplus towards general corporate purposes. In the event of any shortfall in using the Net Proceeds of the Issue, we will reduce the amount of repayment of high cost debt. The main objects clause and the objects incidental or ancillary to the main objects clause of the Memorandum of Association enable us to undertake our existing activities and the activities for which funds are being raised by us in the Issue. Details of Use of Proceeds 1. Investment in Capital Equipment We require to make investments in capital equipment on a recurring basis due to the nature of the industry we operate in. We intend to use Rs. 1,250 million from the Net Proceeds for the purchase of capital equipment to meet the requirements of our various projects based on our order book of projects as of September 30, 2006 and future requirements as estimated by the management. The following table sets out the equipments that are currently under consideration for placement of order: S. No. Equipment Quantity Estimated Price(In Rs. Million) Equipments being fabricated in-house 1. Jackup Platform m Tug -600 bhp bhp Split Barges 1000 m Barge Dumb 1000 MT cap Equipments being purchased 5. Cranes of various capacities ranging from 40 MT to 200 MT 6. Piling Equipments B

71 S. No. Equipment Quantity Estimated Price(In Rs. Million) 7. Vibro Hammer 40 TM cap Desander Batching Plant 60 m Transit Mixers, Tippers with rock body 11. Generators of various capacities ranging from 40 KVA to 600 KVA 12. Pipeline Equipment 1 set laying capacity Total We purchase the equipments set out above on a regular basis in the course of our business. The prices for the equipments proposed to be purchased as set out above are as per internal management estimates based on the price at which such equipments were purchased in last one year or past quotations. The Company is in the process of seeking fresh quotations for such purchases. The cost for the equipments being fabricated in-house has been certified by M/s AB Marine, Independent Naval Architects by way of their letter dated January 4, The estimated expenditure plan has not been appraised by an independent organization. In addition, the Company s capital expenditure plans are subject to a number of variables, including possible cost overruns, construction delays or defects and changes in the management s views of the desirability of current plans, among others. 2. Repayment of Debt The Company has entered into various financing arrangements with a number of banks/ financial institutions and other lenders. These arrangements include fund based facilities from banks/ financial institutions and other lenders aggregating Rs. 5, million as on September 30, As on September 30, 2006, the amount outstanding from the Company under these facilities was Rs. 4, million. Details of the amounts proposed to be repaid out of Issue proceeds are provided in the table below: (In Rs. Million) S.No. Bank/Financial Institution/Lender Total Amount Sanctioned Under Fund Based Facilities Rate of Interest Repayment date A. Unsecured Corporate Loans 1. Bank of India % March 28, UTI Bank % August 8, Dena Bank % September 15, 2007 Amount Outstanding as on September 30, Amount proposed to be repaid out of the Issue proceeds Total In view of the dynamic nature of our industry, the Company may have to revise its business plan from time to time and consequently our fund requirement may also change. Thus, the Company may reduce or increase the amount of prepayment or repayment of debt/advances as stated above. 3. General Corporate Purposes and other strategic initiatives The Company intends to use upto Rs. [ ] million from the proceeds of the Issue for general corporate purposes. The Company intends to use the net proceeds of the Issue in accordance with the growth plan and long term strategy. The civil engineering and construction industry is dynamic in nature and the Company s plan and strategy will depend on future additions in the Order Book, the types of contracts and the schedule of execution of different contracts. Hence, the Company s management will utilize 44

72 these funds for various corporate purposes including purchase of capital equipments, working capital, repayment of debts/advances, strategic investments in projects, subsidiaries, acquisitions and joint ventures etc. The Company s management, in accordance with the policies established by the Board, will have flexibility in deploying the proceeds received from the Issue for the purposes as stated in the Memorandum of Association. Issue Related Expenses The Issue related expenses consist of underwriting fees, selling commission, fees payable to BRLM and the CBRLMs to the Issue, legal counsels, Bankers to the Issue, Escrow Bankers and Registrars to the Issue, printing and stationery expenses, advertising and marketing expenses and all other incidental and miscellaneous expenses for listing the Equity Shares on the Stock Exchanges. We intend to use about Rs. [ ] million towards these expenses for the Issue. All expenses with respect to the Issue will be borne out of Issue proceeds. Means of finance The stated objects of the Issue are proposed to be financed entirely out of the proceeds of this Issue. Interim Use of Proceeds The Company s management, in accordance with the policies established by the Board, will have flexibility in deploying the proceeds received from the Issue. Pending utilization of the proceeds out of the Issue for the purposes described above, we intend to temporarily invest the funds in high quality interest bearing liquid instruments including money market mutual funds, deposits with banks or temporarily deploy the funds in investment grade interest bearing securities as may be approved by the Board. Such investments would be in accordance with the investment policies approved by the Board from time to time. Further, we would not employ proceeds of the Issue in equity capital markets. Monitoring of Utilization of Funds The Board shall monitor the utilization of the proceeds of the Issue. The Company will disclose the utilization of the proceeds of the Issue under a separate head in the Company s balance sheet for Fiscal 2007 and 2008 clearly specifying the purpose for which such proceeds have been utilized. The Company will also, in the Company s balance sheet for Fiscal 2007 and 2008, provide details, if any, in relation to all such proceeds of the Issue that have not been utilized and also indicating investments, if any, of such unutilized proceeds of the Issue. No part of the Issue proceeds will be paid by the Company as consideration to the Promoters, the Directors, the Company s key management personnel or companies promoted by the Promoters except in the usual course of business. 45

73 BASIS FOR ISSUE PRICE The Price Band for the Issue shall be decided prior to the filing of the Red Herring Prospectus with the ROC. The Issue Price will be determined by the Company in consultation with the BRLMs on the basis of the assessment of market demand for the offered Equity Shares by the book building process. The face value of the Equity Shares of the Company is Rs. 10 each and the Issue Price is [ ] times of the face value. Qualitative Factors Significant experience and strong track record Diversified business and versatile capabilities Focus on technology In- house developed expertise in marine works Long term relationship with reputed clients Experienced management team and staff Parentage For further details please refer to the section titled, Business on page 81 of this Draft Red Herring Prospectus. Quantitative Factors Information presented in this section is derived from our restated unconsolidated financial statements prepared in accordance with Indian GAAP. 1. Earning Per Share (EPS) (as adjusted for changes in capital) Particulars Face value per share (Rs. 10 per share) Rupees Weight Year ended March 31, Year ended March 31, Year ended March 31, Weighted average 1.15 The EPS for the Six months Period ended September, 2006 was Rs (Not Annualised) 2. Price/Earning (P/E) ratio in relation to Issue Price of Rs. [ ]. a. Based on the year ended March 31, 2006, EPS is Rs b. P/E based on profits after taxes, as restated, for the year ended March 31, 2006 is Rs. [ ]. c. P/E for Industry based on fiscal 2006 data Particulars Construction Industry Highest Lowest 4.2 Industry Composite Return on Average Net Worth as per restated Indian GAAP financials: Particulars RONW % Weight Year ended March 31, Year ended March 31, Year ended March 31, Weighted Average 3.94 The RONW for the Six months Period ended September, 2006 was 9.61 % (Not Annualised) 4. Minimum Return on Increased Net Worth required to maintain pre-issue EPS is [ ] %. 46

74 5. Net Asset Value per Equity Share (i) Net Asset Value per Equity Share for the Year ended March 31, 2006 and for the half year ended September 30, 2006 is Rs and Rs (ii) After the Issue: [ ] (iii) Issue Price: Rs. [ ] Issue Price per Equity Share will be determined on conclusion of book building process. 6. Comparison of Accounting Ratios EPS (Rs.) P/E RONW% NAV (Rs.) AFCONS Infrastructure 1.51 [ ] Peer Group: Gammon India Hindustan Construction Company IVRCL Infrastructure Simplex Infrastructure Jaiprakash Associates Patel Engineering Note: The EPS, P/E, RONW and NAV figures are based on the latest audited results for the year ended March 31, 2006 Source: Capital Market Volume XXI/22 Jan 01-14, The Issue Price is [ ] times of the face value of the Equity Shares. The BRLM believe that the Issue Price of Rs. [ ] is justified in view of the above qualitative and quantitative parameters. See the section titled Risk Factors on page xii of this Draft Red Herring Prospectus and the financials of the Company including important profitability and return ratios, as set out in the Auditors Report on page 207 of this Draft Red Herring Prospectus to have a more informed view. 47

75 STATEMENT OF TAX BENEFITS 22 December, 2006 Afcons Infrastructure Limited Afcons House, 16, Shah Industrial Estate, Veera Desai Road, Andheri (West), Mumbai Dear Sirs, Statement of Possible Direct Tax Benefits We hereby report that the enclosed annexure states the possible tax benefits available to Afcons Infrastructure Limited ( Company ) and its shareholders under the current tax laws in India. Several of these benefits are dependent on the Company or its shareholders fulfilling the conditions prescribed under the relevant tax laws. Hence, the ability of the Company or its shareholders to derive the tax benefits is dependent upon fulfilling such conditions which, based on business imperatives which the Company may face in the future, the Company may or may not fulfill. The benefits discussed below are not exhaustive. This statement is only intended to provide general information to the investors and is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of the tax consequences and the changing tax laws, each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of his or her participation in the issue. Wedo not express any opinion or provide any assurance whether: the Company or its shareholders will continue to obtain these benefits in future; or the conditions prescribed for availing the benefits have been or would be met. The contents of the annexure are based on information, explanations and representations obtained from the Company and on the basis of our understanding of the business activities and operations of the Company. Our views expressed herein are based on the facts and assumptions indicated by you. No assurance is given that the revenue authorities/courts will concur with the views expressed herein. Our views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. We do not assume responsibility to update the views consequent to such changes. The views are exclusively for the use of Afcons Infrastructure Limited. We shall not be liable to Afcons Infrastructure Limited for any claims, liabilities or expenses relating to this assignment except to the extent of fees relating to this assignment, as finally judicially determined to have resulted primarily from bad faith or intentional misconduct. We will not be liable to any other person in respect of this statement. Thanking you, Yours faithfully, CC Chokshi & Co., 48

76 ANNEXURE STATEMENT OF POSSIBLE DIRECT TAX BENEFITS AVAILABLE TO AFCONS INFRASTRUCTURE LIMITED AND TO ITS SHAREHOLDERS A. Under the Income Tax Act, 1961 ( the Act ) I. Benefits available to the Company 1. As per section 10(34) of the Act, any income by way of dividends referred to in section 115-O (i.e. dividends declared, distributed or paid on or after 1 April 2003 by domestic companies) is exempt from tax. 2. As per section 10(35) of the Act, the following income will be exempt from tax in the hands of the Company: a. Income received in respect of the units of a Mutual Fund specified under section 10(23D); or b. Income received in respect of units from the Administrator of the specified undertaking; or c. Income received in respect of units from the specified company: However, this exemption does not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified Company or of a mutual fund, as the case may be. For this purpose (i) Administrator means the Administrator as referred to in section 2(a) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 and (ii) Specified Company means a company as referred to in section 2(h) of the said Act. 3. As per section 10(38) of the Act, long term capital gains arising to the Company from the transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund, where such transaction is chargeable to securities transaction tax, will be exempt in the hands of the Company. For this purpose, equity oriented fund means a fund (i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty-five percent of the total proceeds of such funds; and (ii) which has been set up under a scheme of a Mutual Fund specified under section 10(23D) of the Act. As per section 115JB, while calculating book profits for the purpose of Minimum Alternate Tax, the Company will not be entitled to reduce the long term capital gains to which the provisions of section 10(38) of the Act apply. 4. Under section 48 of the Act, the long term capital gains arising out of sale of capital assets excluding bonds and debentures (except Capital Indexed Bonds issued by the Government) will be computed after indexing the cost of acquisition/ improvement. 5. As per section 54EC of the Act and subject to the conditions and to the extent specified therein, long-term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from tax if the capital gains are invested in a long term specified asset within a period of six months after the date of such transfer. However, if the assessee transfers or converts the long term specified asset into money within a period of three years from the date of its acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long-term capital gains in the year in which the long term specified asset is transferred or converted into money. 49

