Dhruv Consultancy Services Ltd:Annual Report 2023-24 Analysis

Dhruv Consultancy Services Ltd.: A Comprehensive Overview #

About the Company #

• Year of Establishment and Founding History: Dhruv Consultancy Services Ltd. was incorporated in 2003.
• Headquarters Location and Global Presence: The company is headquartered in Mumbai, India. They operate primarily in India and have expanded their presence internationally.
• Company Vision and Mission: To provide quality infrastructure engineering consultancy services and be a leader in the industry.
• Key Milestones in Their Growth Journey:
  • Initial