77 A long term specified asset means any bond, redeemable after three years and issued on or after the 1 st day of April 2006: (i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, and notified by the Central Government in the Official Gazette for the purposes of this section; or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956, and notified by the Central Government in the Official Gazette for the purposes of this section. 6. As per section 80IA of the Act and subject to the fulfillment of specified conditions, the profits and gains derived from any enterprise carrying on the business of development or operation and maintenance or development, operation and maintenance of any infrastructure facility is exempt for a period of any 10 consecutive years, falling within the first 15/20 years as the case may be, beginning from the year in which eligible undertaking starts development or operation and maintenance or development, operation and maintenance of the infrastructure facility. 7. As per section 111A of the Act, short term capital gains arising to the Company from the sale of equity shares or units of an equity oriented mutual fund transacted through a recognized stock exchange in India, where such transaction is chargeable to securities transaction tax, will be taxable at the rate of 10% (plus applicable surcharge and education cess). 8. As per section 112 of the Act, long-term capital gains on sale of listed securities or units or zero coupon bonds (in cases not covered under section 10(38) of the Act) will be charged to tax at the rate of 20% (plus applicable surcharge and education cess) after considering indexation benefits in accordance with and subject to the provisions of section 48 of the Act or at 10% (plus applicable surcharge and education cess) without indexation benefits, whichever is less. II. Benefits available to Resident Shareholders 1. As per section 10(34) of the Act, any income by way of dividends referred to in section 115-O (i.e. dividends declared, distributed or paid on or after 1 April 2003 by domestic companies) received on the shares of the Company is exempt from tax. 2. As per section 10(38) of the Act, long term capital gains arising from the transfer of a long term capital asset being an equity share of the Company, where such transaction is chargeable to securities transaction tax, will be exempt from tax in the hands of the shareholder. 3. As per section 111A of the Act, short term capital gains arising from the sale of equity shares of the Company transacted through a recognized stock exchange in India, where such transaction is chargeable to securities transaction tax, will be taxable at the rate of 10% (plus applicable surcharge and education cess). 4. Under section 48 of the Act, the long term capital gains arising out of sale of capital assets excluding bonds and debentures (except Capital Indexed Bonds issued by the Government) will be computed after indexing the cost of acquisition/ improvement. 5. As per section 54EC of the Act and subject to the conditions and to the extent specified therein, long-term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from tax if the capital gains are invested in a long term specified asset within a period of six months after the date of such transfer. However, if the assessee transfers or converts the long term specified asset into money within a period of three years from the date of its acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long-term capital gains in the year in which the long term specified asset is transferred or converted into money. A long term specified asset means any bond, redeemable after three years and issued on or after the 1 st day of April 2006: 50

78 (i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, and notified by the Central Government in the Official Gazette for the purposes of this section; or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956, and notified by the Central Government in the Official Gazette for the purposes of this section. 6. As per section 54F of the Act, long term capital gains (in cases not covered under section 10(38)) arising on the transfer of the shares of the Company held by an individual or Hindu Undivided Family will be exempt from tax if the net consideration is utilised, within a period of one year before, or two years after the date of transfer, in the purchase of a residential house, or for construction of a residential house within three years. Such benefit will not be available: (a) if the individual or Hindu Undivided Family- owns more than one residential house, other than the new residential house, on the date of transfer of the shares; or purchases another residential house within a period of one year after the date of transfer of the shares; or constructs another residential house within a period of three years after the date of transfer of the shares; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head Income from house property. If only a part of the net consideration is so invested, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new residential house bears to the net consideration will be exempt. If the new residential house is transferred within a period of three years from the date of purchase or construction, the amount of capital gains on which tax was not charged earlier, will be deemed to be income chargeable under the head capital gains of the year in which the residential house is transferred. 7. As per section 112 of the Act, long-term capital gains on sale of listed securities or units or zero coupon bonds (in cases not covered under section 10(38) of the Act) will be charged to tax at the rate of 20% (plus applicable surcharge and education cess) after considering indexation benefits or at 10% (plus applicable surcharge and education cess) without indexation benefits, whichever is less. 8. As per section 88E of the Act, the securities transaction tax paid by the shareholder in respect of taxable securities transactions entered into in the course of the business will be eligible for deduction from the amount of income tax on the income chargeable under the head Profits and Gains of Business or Profession arising from taxable securities transactions, subject to certain limit specified in the section. As such, no deduction will be allowed in computing the income chargeable to tax as capital gains or under the head Profits and gains of Business or Profession for such amount paid on account of securities transaction tax. III. Benefits available to Non-Resident Shareholders (Other than FIIs and Venture Capital Companies / Funds) 1. As per section 10(34) of the Act, any income by way of dividends referred to in section 115-O (i.e. dividends declared, distributed or paid on or after 1 April 2003 by domestic companies) received on the shares of the Company is exempt from tax. 2. As per section 10(38) of the Act, long term capital gains arising from the transfer of a long term capital asset being an equity share of the Company, where such transaction is chargeable to securities transaction tax, will be exempt from tax. 51

79 3. As per section 111A of the Act, short term capital gains arising from the sale of equity shares of the Company transacted through a recognized stock exchange in India, where such transaction is chargeable to securities transaction tax, will be taxable at the rate of 10% (plus applicable surcharge and education cess). 4. As per the first proviso to section 48 of the Act, in case of a non resident shareholder, the capital gain/loss arising from transfer of shares of the Company, acquired in convertible foreign exchange, will be computed by converting the cost of acquisition, sales consideration and expenditure incurred wholly and exclusively incurred in connection with such transfer, into the same foreign currency which was initially utilized in the purchase of shares. Cost indexation benefit will not be available in such a case. As per section 112 of the Act, long-term capital gains, if any, on sale of shares of the Company (in cases not covered under section 10(38) of the Act) will be charged to tax at the rate of 20% (plus applicable surcharge and education cess). 5. As per section 54EC of the Act and subject to the conditions and to the extent specified therein, long-term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from tax if the capital gains are invested in a long term specified asset within a period of six months after the date of such transfer. However, if the assessee transfers or converts the long term specified asset into money within a period of three years from the date of its acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long-term capital gains in the year in which the long term specified asset is transferred or converted into money. A long term specified asset means any bond, redeemable after three years and issued on or after the 1 st day of April 2006: (i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, and notified by the Central Government in the Official Gazette for the purposes of this section; or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956, and notified by the Central Government in the Official Gazette for the purposes of this section. 6. As per section 54F of the Act, long term capital gains (in cases not covered under section 10(38)) arising on the transfer of the shares of the Company held by an individual or Hindu Undivided Family will be exempt from capital gains tax if the net consideration is utilised, within a period of one year before, or two years after the date of transfer, in the purchase of a residential house, or for construction of a residential house within three years. Such benefit will not be available: (a) if the individual or Hindu Undivided Family- owns more than one residential house, other than the new residential house, on the date of transfer of the shares; or purchases another residential house within a period of one year after the date of transfer of the shares; or constructs another residential house within a period of three years after the date of transfer of the shares; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head Income from house property. If only a part of the net consideration is so invested, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new residential house bears to the net consideration will be exempt. If the new residential house is transferred within a period of three years from the date of purchase or construction, the amount of capital gains on which tax was not charged earlier, will be deemed to be income chargeable under the head capital gains of the year in which the residential house is transferred 52

80 7. As per section 88E of the Act, the securities transaction tax paid by the shareholder in respect of taxable securities transactions entered into in the course of the business will be eligible for deduction from the amount of income tax on the income chargeable under the head Profits and Gains of Business or Profession arising from taxable securities transactions, subject to certain limit specified in the section. As such, no deduction will be allowed in computing the income chargeable to tax as capital gains or under the head Profits and gains of Business or Profession for such amount paid on account of securities transaction tax. 8. As per section 115E of the Act, in the case of a shareholder being a non-resident Indian, and subscribing to the shares of the Company in convertible foreign exchange, in accordance with and subject to the prescribed conditions, long term capital gains arising on transfer of the shares of the Company (in cases not covered under section 10(38) of the Act) will be subject to tax at the rate of 10% (plus applicable surcharge and education cess), without any indexation benefit. 9. As per section 115F of the Act and subject to the conditions specified therein, in the case of a shareholder being a non-resident Indian, gains arising on transfer of a long term capital asset being shares of the Company will not be chargeable to tax if the entire net consideration received on such transfer is invested within a period of six months in any specified asset or savings certificates referred to in section 10(4B) of the Act. If part of such net consideration is invested within the period of six months in any specified asset or savings certificates referred to in section 10(4B) of the Act, then such gains would not be chargeable to tax on a proportionate basis. Further, if the specified asset or savings certificate in which the investment has been made is transferred within a period of three years from the date of investment, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which such specified asset or savings certificates are transferred. 10. As per section 115G of the Act, non-resident Indians are not obliged to file a return of income under section 139(1) of the Act, if their only source of income is income from specified investments or long term capital gains earned on transfer of such investments or both, provided tax has been deducted at source from such income as per the provisions of Chapter XVII-B of the Act. 11. As per section 115H of the Act, where a non-resident Indian becomes assessable as a resident in India, he may furnish a declaration in writing to the Assessing Officer, along with his return of income for that year under section 139 of the Act to the effect that the provisions of Chapter XII-A shall continue to apply to him in relation to such investment income derived from the specified assets for that year and subsequent assessment years until such assets are converted into money. 12. As per section 115I of the Act, a non-resident Indian may elect not to be governed by the provisions of Chapter XII-A for any assessment year by furnishing a declaration along with his return of income for that assessment year under section 139 of the Act, that the provisions of Chapter XII-A shall not apply to him for that assessment year and accordingly his total income for that assessment year will be computed in accordance with the other provisions of the Act. 13. The tax rates and consequent taxation mentioned above will be further subject to any benefits available under the Tax Treaty, if any, between India and the country in which the non-resident has fiscal domicile. As per the provisions of section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the Tax Treaty to the extent they are more beneficial to the non-resident. IV. Benefits available to Foreign Institutional Investors ( FIIs ) 1. As per section 10(34) of the Act, any income by way of dividends referred to in section 115-O (i.e. dividends declared, distributed or paid on or after 1 April 2003 by domestic companies) received on the shares of the Company is exempt from tax. 2. As per section 10(38) of the Act, long term capital gains arising from the transfer of a long term capital asset being an equity share of the Company, where such transaction is chargeable to securities transaction tax, will be exempt in the hands of the FIIs. 53

81 3. As per section 115AD read with section 111A of the Act, short term capital gains arising from the sale of equity shares of the Company transacted through a recognized stock exchange in India, where such transaction is chargeable to securities transaction tax, will be taxable at the rate of 10% (plus applicable surcharge and education cess). 4. As per section 115AD of the Act, FIIs will be taxed on the capital gains that are not exempt under the provisions of section 10(38) of the Act at the following rates: Nature of income Rate of tax (%) Long term capital gains 10 Short term capital gains (other than referred to in section 111A) 30 The above tax rates will be increased by the applicable surcharge and education cess. In case of long term capital gains, (in cases not covered under section 10(38) of the Act), the tax is levied on the capital gains computed without considering the cost indexation and without considering foreign exchange fluctuation. 5. The tax rates and consequent taxation mentioned above will be further subject to any benefits available under the Tax Treaty, if any between India and the country in which the FII has fiscal domicile. As per the provisions of section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the Tax Treaty to the extent they are more beneficial to the FII. 6. As per section 54EC of the Act and subject to the conditions and to the extent specified therein, long-term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from tax if the capital gains are invested in a long term specified asset within a period of six months after the date of such transfer. However, if the assessee transfers or converts the long term specified asset into money within a period of three years from the date of its acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long-term capital gains in the year in which the long term specified asset is transferred or converted into money. A long term specified asset means any bond, redeemable after three years and issued on or after the 1 st day of April 2006: (i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, and notified by the Central Government in the Official Gazette for the purposes of this section; or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956, and notified by the Central Government in the Official Gazette for the purposes of this section. V. Benefits available to Mutual Funds As per section 10(23D) of the Act, any income of Mutual Funds registered under the Securities and Exchange Board of India Act, 1992 or Regulations made thereunder, Mutual Funds set up by public sector banks or public financial institutions and Mutual Funds authorised by the Reserve Bank of India will be exempt from income tax, subject to such conditions as the Central Government may by notification in the Official Gazette, specify in this behalf. VI. Benefits available to Venture Capital Companies / Funds As per section 10(23FB) of the Act, all Venture Capital Companies / Funds registered with the Securities and Exchange Board of India, subject to the conditions specified, are eligible for exemption from income tax on their entire income, including income from sale of shares of the company. However, under section 115U of the Act, income received by a person out of investment made in a 54

82 venture capital company or in a venture capital fund will be chargeable to tax in the hands of such person. B. Benefits available under the Wealth Tax Act, 1957 Asset as defined under section 2(ea) of the Wealth tax Act, 1957 does not include shares in companies and hence, shares are not liable to wealth tax. C. Benefits available under the Gift Tax Act, 1958 Gift tax is not leviable in respect of any gifts made on or after October 1, Therefore, any gift of shares will not attract gift tax. NOTES (i) The above Statement of Possible Direct Tax Benefits sets out the provisions of law in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of shares. (ii) All the above benefits are as per the current tax laws. (iii) In view of the individual nature of tax consequences, each investor is advised to consult his/her own tax advisor with respect to specific tax consequences of his/her investments in the shares of the Company. Our views expressed herein are based on the facts and assumptions indicated by you. No assurance is given that the revenue authorities/courts will concur with the views expressed herein. Our views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. We do not assume responsibility to update the views consequent to such changes. The views are exclusively for the use of Afcons Infrastructure Limited. We shall not be liable to Afcons Infrastructure Limited for any claims, liabilities or expenses relating to this assignment except to the extent of fees relating to this assignment, as finally judicially determined to have resulted primarily from bad faith or intentional misconduct. We will not be liable to any other person in respect of this statement. 55

83 INDUSTRY INDIA S CONSTRUCTION INDUSTRY: AN OVERVIEW: The infrastructure sector covers the services of transportation (railways, roads and road transportation, ports, and civil aviation), communications (telecommunications and postal services), electricity and other services such as water supply and sanitation, solid waste management, and urban transport. Construction activity is an integral part of a country s infrastructure and industrial development and hence can rightly be termed as the basic input for socio-economic development. Its presence and contribution is immense in terms of providing huge opportunities for direct and indirect employment. In India, construction is the second largest economic activity after agriculture. Construction investment accounts for nearly 11 per cent of the GDP and roughly 50 per cent of the Gross Fixed Capital Formation. Construction investments are expected to grow to the tune of Rs 8,300 billion, at a CAGR of 8 per cent, over the next 3 years (FY06 to FY08) (source: CRIS INFAC Construction Annual Review Report, February 2006 ( CRIS INFAC ). Over the past ten years, the Indian economy has been one of the fastest growing economies in the world, witnessing an average growth of over 6% per year. The following chart presents a comparison of India s GDP growth rate with the growth rates of certain other countries from 1993 to Country Average GDP Growth India 6.16% Australia 3.79% Brazil 2.52% Chile 4.56% China 8.92% Japan 1.32% Korea 5.50% Malaysia 5.32% Russia 0.91% Thailand 3.54% United Kingdom 2.92% United States of America 3.27% (Source: United Nations Statistical Division) India recently has had a high GDP growth rate. India s GDP growth rate has increased from 4% in FY 2003 to an estimated 7.5%-8% in FY 2006 (Source: ET Intelligence.com & CSO). This growth in the Indian economy has fuelled demand for quality infrastructure services. Investment requirements Despite recent progress, India has lagged behind many other developing and developed nations in terms of infrastructure development. The following chart illustrates the gap between India and other selected countries for 2003, in terms of certain indicators of infrastructure development: 56

84 (Source: World Development Indicators Online 2005, World Bank) Investment in infrastructure, given the intent of the Government is expected to rise. The increase in infrastructure development in India is driven by political will and new sources of funding. Independent research studies and estimates from the Plan Documents suggest that there will be an investment of approximately Rs. 8,618 billion into various Indian infrastructure projects (sectors including power, roads, ports, railways, airports, pipelines, irrigation and water supply, urban infrastructure) over the next five years. Construction companies are expected to benefit from this momentum. The Central and State Governments of India are actively engaged in finding the appropriate policy framework for the infrastructure sector which gives the private sector adequate confidence and incentives to make large-scale investments, but which also preserves adequate checks and balances through transparency, competition and regulation. Accordingly, there has been a shift towards financing of infrastructure development to the private sector, primarily through the use of Public Private Partnerships ( PPPs ), which are based on a partnership between the public and the private sectors for the purpose of delivering a project or service traditionally provided by the public sector. PPPs are designed to mobilise financial resources and realise benefits from private sector efficiencies to meet the growing demand for infrastructure services. Infrastructure projects (underway and proposed) indicates prospective investments of Rs 4,356 billion, growing at a CAGR of 9 per cent over the next 3 years ( to ) driven by investments in roads, water supply and sanitation and irrigation, which are supported by regulation/government policies, increasing private sector participation and availability of funds (budgetary supports and multilateral funds). (source: CRIS INFAC) Expected Infrastructure Investment (Rs in billion) Construction component of investment (per cent) Infrastructure Investments E F Airports Irrigation Ports Power Thermal Hydel Nuclear Railways Roads Telecom

85 (Rs in billion) Construction component of investment (per cent) Infrastructure Investments E F Tourism Urban infrastructure Total 1,034 1,101 1,197 1,444 Source: CRIS INFAC Construction companies in India are typically civil engineering companies which undertake construction work on a contract basis, in sectors like roads, ports, marine structures, power projects etc. All construction projects have eligibility criteria. Companies who have the requisite financial strength and experience typically meet these eligibility criteria and undertake projects independently. Smaller companies generally have to enter into joint ventures to meet the eligibility criteria and to spread the financial and business risk. Foreign engineering and construction companies typically participate in the infrastructure development in India through joint development ventures with Indian construction companies. The following chart depicts the percentage of construction component within each infrastructure segment: Construction: Sector-wise construction component Source: NICMAR and CRIS INFAC Based on the proportion of civil construction-related expenses in each sector, the Infrastructure projects (underway and proposed) have the potential to translate into orders worth Rs 2,229 billion for the construction industry.(source: CRIS INFAC) 58

86 (source: CRIS INFAC) We undertake projects pre-dominantly in the following sectors: 1. Marine 2. Roads 3. Railways 4. Water Supply 5. Industrial 6. Oil & Gas 7. Power The trends of these sectors are as under: THE PORTS SECTOR IN INDIA Unless otherwise indicated, all financial and statistical data in the following discussion is derived from Indian Ports Association s website. The data may have been re-classified by us for the purpose of presentation. India has an extensive coastline of 6,000 kilometres, which is serviced by 13 major ports and 184 intermediate and minor ports. Ports are gateways to India s International trade by sea and handle almost 90% of India s foreign trade in terms of volume and 75% in terms of value are routed through the ports system. Indian ports handled a total traffic of 518 million tonnes in financial year 2005 with the ports in the western states of Gujarat and Maharashtra having a 42% market share. The volumes handled over the last five years are as follows: Financial Year (in million tonnes) Major Ports Traffic Minor Ports Traffic Total Indian Port Traffic Capacity of Major Ports

87 Financial Year (in million tonnes) Capacity Utilisation of 78% 79% 86% 95% 106% Major Ports (%) (Source: Indian Ports Association) Regulatory Framework In India, ports are classified as major ports and intermediate and minor ( I&M ) ports. The 13 major ports are governed by the GOI through the Ministry of Surface Transport ( MOST ). Each port is governed by a port trust (responsible for administration, control and management of port operations) reporting to MOST. The tariffs of individual ports were regulated by MOST and by the Tariff Authority for Major Ports ( TAMP ). The I&M ports fall outside the ambit of the GOI, but are still subject to the provisions of The Indian Port Act, The development and management of intermediate and minor ports is the responsibility of state governments. State governments are free to initiate policy matters (like privatization, pricing of services, etc.) in respect of the minor ports in their respective states. States administer their ports either through state maritime boards, as in Gujarat, Maharashtra and Tamil Nadu, or through government departments. Maritime boards have structures and powers similar to those of the Board of Trustees of a major port. Privatization of Ports The GOI has decided to corporatise the major ports as well as privatize them in a phased manner. Almost all the major ports in India are in the public sector and currently lack commercial orientation because, in part, to a number of restrictions imposed by the central government. This has led to corporatisation of ports as it ensures that the ports achieve a desirable level of autonomy and accountability. The GOI has privatized some of the berths in major ports specifically to handle containers. Some of them are as follows: Port Company Container Terminal Operator Major Ports JNPT Berth 1 NSICT P&O Ports Australia Berth 3 GTL AP Moller Terminals, Denmark Chennai Port Trust CCTL P&O Ports Australia Tuticorin PortTrust PSCTL PSA International, Singapore Vizag Port Trust VGTPL Dubai Ports International Kochi PortTrust IGTPL Dubai Ports International Minor Ports (both in Gujarat) Pipavav Port GPPL AP Moller Terminals, Denmark Mundra Port GAPL P&O Ports Australia (Source: Indian Ports Association) Port Utilisation The traffic traffic vis-a-vis capacity at major ports during to is given below: 60

88 (source: National Maritime Development Program) National Maritime Development Program capacity expansion of ports Million tones Estimated Port FY 2004 FY 2014 percent increase Kolkata % Haldia % Paradip % Vizag % Ennore % Chennai % Tuticorin % Cochin % Mormugao % New M'lore % JNPT % Kandla % (Source: National Maritime Development Program) With the above projections in view, all the major ports identified those projects, which would meet the challenges of the growing international traffic demand of the country along with developing the port facilities at par with world standards for giving a concrete shape to the vision and strategy laid down in the Maritime policy document over a period of 10 year s time horizon relating to projects related to port development like construction of jetties berths etc, procurement, replacement or upgradation of port equipment, deepening of channels for improvements in drafts projects related to port connectivity and other related schemes. The total investment required is about Rs. 603,385 million. The program is proposed to be implemented through public/private partnership. (Source: National Maritime Development Program) Future potential A Feasibility study for a World class Container Terminal at Ennore Port has been completed. Further action in this regard is being taken up by the port authorities. Ennore Port is also set to enter in chemical handling operation through private sector participation. Government has approved the proposal for award of contract for Development of International Container Transhipment Terminal at Cochin on BOT basis to Dubai Port International and accordingly the license agreement between Cochin Port Trust and India Gateway Terminal Private Limited, 100% subsidiary of the Dubai Port International was signed in FY2005. In the process of reviving the Sethu Samundram Ship Navigation Channel Project, technoeconomic viability and environment impact assessment studies on the project completed. Based on the study, the Government has decided to implement the project, through a SPV by the name Sethusamundram Corporation Limited. The project envisages cutting of a ship canal to connect Gulf of Mannar & Palk bay, so that most of the ships, depending on draft required, moving between east and west coast of the country could have a continuous navigable sea route around the peninsula, which will save up to 400 nautical miles and up to 36 hours of sailing time for ships between east & west coast. 61

89 The Jawaharlal Nehru Port has signed a license agreement with Gateway Terminals India Private Limited, a joint venture company formed by Maersk A/S- CONCOR Consortium for operation of the Third Container Terminal on Build Operate Transfer basis. The Centre has approved the JNPT plan to extend its existing CFS facilities over a 300- hectare land to facilitate cargo movement after the commencement of the port s third terminal in the next year. JNPT is contemplating development of fourth container terminal in two phases of 1.5 million TEU capacity each. The first phase is estimated to cost Rs. 2,567 crores and will be operational in FY The second phase is estimated to cost Rs. 2,134 crores and will be operational in FY JNPT is conducting a feasibility study for the same. (Source: JNPT Website). Mumbai port is developing an offshore container terminal on BOT basis in two phases the first phase envisages construction of two berths with a capacity to handle 0.8 million TEU and the second phase involves construction of a third berth to take up the total capacity to 1.2 million TEU. (Source: National Maritime Development Program) THE ROAD SECTOR IN INDIA (source NHAI website accessed on December 9, 2006) The Indian road network of 33.4 lakh kilometer is second largest in the world and consists of : Length (In Km) 200 Expressways National Highways 66,590 State Highways 1,28,000 Major District Roads 4,70,000 Rural and Other Roads 26,50,000 Total Length 33.4 Lakhs Kms(Approx) Modal Shift About 65% of freight and 80% passenger traffic is carried by the roads. National Highways constitute only about 2% of the road network but carry bout 40% of the total road traffic. Number of vehicles has been growing at an average pace of 10.16% per annum over the last five years. The status of National Highways as on October 31, 2006 is as follows: Single Lane/Intermediate Lane 35% Double Lane 55% Four or more Lanes 10% Key Growth Drivers for the Road Sector in India Scarcity of quality roads: Strong Economic Growth: The Indian economy has been growing at the rate of 8.2%, 6.4% and 6.2% in FY 2004, FY 2005 and FY 2006 respectively. As the economy grows, economic activities, such as industrial production and personal consumption will increase which will in turn drive road cargo and passenger traffic growth. Growth in vehicles: Growth in tourism: The National Highways Authority of India (NHAI) 62

90 The National Highways Authority of India was constituted by an act of Parliament, the National Highways Authority of India Act, It is responsible for the development, maintenance and management of National Highways entrusted to it and for matters connected or incidental thereto. The National Highways Authority of India was operationalised in Feb, The NHAI mandate covers the following: 1. The primary mandate of NHDP is through host of funding options including from external multilateral agencies like World Bank, Asian Development Bank, JBIC etc. Work mainly comprises of strengthening and four laning of high-density corridors around 13,146 Kms. The components are: Golden Quadrilateral (GQ)- 5,846 Kms connecting Delhi-Kolkata-Chennai-Mumbai North-South-East-West Corridor (NSEW)- 7,300 Kms connecting Kashmir to Kanyakumari and Silchar to Porbandhar 2. Providing road connectivity to major ports. 3. Involving the private sector in financing the construction, maintenance and operation of National Highways and wayside amenities 4. Improvement, maintenance and augmentation of the existing National Highways network. 5. Implementation of road safety measures and environmental management. 6. Introducing Information Technology in construction, maintenance and all operation of NHAI. In addition to implementation of NHDP, the NHAI is also responsible for implementing other projects on National Highways (mainly road connectivity to major ports in India) at an estimated cost of Rs. 4,000 crore (at 1999 prices) (USD billion). NHAI is now responsible for implementing on National Highways of length around 24,000 Km. NHAI proposes to finance its projects by a host of financing mechanisms. Some of them are as follows:- Through budgetary allocations from the Government of India. Cess In a historic decision, the Government of India introduced a Cess on both Petrol and Diesel. This amount at that time (at 1999 prices) came to a total of approximately Rs. 2,000 crores per annum. Further, Parliament decreed that the fund so collected were to be put aside in a Central Road Fund (CRF) for exclusive utilization for the development of a modern road network. The developmental work that it could be tapped to fund, an the agencies to whom it was available were clearly defined as : 1. Construction and maintenance of State Highways by State Governments. 2. Development of Rural Roads by State Governments 3. Construction of Rail over- bridges by Indian Railways 4. Construction and maintenance of National Highways by NHDP and Ministry of Road Transport & Highways Today, the Cess contributes between Rs 5 to 6 Thousands crores per annum towards NHDP. Loan assistance from international funding agencies Loan assistance is available from multilateral development agencies like Asian Development Bank and World Bank or Other overseas lending agencies like Japanese Bank of International Co - Operation. Market borrowing NHAI proposes to tap the market by securities cess receipts Private sector participation Major policy initiatives have been taken by the Government to attract foreign as well as domestic private investments. To promote involvement of the private sector in construction and maintenance of National Highways, Some Projects are offered on Build Operate and Transfer (BOT) basis to private agencies. After the concession period,which can range up to 30 years, this road is to be transferred back to NHAI by the Concessionaries. 63

91 NHAI funds are also leveraged by the setting up of Special Purpose Vehicles (SPVs).The SPVs will be borrowing funds and repaying these through toll revenues in the future. This model will also be tried in some other projects. Some more models may emerge in the near future for better leveraging of funds available with NHAI such as Annuity, which is a variant of BOT model Fund Requirement The financial arrangement for the development of GQ and the corridors has been made as: Rs. in Crore Cess 20,000 World Bank/Asian Development Bank Loan Assistance 20,000 Market Borrowings 12,000 Private Sector 6,000 Total Rs. 58,000 Crore $(12,608) Million National Highways Development Project (NHDP) NHAI is mandated to implement National Highways Development Project (NHDP) which is India 's Largest ever highways project World class roads with uninterrupted traffic flow As National Highways comprise about 2% of the total road length in the country and yet carryover 40% of total traffic, the first and the foremost task mandated to the NHAI is the implementation of NHDP- comprising of the Golden Quadrilateral and North-South & East-West Corridors. In addition to the projects under NHDP, the NHAI is also currently responsible for about 1,000 km of Highways connecting major Ports & also on National Highways 8A, 24, 6, 45 & 27. Highways length with NHAI currently is around 14,162 km. NHDP (Phase I & II) was launched in 1999 covering a length of nearly 14,000 km at an estimated cost of Rs. 54,000 crore (at 1999 prices) (USD billion) and NHDP (Phase III) was launched in 2005 for upgradation and 4 laning of 10,000 km of selected high-density corridors of National Highways at an estimated cost of Rs. 55,000 crore (at 2005 prices) (USD billion). NHDP's prime focus is on developing International standard roads with facilities for uninterrupted flow of traffic with: Enhanced safety features Better Riding Surface. Better Road Geometry Better Traffic Management and Noticeable Signage. Divided carriageways and Service roads Grade separators Over bridges and Underpasses Bypasses Wayside amenities The main components of NHDP include: (a) Golden Quadrilateral (GQ) Length : km Connecting Delhi, Kolkata, Chennai and Mumbai b) North-South & East-West Corridors Length :-7,300 km Kashmir to Kanyakumari km (with a spur to Cochin) and Silchar to Porbandar km. 64

92 Scheduled for completion by 2007 (earlier it was 2009). Total length of NS & EW Corridors has been taken around 7,300 km. Alignment finalization is in progress Status of NHDP & Other NHAI Projects Total (Km.) Length Already 4- Laned (Km.) Under Implementation (Km.) Contracts Under Implementation (No.) Balance length for award (Km.) NHDP GQ NS - EW Ph. I & II NHDP Phase IIIA NHDP Phase V NHDP Total Port Connectivity Others Total by NHAI 5,846 7, , ^ 27,110 5,453** , , ,055 1, , , ,306^ 5,019^ 6,352 12, ,718 ** Out of 5,453 km, 5106 km includes BC layer and 347 km upto DBM. ^ The difference in length is because of change in length after award of works. +Out of 7300 km, 981 km length is in Phase-I and remaining length is in Phase-II. Against 981 km, 840 km length was 4 laned. Actual length at present excluding 442 km common length with GQ is 7,274 km. However, this may again change after preparation of DPRs. The original approved length of Corridors is 7,300 km. 65

93 Future Outlook Roads to contribute nearly 34 per cent share in infrastructure investments Investments in roads sector are likely to increase from Rs 550 billion in the past 3 years (FY to FY ) to Rs 757 billion in the next 3 years. Activity in the roads sector is centred around NHDP and to some extent PMGSY. The development of state roads has been concentrated in only certain states. NHDP and PMGSY are expected to constitute more than 60 per cent of total planned activities in the sector over the next 3 years. Restructuring and expansion of existing programmes The government plans a massive facelift of the entire road network in the country over the next 10 years, and NHDP is the flagship project in the sector. To expedite its implementation, the project has been restructured and now involves seven phases (entailing the building, upgrade and maintenance of 51,411 km of roads), at a cost of Rs 1,871 billion. The Centre has till date approved only Phase I (GQ), Phase II (NSEW) and Phase IIIA, totalling 18,279 km. NHAI, the implementing authority for the projects, has done preliminary work on the remaining phases and the Cabinet has given in-principle approval for Phases IIIB to VII. Since the United Progressive Alliance (UPA) government took over at the Centre, the scope and 66

94 estimates of the PMGSY programme have also been revised, after the government unveiled the Bharat Nirman programme, where the development of rural roads is one of the core activities. The government has approved investments to the tune of Rs 1,466 billion in NHDP (up to Phase IIIA) and PMGSY. Of this, Rs 300 billion has already been spent on NHDP and Rs 183 billion on PMGSY. Over the next 5 years, Rs 511 billion will be spent on NHDP Phase I, Phase II and Phase IIIA. Increasing thrust on private sector participation The government is also inviting greater private sector participation, which is evident from the fact that all the phases from Phase IIIA onwards have been planned predominantly on build-operatetransfer (BOT) basis. In contrast, most of the contracts in the North South East West corridor (NSEW) and all projects in PMGSY have been planned on cash contract basis. CRIS INFAC feels that it is also logical, as private players will participate enthusiastically only when a particular stretch gives them adequate returns. GQ substantially completed; NSEW and Phase IIIA take off well in 2005, but delays galore After a lull in 2003 and most of 2004, the road sector activity again gathered momentum towards the end of last year. Within NHDP, with the Golden Quadrilateral (GQ) project nearing completion, the implementation focus has shifted to NSEW and Phase IIIA. These two programmes are currently being implemented simultaneously, and the crux of NHAI's awarding activity will be centred on them, at least in the next 2 years. Expected Levels of Roads Activity under NHDP Phase IIIB to Phase VII: Still on the drawing board Most of these projects (cumulatively over 30,000 km) are still in the conceptualisation stage, though in some cases certain stretches have been identified. NHAI has planned to complete all of them on BOT-toll or BOT- annuity basis. 67

95 The Railway Sector in India The Indian Railways, with a capital base of about Rs. 55,000 crore, is the principal mode of transportation for carrying bulk freight and long distance passenger traffic. Railways are cost effective and also environment friendly. Yet, capacity and efficiency constraints in the freight segment have, over the years, led to a significant shift from railways to road transport. A renewed focus of the Railway Ministry on efficiency, customer care, and commercial principles is aimed at reversing this trend. The recent turn around in railway operations suggests that Indian Railways are poised for rapid growth in capacity expansion. Investments The Railways has a large number of ongoing projects, which require huge funds for completion. The Tenth Five Year Plan provides on capacity augmentation and improvement of the quality of services. The Golden Quadrangle and its diagonals, which comprise 25 per cent of the total broad gauge route km. carry more than 65 per cent of the total freight traffic and more than 55 per cent of the total passenger throughput, would be given priority. The capacity augmentation of the system and improvement in quality of services would be carried out through technological upgradation and modernisation. While augmenting capacity in various sections, route-wise study based on origin and destination survey would be carried out. The Tenth Plan identified certain thrust areas in the railways sector. These are: capacity expansion through modernisation and technological upgradation, improvement in the quality of service, rationalisation of tariff in order to improve the share of rail freight in the total traffic and to improve the safety and reliability of rail services. The Tenth Plan had targeted a relative low growth rate of 5 per cent in freight. The average annual growth rate of freight (originating tonnage) in the first three years of the Tenth Plan is likely to be 6.8 per cent. This is commendable and it is necessary to continue to maintain this growth rate in future and ideally also step it up in view of the need for increasing the share of railways in freight traffic and ensuring a cost-efficient mode of transport, which will benefit the economy in the long run. This will require augmenting capacity, particularly on the main routes which are currently over-stretched. The rate of growth of passenger traffic (in terms of number of passengers) is only around 2.02 per cent, against 4.93 per cent in case of passenger kms, indicating an increase in the average lead of pssenger traffic, is a welcome development on the whole. It is expected that the Railways will be able to achieve its targets for passenger traffic of Tenth Plan. National Rail Vikas Yojana The Government announced the National Rail Vikas Yojana (NRVY) in August, 2002 in order to remove capacity bottlenecks in the critical sections of the Indian Railway Network. It comprises of three components: Strengthening of the Golden Quadrilateral (GQ) and its diagonals. Strengthening of rail connectivity to ports and development of multi modal corridors to the hinterland. Construction of four mega bridges: Bogibeel Rail-cum-Road bridge across river Brahmaputra, Munger Rail cum Road bridge across river Ganga, Patna Ganga bridge and a bridge over river Kosi. The NRVY projects, except for the mega bridges, are targeted to be completed in five years ( ). The Rail Vikas Nigam Limited (RVNL) was set up as a SPV to execute the first two components of NRVY. The RVNL is to undertake project development and mobilisation of resources along with execution of projects on a commercial format, using largely non-budgetary funds. The Ministry of Railways has assigned 53 capacity enhancement projects to RVNL. Of these, 32 projects lie on the GQ and 21 projects relate to connecting ports and strengthening hinterland connectivity. The RVNL projects involve doubling of 1911 km, gauge conversion of 1640 km, new lines of 522 km, railway electrification of 1916 km. and strengthening of about 10,000 km. of GQ and its diagonals for running of freight trains t 100 km. per hour (kmph). The total route kilometres. under various types of developmental works is about 16,019 kms. 68

96 The Union Government has envisaged a budgetary support of Rs.3,000 crore for RVNL, including Rs.1,500 crore as external aid from the Asian Development Bank (ADB), which shall be available to RVNL as Government of India.s equity. The rest of the funding requirements will have to be arranged by RVNL by devising various financing models. The initiative of implementing financially viable projects through RVNL needs to be reinforced. Three such SPVs have already been formed and more are being developed specially in the port connectivity projects. RVNL also intends to execute identified projects through BOT and market borrowings. Project-specific SPVs may raise resources from the market or from external resources against identified incremental revenues from the project. Some of the SPVs could be in the form of joint ventures with stake holders. Others could be based on BOT/ Build-Operate-Lease-Transfer (BOLT) mode. Public-Private Partnership in Running of Trains Indian Railways have already set up Indian Railways Catering and Tourism Corporation for taking all steps to boost up rail based tourism, including running of tourist trains. In fact village on wheels and hill trains are being run. In addition, railways are tying up with different state governments for running tourist trains on the pattern of palace on wheels and Deccan Odyssey Railway may explore the possibility of Public Private Partnerships in running tourist trains. The operational part relating to traffic management and use of railway tracks may continue to vest in the railways. Railways have taken steps recently for private participation in goods traffic, such as allowing competition in movement of container traffic and wagon investment schemes. However, Railways may explore the possibility of public-private partnership in running goods trains between specified destinations as suggested for tourist trains. This would help in adding modern rolling stock that would add to the traffic and revenues of the railways. Rail Budget The rail budget has planned an outlay of Rs. 23,475 crore for the year The thrust of the Annual Plan is on early completion of throughput enhancement works, safety, development and expansion of the network. The outlay on safety related plan heads, is Rs.2,922 crore for Track Renewals, Rs.590 crore for Bridges and Rs.1,518 crore for Signalling &Telecommunications, Rs.436 crore for contstruction of ROBs/RUBs and Rs.275 crore for manning of unmanned level crossings. For national projects need based funds to be released by Ministry of Finance of Rs. 2,092 crore. As per the rail budget outlined the investment strategy as giving the highest priority to route-wise throughput enhancement works on high-density network. In addition, all pending throughput enhancement works to be completed in the next three years. Increased share in freight traffic: Railways have taken a number of steps during Tenth Plan period to improve railways share in freight traffic. These include rationalization of freight tariff structure, user benefit measures such as trainload benefit for all block rakes and commodities, flexible rating policy for specific pairs of stations, incentive to premier customers generating high freight earnings for traffic originating from sidings, computerisation of freight movements, provision of in-house facilities etc. Other measures taken by the railways include provision of linkages to ports, introduction of more high speed wagons and refrigerated parcel vans. The Railway Budget for has also announced a number of initiatives aimed at increasing the freight traffic. The Delhi-Mumbai (Western) and Delhi-Howrah (Eastern) dedicated freight corridor projects: The rail budget announced a plan for the Dedicated Multimodal High Axle Load Freight Corridor with computerised control on Western and Eastern routes to be constructed at an estimated cost of Rs. 22,000 crores. The Cabinet has approved the proposal, with railways to go in for EPC & PPP and an SPV has been formed to construct the freight corridors. The project would take at least five years for implementation (after the new organizational structure is established, project report finalized, approval obtained and funding firmed up) and assuming that the current estimates are correct, the average annual requirement would work out to more than Rupees 4500 crore. This requirement would be over and 69

97 above the normal requirements of the Railways for renewal and replacement, acquisition of rolling stock, multiplexing, modernization, projects for new lines and conversion into broad gauge etc. The Task Force noted that the development of a dedicated freight corridor is highly capital intensive. The provision of such a corridor and its operation must be on commercial principles if quality services are to be provided on a sustainable basis. This would require setting up of higher productivity standards, entailing the adoption of norms, benchmarks, policies and practices, which may be significantly different from what are being followed by the Indian Railways. In an interim draft report by RITES, an Indian Railways undertaking, the construction cost of the east and west corridors has gone up a whopping Rs 13,000 crore to Rs 35,000 crore, from the earlier estimate of Rs 22,000 crore. According to the draft report, the eastern corridor would cover 1,280 km, of which 280 km would be on a new alignment. Similarly, the western corridor will cover 1,483 km, of which 276 km will be diverted. The report awaits ministry comments. THE WATER SUPPLY SECTOR IN INDIA: (water supply, sanitation and irrigation): After roads, urban infrastructure and irrigation sectors are expected to be the biggest contributor to the total infrastructure investments expected to materialise over the next 3 years. (CRIS INFAC) Water needs to be managed as an economic asset rather than a free commodity. India, which has 16per cent of the world s population, has only 2.45 per cent of the world s land resources and 4 per cent of the world s fresh water resources. Monsoon rain is the main source of fresh water, with 76 per cent of the rainfall occurring between June and September under the influence of the southwest monsoon. The average annual precipitation in volumetric terms is 4,000 billion cubic metres (BCM). The average annual flow out of this is 1,869 BCM, the rest being lost in infiltration and evaporation. Due to topographical and other constraints, only 690 BCM can be utilised. (Source: 10th Five Year Plan) Rainfall in India, as in all tropical countries, is confined mainly to the southwest monsoon months of June to September. The all India annual average rainfall is 1,170 mm. Irrigation constitutes the main use of water and is thus the focal issue in water resources development. As of now, irrigation use is 84 per cent of the total water use. However, due to growing population, the per capita availability of water is steadily going down, declining from 5,000 cubic metres a year at the time of Independence to abut 2,000 cubic metres as of now. This, coupled with urbanisation and industrialisation, has raised concerns about the deteriorating quality of surface and ground water. (Source: 10th Five Year Plan) According to the 54th round of National Sample Survey (NSS) an estimated 70 per cent of urban households reported being served by tap and 21 per cent by tube well or hand pump. Sixty-six per cent of urban households reported having their principal source of drinking water within their premises, while 32 per cent had it within 0.2 km. Forty-one per cent had sole access to their principal source of drinking water, which means that 59 per cent were sharing a public source. Fifteen per cent of households did not get sufficient drinking water from their principal source, between April and June, May being the worst month. The general financial position of the urban water supply and sewerage sector is very poor. Only a few providers in large urban areas generate sufficient revenues to make any contribution to investment. In medium and small towns these entities typically do not collect sufficient revenue to cover operating expenses. There is no matching of revenues against expenditures. Collection efficiency is very low. (Source: 10th Five Year Plan) Investment Needs of the Water Supply Sector: Water supply and sanitation schemes are capital intensive and, consequently, they are financed from the budget, borrowings from financial institutions or the market, and external funding agencies. Most State Governments have a policy relating to the financing pattern of the schemes, with shares for the urban local bodies (ULB), State Government, and institutional finance. The Central Public Health and Environmental Engineering Organisation (CPHEEO) has estimated that by the end of the year 2007, the urban population of the country is likely to be around 363 million. For achieving 100 per cent coverage by the end of the Tenth Five Year Plan and taking into account the 70

98 urban population already covered, the requirement of funds has been assessed. In regard to sewerage and sanitation facilities, it is assessed that 57 per cent of the urban population is likely to be covered by end of Ninth Plan. The estimates are based on the proposed coverage of 75 per cent of urban population. Moreover, 35 per cent of population already covered by the end of the Eighth Plan would need augmentation/rehabilitation and is included in calculation of fund requirements. Based on these assumptions of requirements to be met, the CPHEEO has estimated the following requirements during the Tenth Plan: Water Supply Rs 282,400 million Sanitation Rs 231,570 million Solid waste management Rs 23,226 million Total Rs 537,198 million (Source: Tenth Five Year Plan) HUDCO has been financing water supply projects for the past 30 years, especially those in small and medium towns, against State Government guarantee. As much as 28 per cent of the cumulative loan sanctions for urban infrastructure of HUDCO is towards water supply. During the Ninth Plan period, HUDCO has sanctioned 101 water supply schemes for financial assistance of Rs 48,280 million. However the main problem in financing of urban water supply and sanitation is the sustainability of the present model which is heavily dependent on the State Governments willingness and capacity to provide guarantees for institutional finance, apart from meeting the agreed state share of the project cost. Inability of the states to provide committed shares of project costs, and the tendency to sanction more works than financially feasible, has led to a situation of large numbers of incomplete works, project delays, and cost over-runs. (Source: 10th Five Year Plan) The states such as Andhra Pradesh, Gujarat, Maharashtra, Karnataka and Uttar Pradesh are the few states to have witnessed substantial investments in irrigation sector over the last 3 years. Over the next 5 years, around Rs 400 billion worth of irrigation projects have been envisaged by the State of Andhra Pradesh alone, and therefore, it will be the key focus area of implementation of irrigation projects. Central assistance, though very minimal, is largely routed through the Accelerated Irrigation Benefit Programme, under which the funds are allocated to help the states to fund the uncompleted irrigation projects. (source: CRIS INFAC) WSS projects are state-driven projects, but the implementation focus remains restricted mainly to cities. The key states to have witnessed substantial investments in the last 3 years in the implementation of the WSS projects are Gujarat, Delhi, Maharashtra, Karnataka, Kerala, Tamil Nadu and Uttar Pradesh. Over the next 3 years, besides the above states, Rajasthan and Madhya Pradesh are expected to witness substantial part of the total WSS investments. Key catalysts to investments: Increasing levels of urbanisation (water projects) Proactive states (as mentioned above) Political interests Multilateral funding (For details see the tables in the Annexure) Improvement in the credit ratings of a few urban local bodies, helping them to issue bonds A number of projects have been mooted in various metros to alleviate the water supply situation. Most projects focus on pumping in water from distant sources. Desalination is another option being looked into. There are only seven large desalination plants in India for the conversion for city sewage into process water. A water augmentation mechanism is a method by which water that would normally run off into rivers or seas, and so would not be accessible for drinking or agriculture, is harvested or stored so that it can be used. Augmentation methods include storing water in underground tanks for use in the dry season; collecting rainwater on the rooftops of homes, schools etc; and watershed scale rainwater harvesting which can directly be tapped or can recharge the surrounding aquifer. Of these methods, watershed scale rainwater harvesting has received the most attention in the literature and on the ground in India, and is part of official water policy in at least five states. The simplest and most common method of watershed-scale rainwater harvesting is the construction of a checkdam across a seasonal drainage. During heavy rains the ground becomes saturated and rainwater flows quickly along the surface instead 71

99 of percolating into the earth, 39 flowing into drainage channels and then into streams, rivers, and ultimately the ocean. A checkdam built across a drainage channel prevents the water from flowing downstream, creating a small reservoir. (Source: Stanford Center for International Development (SCID) s Fifth Annual Conference on Indian Economic Policy Reform) Rainwater harvesting presents a lot of opportunities for players in the construction sector. This has been taken up as a thrust area in Chennai and Delhi and must be given priority in all towns in the country. The Delhi Jal Board has taken up more than 80 works to harvest rain water and intends to cover about 200 buildings. The Delhi Government has approached the Ministry of Urban Development and Poverty Alleviation to amend building bye-laws to make rain water harvesting mandatory in the Capital. (Source: 10th Five Year Plan) O&M contacts: a potential growth area The basic principle of this approach is to contract out the operation and maintenance of a water supply and network it to a private sector operator. The operator is compensated on the basis of achieving pre agreed operational target levels and would have provision for incentives and penalties for achieving over performance and under performance respectively. A short term contract is a comparatively low risk option as compared to a long term BOT contracts or concession agreements. Sectoral reforms and private participation can further boost investments in the sector The water segment has witnessed some level of public/private participation in the projects. The successful implementation of the desalination project in Chennai and the expected growth in this particular segment along the Coromondel Coast are the few success stories of PPP models, which need to be repeated on a larger and wider scale. (source:cris INFAC) The Industrial Sector in India After a slowdown in industrial investments between FY99 and FY03, investments have picked up mildly in FY04. The decline in investments between and was largely due to the absence of major capacity expansions in most manufacturing sectors. In the same period, the operating rates reached high levels, due to demand growth and lack of investments. Therefore, the sustained demand growth and the high operating rates triggered the current upturn in industrial investments. CMIE's quarterly capital expenditure data demonstrates an upward trend in investments as announced, proposed as well as those under implementation. Notably, while proposed investments picked up in January 2004, a surge in projects announced and an increase in projects under implementation began in July Trends in investments: Proposed, announced and under implementation (source: CRISIL & CMIE) 72

100 The average annual investment is expected to increase from Rs 220 billion over the past 7 years ( to ) to Rs 865 billion over the next 5 years ( to ), propelled by investments in oil and gas, and metals. Other industries such as automobiles, petrochemicals, cement, paper and fertilisers, too, are expected to record healthy investments from FY06 to FY10. (Source: CRIS INFAC) This huge investment is likely to result in around Rs 650 billion of construction demand from industrial projects over the next 5 years. (Assuming civil construction to account for nearly 15 per cent of the total capital cost of the projects.) (Source: CRIS INFAC) Sector-wise industrial investments (Rs billion) High current capacity utilisations and demand growth are expected to result in major capacity additions in and The Oil & Gas Sector in India The strong growth of the Indian economy and infrastructure and the resulting increased demand in the energy industry has resulted in the need to develop an efficient distribution network for oil and natural gas transportation. The use of natural gas in the energy industry is also expected to increase significantly. The current low per capita usage of pipes in India, the recent discovery of large oil and gas reserves in various pasts of India, the Government s decision to permit oil retailing by the private sector and the proposed national pipeline grid formulated by GAIL and infrastructure development project of other major players in the energy industry in India are expected to increase engineering construction activity in the Indian energy industry. In response to the recent privatization initiatives of the Government, large oil and natural companies in India including IOC, RIL, Essar Oil, BPCL and ONGC have commenced significant oil and natural gas exploration and transportation infrastructure projects. Certain of these companies also propose to establish dedicated distribution networks. There is expected to be a tremendous increase in the volumes of transportation facilities in the oil and gas industry. Investments worth Rs 1,702 billion are expected in the oil and gas sector over the next 5 years as compared with Rs 998 billion of investments made in the last 7 years. A substantial part of the additional investments is expected to come from oil and gas exploration and development (E&D). The oil and gas E&D is going to witness substantial investments, mainly on account of the New Exploration and Licensing Policy announced to increase the reserves and improve the domestic supply of crude oil and natural gas. Accordingly, NELP I, II, III and IV have been announced, which will generate an estimated investment of Rs billion. (source:cris INFAC) 73

101 Investments in oil and gas (Rs billion) However, civil construction accounts for only 4 per cent of the total capital costs of oil and gas E&D projects, whereas its proportion is as high as 80 per cent in the case of oil and gas pipeline projects. Therefore, the key investments from the oil and gas sector for the construction industry are expected to come through the oil and gas pipeline projects. (source: CRIS INFAC) The Power Sector in India The power industry in India has been characterized by acute shortages in supply of power in comparison with the level of its demand. In FY 2004 and 2005, demand for electricity exceeded supply by an estimated 11% and 12% respectively in terms of total requirements, on average (Source: CEA Executive Summary). The deficit numbers in the table below illustrates the pressing need for increased investment at a faster pace in India: (source: CEA) Although power generation capacity in India has increased substantially in recent years, it has not kept pace with the growth in demand or the growth of the economy generally. The concluded Ninth Plan ( ) targeted a capacity addition of 40,245 MW, of which 24.4% was to come from hydro capacity, 73.4% was to come from thermal capacity, and 2.2% was to come from nuclear capacity. Ministry of Power (MoP) estimates indicate that only around 19,251 MW, or 48% of the planned capacity addition, were achieved in aggregate during the Ninth Plan. 74

102 The following table gives the achievement of hydro-power as against the target in each of the Eighth, Ninth and Tenth Plans: *Implementation of the Tenth Plan not completed. Table shows achievement of the Tenth Plan to the end of March [Source: Planning Commission] Historically, most of the power generated in India has been through thermal sources, with approximately 25% coming from the hydro sector as shown in the graph below. Installed Generation Capacities (YE YE 2005) by Generation Source: CEA Executive Summary March 2005 Internationally, the normal ratio of hydro to thermal power generation is 40:60 (Source: NHPC). The Government is therefore increasing its efforts to improve hydro-power generation through its future plans and also due to the inherent benefits of the hydro-power. These include: Hydro-power is cost effective as water is abundantly available, at zero cost; Hydro-power plants can handle variations in frequencies and in peak and off-peak requirements without significant added cost, unlike other modes of generation; Hydro-power plants are also more desirable from a social perspective, as they provide integrated solutions for power, drinking water and irrigation, without damage to the environment; and Hydro-power has lower operating cost than thermal power. The Government has recognized these benefits and therefore plans to increase the use of hydro-power in the future plans as illustrated in the table below :- The Tenth Plan and the Eleventh Plan envisage a capacity addition as set out in the table below. The effort is to close the deficit by the end of the Eleventh Plan to ensure Power for all by Of the total capacity addition, 62% would be in thermal plants, and over 30% in hydro-power plants and the rest would be nuclear power. Envisaged Capacity addition in Power in MW Source: Plan Documents, * Company estimates 75

103 The Government plans to develop around 50,000 MW of hydro-power projects in the next 20 years (Source: CEA). This is expected to result in an outlay of Rs. 2,000,000 million (at the rate of Rs. 40 million per MW as per our Company s estimate) for civil construction. MoP has identified 162 projects in 16 states, which will provide approximately 50,000 MW. Feasibility Reports for 132 projects have been received by MoP and of that number, 103 projects have been finalized. Feasibility Reports have been prepared by the following: Source: Central Electricity Authority Website (cea.nic.in) Overseas Project exports represent another key growth area for Indian companies. Indian project export companies have recently been successful at executing larger and more complex projects worldwide. Trend in Project Exports (US $ Million) Civil construction Turnkey 877 project Consultancy services Note: In , civil construction figures are from April to December 2004 only and turnkey project and consultancy services are from April to January 2005 only. Source: CRIS INFAC & PEPC & EXIM Bank Future Outlook The top 15 nations in construction spending are as follows: (in US$ billion) Country United States Japan China Germany France

104 Italy United Kingdom Spain Canada Netherlands India Mexico Brazil Australia Russia Total (55 Countries) Source: Global Insight Inc. Source: CRIS INFAC World Bank's cumulative lending - Top 20 countries (as on June 30, 2005) ($ million) IBRD loans IDA loans Total Amount Amount Amount India China Mexico Brazil Indonesia Turkey Argentina Republic of Korea Pakistan Russian Federation Colombia Philippines Bangladesh Morocco Nigeria Thailand Egypt Romania Peru Yugoslavia, former Yugoslav Republic Source: Indian Infrastructure Source: CRIS INFAC CONSTRUCTION BUSINESS MODELS Types of contract There are different models currently being adopted for PPPs in India which vary in the distribution of risks and responsibility between the public and the private sectors for financing, constructing, operating, and maintaining assets. Two important types of contracts - BOT and BOOT - are explained below, as well as certain other contracts generally used in the Indian construction industry. Build-Operate-Transfer ( BOT ) Under this type of PPP contract, the Government grants to a contractor a concession to finance, build, operate and maintain a facility for a concession period. During the life of the concession, the operator 77

105 collects user fees and applies these to cover the costs of construction, debt-servicing and operations. At the end of the concession period, the facility is transferred back to the public authority. BOT is the most commonly used approach in relation to new highway projects in India, and is also used in the energy and port sectors. Build-Own-Operate-Transfer ( BOOT ) BOOT contracts are similar to BOT contracts, except that in this case the contractor owns the underlying asset, instead of only owning a concession to operate the asset. For example, in the case of hydroelectric power projects, the contractor would own the asset during the underlying concession period and the asset would be transferred to the Government at the end of that period pursuant to the terms of the concession agreement. Design-Build-Finance-Operate ( DBFO ) The NHAI is planning to award new highway contracts under the DBFO scheme, wherein the detailed design work is done by the concessionaire. The NHAI would restrict itself to setting out the exact requirements in terms of quality and other structures of the road, and the design of the roads will be at the discretion of the concessionaire. The NHAI expects the DBFO scheme will improve the design efficiency, reduce the cost of construction and reduce time to commence operations, in addition to giving the concessionaire greater flexibility in terms of determining the finer details of the project in the most efficient manner. Item Rate Contracts These contracts are also known as unit-price contracts or schedule contracts. For item rate contracts, contractors are required to quote rates for individual items of work on the basis of a schedule of quantities furnished by the customer. The design and drawings are provided by the customer. The contractor bears almost no risk in these contracts, except escalation in the rates of items quoted by the contractor, as it is paid according to the actual amount of work on the basis of the per-unit price quoted. Engineering Procurement Construction/Lump-Sum Turnkey Contracts In this form of contract, contractors are required to quote a fixed sum for the execution of an entire project including design, engineering and execution in accordance with drawings, designs and specifications submitted by the contractor and approved by the customer. The contractor bears the risk of incorrect estimation of the amount of work, materials or time required for the job. Escalation clauses might exist in some cases to cover, at least partially, cost overruns. Operations and Maintenance ( O&M ) Contracts Typically an operations and maintenance contract is issued for operating and maintaining facilities. This could be in sectors such as water, highways, buildings and power. The contract specifies routine maintenance activities to be undertaken at a predetermined frequency as well as break-down maintenance during the contract period. While the contractor is paid for the routine maintenance based on the quoted rates which are largely a function of manpower, consumables and maintenance equipment to be deployed at the site, any breakdown maintenance is paid for on a cost-plus basis. Front End Engineering and Design ( FEED ) Contracts Ordinarily, FEED work is carried out as a part of a consultancy assignment where the consultant provides FEED data to the project owner to enable it to take a decision on making a tender for construction. In addition to this, the FEED is also a prerequisite to enable a contractor to bid for EPC/turnkey projects. A FEED project can be an independent consultancy project or a part of an EPC/turnkey contract. Price Preference In tenders for the projects funded by multilateral agencies such as the World Bank and the Asian Development Bank, where there is international competitive bidding, generally there is a clause of 78

106 price preference of 7.5% for domestic bidders. In this case, if the bid by the domestic player is 7.5% higher than the lowest international bid then the employer has to award the project to the domestic bidder. This would be subject to certain conditions specific to the project. In case the domestic bidder is in joint venture with an international bidder, then the domestic bidder should have share of 51% or more in the joint venture. Purchase Preference In government tenders for projects normally less than Rs. 100 crores, there is a purchase preference clause wherein a tender submitted by a Public Sector Undertaking (PSU) will entail 10% price preference over other bidders. In this case, if the bid by the PSU is 10% higher than the lowest bidder, the employer reserves the right to award the project to the PSU if they can match the price of the lowest bidder. Approaches In the case of large projects, players have adopted two critical approaches, in order to obtain and execute the contract. While contractors have entered into joint ventures (JVs) in order to secure the projects, project execution is undertaken largely through subcontracting. Joint ventures (JVs) JVs are usually project-specific and are contractual obligations among either domestic or foreign contractors. Besides pre-qualifying for projects, JVs are formed to reduce the risk exposure in large projects and combine specialist skills. JVs are usually project-specific, with revenues/profits shared on a pre-determined basis. For instance, in the case of road projects, all the stretches under Phase III have been planned on BOT basis, and therefore, will need higher level of investments. This has compelled a lot of small contractors to join hands with bigger players, and together on a joint venture basis, bid for the projects. The bigger player benefits from the joint venture as, to some extent, his equity and project completion risk is shared by the other smaller members of the joint venture (consortium). The bigger player is likely to get higher margins as compared to smaller contractors as he assumes greater equity risk in the project. The bigger sized projects will also bring in economies of scale and thereby can reduce the construction cost to some extent. Sub-contracting Subcontract arrangements are widespread in the construction industry, because of the diversified nature of the jobs in a project. Moreover, the use of sub-contract arrangements enable larger construction companies to maintain flexibility in operations and lower their overheads, while enabling the relatively smaller contractors to gain expertise and increase their turnover. In sub-contracting, smaller companies undertake tasks that are not undertaken by the principal contractor, or specialised tasks, through a sub-contract arrangement. Currently, only up to 30 per cent of the project can be sub- contracted. Sub-contracting practices are adopted by both large and small contractors. Large contractors, sub-contract work in India to smaller contractors, while in the international construction market, they undertake sub-contracting activity for larger foreign players. While sub-contracting decreases the capital investment of prime contractors, it enhances the likelihood of timely completion and lowers overhead expenses. It also results in lower profit margins for contractors. 79

107 Process of contract disbursements 80

108 Overview BUSINESS We are a civil engineering and construction company in India and we are the flagship infrastructure construction company of the Shapoorji Pallonji group, a well-known and reputed name in the construction industry. We have an experience of over four decades in construction industry, which includes a wide variety of infrastructure projects like marine works, bridges, fly-overs, roads, general civil engineering works including industrial structures, nuclear power projects, tunneling, pipelines, LNG storage tanks and special foundation works such as piling, diaphragm wall, pre-stressed anchors, drilling and grouting and other ground improvement works throughout India. We have also successfully completed and are currently engaged in execution of projects in Middle East and Africa. Over the years we have developed an expertise in marine works and we believe that we have an established reputation and expertise in this service line through successful execution of more than 150 structures along the Indian coastline. We have also successfully completed more than 100 bridges, flyovers, viaducts, two LNG storage tanks, underground and elevated train corridors and have executed 2,000 lane kilo meters of road works. We enter into contracts primarily through a competitive bidding process at the domestic and the international level. We have worked on projects for Qatar Petroleum, Shell, Reliance Industries Limited, Mumbai Port Trust, Konkan Railway Corporation Limited, Delhi Metro Rail Corporation (DMRC) and are currently undertaking projects for National Highway Authority of India, Ministry of Transport and Communication, Sultanate of Oman. Of the above clients, we have several repeat orders from Reliance Industries Limited, Konkan Railway Corporation Limited, National Thermal Power Corporation and DMRC. Some of the important projects successfully completed by us in the recent past include: Engineering, procurement, installation and commissioning of cofferdams for pump house of Ras Laffan common cooling sea water system for Qatar Petroleum Technical Directorate; Construction of jetty for docking LNG carriers and other marine works at Hazira for Shell; Construction of underground station including the tunnel at Barakhamba Road and elevated structure (via duct) between Tis Hazari Tri Nagar rail corridor for Delhi Metro Rail Corporation Limited; and Sewage Marine outfalls at Bandra and Worli, Mumbai for Dywidag International GmbH (as a nominated sub-contractor). The projects being currently executed by us include: Construction of marine, civil and pipeline works for Reliance Infrastructure Limited at Jamnagar; Design and construction of special bridge across River Chenab in Jammu & Kashmir for Konkan Railway Corporation Limited (in joint venture); Construction of single line tunnel on Katra Laole section of Udhampur Srinagar Baramulla rail link project for Konkan Railway Corporation Limited; Construction of an Oil Jetty at Port Louis Harbour, Mauritius; and Construction of new bridge over River Sone for East Central Railways. We focus on technology and constantly strive to develop new technologies and innovations in-house to execute large and complex civil engineering and construction works in a cost-efficient and timely manner. For instance, we developed the micro piling technology as early as 1970 and subsequently patented this technology for underpinning works to strengthen existing structures. We have successfully been using the in-house developed Sahayadri Lift Barge for over 15 years now for our shallow as well as deep water projects. The Sahayadri Lift Barge has a hydraulic lift crane capable of lifting 1200 tonnes.. In the years ended March 31, 2005 and 2006, our consolidated income was Rs. 5, million and Rs. 7, million, respectively, representing an annual growth rate of %. In the six months 81

109 ended September 30, 2006, our consolidated income was Rs. 4, million. In the years ended March 31, 2005 and 2006, we incurred a consolidated loss of Rs. (14.71) million and earned a consolidated net profit for the year of Rs million respectively, while our consolidated net profit for the six months ended September 30, 2006 was Rs million. Our order book, which includes the projects awarded to us but where we have not yet commenced work and the unfinished and uncertified portions of our commenced projects was Rs. 30,303.4 million as of September 30, 2006, out of which, domestic projects and international projects accounted for Rs. 27, million and Rs. 2, million respectively. We have added contracts aggregating Rs million to our order book during the period October 1, 2006 to December 31, 2006 which are all domestic projects. As of September 30, 2006, our work force consisted of approximately 1,473 full time employees and more than 2,695 temporary labour based around India, enabling us to mobilize our skilled employee resources depending on the location and the necessary expertise for projects undertaken by us. Our equipments and skilled employee resources, together with our civil engineering capabilities enable us to successfully implement modern civil engineering construction methodologies. We enjoy the ISO 9001:2000 BVQI accreditation and have received several awards, certifications and appreciation letters from clients for our operations and projects such as the appreciation letter from Shell for the construction of jetty for docking of LNG carriers and other marine works at Hazira, We are committed to adhering to health, safety and environment policies and practices in the execution of our projects. We have received the Safety Award 2005 by the National Safety Council of India in respect for the Sone Bridge, Bihar and ISO 14001:2004 and OHSAS 18001:1999 certifications by BVQI for the construction of elevated viaduct for Delhi Metro Rail Project. We are a part of the Shapoorji Pallonji Group, which is one of the leading conglomerates in India with over 140 years of experience in the construction industry. Its business interests ranges from construction, building materials and real estate to aluminum, finance, biotech, power and fuel oil additives. The Shapoorji Pallonji Group also has a significant presence overseas having been involved in real estate development and construction since We are the flagship company of the Shapoorji Pallonji Group in the infrastructure construction sector. Corporate History and Structure We began our operations as a civil construction firm in 1959 as a partnership between the Rodio Foundation Engineering Limited, Switzerland and Hazarat & Company, India. Consequent to the exit of Rodio Foundation Engineers and Hazarat & Co, we were reorganized as a company with the name Asia Foundations and Constructions Private Limited in 1976 engaged in the business of contractors and engineers. We became a deemed public limited company as per Section 43A(1) of the Companies Act from March 18, Shipping Credit and Investment Corporation of India (SCICI) became a 20% shareholder of our Company in 1993, which shareholding was transferred to ICICI pursuant to the merger of SCICI with ICICI. We changed the name of our Company from Asia Foundations and Constructions Limited to Afcons Infrastructure Limited with effect from August 14, We became a full fledged public company on November 11, In 1998 ICICI subscribed to further shares in our Company which made ICICI the single largest shareholder with 47.37% equity stake in our Company. Shapoorji Pallonji Group acquired 53.96% shareholding in our Company in 2000 where 47.37% was acquired from ICICI Ltd. and 6.59% was acquired from the Hazarat family. We have 3 subsidiaries and 1 joint venture company. We also operate through various unincorporated joint ventures formed for specific projects. Our Strengths Significant experience and strong track record With over four decades of experience as a civil engineering and construction firm, we believe we have become one of the significant players in the Indian construction industry. We believe that we have established a track record for executing large and complex civil engineering and construction and infrastructure contracts in a timely manner with quality work. We have also completed several projects ahead of schedule including the LNG terminal project at Dahej, Moolchand underpass at Delhi and Cable stayed bridge for Goa Industrial Infrastructure Corporation. We have received ISO 9001:

110 certification for the quality management system that we apply to the design and construction of civil engineering projects. Our portfolio of completed construction projects includes over 150 marine works, 100 bridges/ flyovers, 2,000 lane kilometres of roads, general civil engineering works relating to industrial structures including 2 LNG storage tanks and civil work for 2 nuclear power projects. We believe that the breadth and depth of our experience, among other factors, which among other things, enables us to pre-qualify for a greater number of potentially higher-margin projects. Diversified business and versatile capabilities We have a presence in the different sectors within the Indian construction industry and in different geographical regions in India. We have also been operating in the Middle East for over three decades and have expanded into other parts of Asia such as Sri Lanka and Nepal. This variety of project types in our portfolio enables us to keep our business diversified and reduces our dependence on any one segment or nature of project and allows us to deal with cyclical risks associated with the industry. The diversified business interests also allows us to participate in various projects where we believe we can add value. We believe that through our diversified and long standing experience we have been able to develop the ability to adapt to and operate in different work conditions and find solutions to complex construction projects. For example, while undertaking work in relation to the Calcutta metro rail project, we were able to construct a tunnel in soft soil using a special blade sheld technique. Similarly, we used the jet-grouting technology for making a tunnel at Liliguma for South Eastern Railways. We have successfully executed projects in diverse work conditions, including overseas. We have entered into renewed partnerships for new projects with various existing joint venture partners and have also received repeat orders from clients demonstrating our ability to work efficiently with various partners. Focus on technology We are a technology driven company, with a focus on innovation and development of technologies for the execution of complex civil construction and engineering projects. We believe our quick adaptability and solution oriented approach to construction complexities coupled with our technological capabilities enable us to execute projects in an efficient manner. Some of the technological innovations achieved by us include micropiling for underpinning works to strengthen structures, stabilizing of hill slopes by prestressed anchors, river training using underwater geofabric, development of Sahayadri Lift Barge, which has a capacity of lifting 1,200 tonnes, which was developed more than 15 years back and design and construction of jack up platforms as early as We believe that we are the first Indian company to have indigenously constructed an underground metro station for DMRC at Barakhamba, New Delhi.. We believe that our sustained focus on technology provides us with a key competitive strength. In- house developed expertise in marine works We entered into marine construction in 1963 and over the years have developed an expertise in marine works. We have constructed more than 150 structures along the Indian coastline which includes jetties, wharves, slipways, relieving platforms and dry docks. While most of the marine and harbour projects in India have historically relied on the conventional end-on-method whereby construction was undertaken from the shore or along the shoreline, we have successfully commissioned marine projects using a variety of floating devices units and jack up platforms. The development of design and fabrication work for such innovative floating devices and jack up platforms was done in-house. We own a fleet of strategic construction equipments including cranes, marine flotilla including jack up platform, barges and pontoons. We have successfully developed many of our important equipments such as the Sahayadri Lift Barge and jack up platforms in-house that have allowed us to customize the equipment to the specific conditions in which we operate. We believe that the increased focus on development of marine infrastructure by both the Government and private sector will allow us to leverage our expertise to achieve higher growth. Long term relationship with reputed clients We have developed long-term relationships with our clients and have received repeat orders from several of our domestic and international clients. We believe that our client centric approach enables us 83

111 to develop an established and long term association with many of our clients. We have successfully executed several projects overseas and have received repeat orders showing our ability to work in multicultural environments and with diverse sets of clients. For example after our successful association for the Jamnagar Phase - I project, Reliance Infrastructure Limited has placed cost plus basis contracts with us for several structures including modification of jetty job. Other clients from whom we have received repeat orders also include Konkan Railway Corporation Limited, National Thermal Power Corporation, Cochin Port Trust, Nuclear Power Corporation and DMRC.. Experienced management team and staff We have an experienced and dedicated management team and a skilled workforce. Our employees include over 707 engineers and 269 skilled operators and technicians. We believe that a large pool of skilled engineering and technical workers is essential to the efficient and effective execution of our projects. In addition, our senior management comprises of highly qualified people with extensive experience in our business, with engineering or technical backgrounds, which we believe, enhances our ability to successfully execute large and complex construction projects. Our key managerial personnel on an average have more than 25 years of experience in the construction industry. Our staff force also has diversified experience in various types of construction projects, which allows us to staff our projects with the most appropriate people. Parentage We are a part of the Shapoorji Pallonji Group, which is one of the leading conglomerates in India and has been operating for over 140 years in the construction industry. We draw on the expertise and commercial acumen of our parent company in the construction industry for our own business development. Owing to the long-standing history of the Shapoorji Pallonji Group, we believe it enjoys strong brand recognition. Further, we believe that our customers, along with Indian financial institutions, associate the Shapoorji Pallonji Group with quality, reliability and the ability to complete projects on schedule. We believe that the financial strength of the Shapoorji Pallonji Group and its track record and visibility, especially in overseas markets allow us to secure and execute bigger projects. Our Strategy Continue to focus on the high growth opportunities in the Indian construction and infrastructure sector. We believe that the increasing levels of investment in infrastructure by governments and private parties will be a major driver for growth in our domestic business in the foreseeable future. Additionally, the GoI has taken steps to encourage additional investments in infrastructure and construction sector, such as formulating plans to create SEZs in various areas of India and providing economic benefits to private sector participants for projects executed on a BOT basis. We intend to take advantage of such growing opportunities in infrastructure development by strengthening our existing expertise and continuing to pursue growth opportunities in India. We shall continue our focus on marine projects, speciality bridges and metro projects and strive to enhance our share in sectors such as Hydro/Tunnels and Oil and Gas pipelines, where we have recently entered. Focus on opportunities in the international market Apart from pursuing opportunities in India, our objective is to expand and strengthen our overseas operations further by focusing on the regions where we already have a presence, such as the Middle East and Africa, by capitalizing on our local experience, established contacts with local clients and suppliers, and familiarity with local working conditions. Middle East is experiencing a recent increase in construction activities, which makes it an attractive market for us. In addition, we propose to pursue opportunities in newer regions like Algeria and Sudan where large infrastructure initiatives are being made with the aid of multilateral institutions and in Yemen which is experiencing increased construction activities because of the recent discovery of large oil reserves. We currently propose to focus on the medium size contracts where local competition is lesser and we have the capability to compete with large multi national players for such projects. 84

112 We believe that the overseas projects executed by us allow us to earn better margins. Overseas projects also assist us in building our services and technology portfolio through the global exposure and international benchmarking of projects. Further, we also use overseas assignments as a retention measure for our employees. In pursuing our strategies, we seek to identify markets where we believe we can provide cost and operational advantages to our clients and distinguish ourselves from other competitors. In order to expand our operations, we also seek to identify joint venture/ consortium partners whose resources, capabilities and strategies are complementary to ours and who are likely to enhance our business operations in such regions. We shall continue our focus on marine projects, specialty bridges and strive to enhance our share in sectors such as Hydro/Tunnels and Oil and Gas pipelines, where we have recently entered. Increased focus on EPC contracts and design & build contracts. As of September 30, 2006, engineering, procurement, construction (EPC) and design & build contracts constituted % of our total order book. We intend to use our engineering capabilities to enable us to provide value added engineering services for clients and win more EPC contracts. Owing to complex nature of projects being envisaged, there is an increased demand for engineering capabilities. We believe that EPC projects will enable us to realize greater added value on construction projects through provision of comprehensive integrated solutions.. Leverage on the strength of the Shapoorji Pallonji Group The Shapoorji Pallonji Group is already an established player in the construction and real estate industry catering to diverse sectors. We are the flagship company of the Shapoorji Pallonji Group in the infrastructure construction sector. We intend to build upon and draw on its established presence and the financial strengths. Accordingly, we also intend to bid for and participate in large BOT infrastructure projects, including road projects in consortium with a Shapoorji Pallonji entity, which would function as the concessionaire with the construction/ EPC job being executed by us. We will participate and expand in those sectors where we derive the necessary strengths from the Shapoorji Pallonji Group in terms of technical expertise, execution skills and an established presence. Enhance profitability and capital efficiency Infrastructure construction is a highly competitive, capital-intensive activity. We believe that the optimal utilisation of financial, human and other resources is a key element for achieving success in this industry, and we shall continue focusing on the strategy of concentrating on a limited number of high-value/ high margin projects in order to maintain execution quality, reliability and timeliness. Going forward, our strategy will be to continue focusing on our capital utilisation and structure to optimise returns, by actively analysing and identifying projects and assigning priority to projects, which are likely to maximise returns. We also intend to improve capital efficiency by striving for accelerated completion of projects and better contract and relationship management with the client. We propose to continue to mitigate our risks by including effective and equitable dispute resolution clauses in our contracts. Participate in road projects only in consortium with BOT/ BOOT entities We believe that our ability to effectively manage our cash flows and resultant profitability is adversely affected owing to high level of commodization of the road contracts directly awarded by agencies like NHAI in the competitive bidding route and high level of delays experienced in execution of these projects on account of delays in acquiring land. Typically under the BOT/ BOOT route, 80% of the land is acquired prior to the award of contracts and therefore, the likelihood of delays in execution and consequent adverse impact on cash flow is reduced. Therefore, currently, we propose to participate in road projects only through the BOT/ BOOT route in association with Shapoorji Pallonji group and other established entities, which would function as a concessionaire whilst we would execute the EPC job. Attract, train and retain qualified personnel 85

113 We understand that maintaining quality, minimising costs and ensuring timely completion of engineering and construction projects depends largely on the skill and workmanship of our employees. As competition for qualified personnel is increasing among construction companies in India, particularly with the entry of international engineering and construction companies into the Indian market and as we pursue greater growth opportunities, we seek to attract, train and retain qualified personnel by increasing our focus on training our staff in advanced engineering and construction technology and skills. We frequently conduct well-designed training programmes for our staff. A total of 16,984 training man-hours have been spent on employee training between the period April 2005 to November We also offer our engineering and technical personnel a wide range of work experience and learning opportunities by providing them with an opportunity to work on a variety of large, complex construction projects and forming cross functional teams with the objective of giving them an opportunity to innovate. In addition, we give our employees opportunities to work on wide variety of projects including overseas assignments. Develop and maintain strong alliances with strategic partners. We have strategic alliances for the execution of our projects with companies including Dywidag, Germany, Per Aarsleff, Denmark, Kajima, Japan and Walter Mining, Australia. We intend to continue to establish strategic alliances and share risks with companies, whose resources, skills and strategies are complementary to and are likely to enhance our business opportunities, including the formation of joint ventures and consortia to achieve competitive advantage. In the light of our focus on technology, we also seek partners who can assist us in improving our technological capabilities in execution of our projects. Our Services We provide integrated engineering, procurement and construction services for civil construction and infrastructure projects. We have been involved in execution of infrastructure projects right since our inception. Infrastructure development has seen growth in India, especially in recent years with increasing government focus and funding for the sector. Increased investment in infrastructure has led to a surge in the activities of the construction industry. Infrastructure projects have emerged as, and we believe that they will continue to be, a significant business driver for us. We have developed skill sets in providing engineering and construction services for a diverse range of infrastructure projects. Apart from the infrastructure work undertaken by us, we continue to focus on providing mainly engineering and construction services for civil construction projects especially industrial structures. We broadly track our business under the following seven categories of service lines. We separately also track the overseas component our business. Marine Works We entered into the field of marine construction in the year 1963 and have executed more than 150 marine structures all along the Indian coastline. The structures include all types of jetties, wharves, slipways, breakwater, dry docks, intake and outfall structures. Most of the above structures have been executed under very challenging environmental conditions. We have through the years acquired the necessary expertise and skill to execute works under very high tidal variations and high sub surface water currents. Our works span the coastline of India as shown in the map below: 86

114 HAZIRA (1) SIKKA (3) KANDLA (4) JAMNAGAR (1) OKHA (2) MULDWARKA (2) JAFARABAD (1) PIPAVAV (1) DAHEJ (1) MUMBAI (13) NHAVA - SHEVA (2) DABHOL (2) RATNAGIRI (4) MORMUGAO (8) KARWAR (2) MANGALORE (8) COCHIN (1) OUR MAJOR MARINE PROJECTS IN INDIA OUR MAJOR MARINE PROJECT SITES IN INDIA CALCUT (4) HALDI GOPALPU (2) PARADI (3) VISHAKHAPATNAM (30) NELLORE (1) CHENNAI (3) KALPAKKAM (2) PONDICHERRY (1) TUTICORIN (2) (7) Note: The above is not for scale only for reference ( FIGURES IN BRACKETS INDICATE NUMBER OF MARINE STRUCTURES.) The following table provides a brief summary of some of the notable projects that we have undertaken and completed as of November 30, 2006 in this service line: Name of Project Client Location Contract Value at Completion (in Rs. millions) Completion Date Engineering, procurement, II, installation and commissioning of 2 nos. cofferdams for pump house nos. 1 & 3 of Ras Laffan common cooling seawater system Qatar Qatar Petroleum Qatar 1, Modernisation of Marine Oil Terminal Berth J1 to J3 at Jawahar Dweep Mumbai Mumbai Port Trust, Mumbai Mumbai. 1, Crude Unloading Jetty & Assosiciated facilities onshore cross country pipeline up refinery at Nagapattinum Chennai Petroleum Corporation. Limited Nagapattinum Chennai Sewage marine Outfalls at Bandra & Worli in Mumbai.(Afcons - Subcontractor) (Main Contractor - Dywidag) Dywidag International GmbH Mumbai. 1, The following table describes some of the notable projects that we are in the process of executing as of November 30, 2006 in this service line: 87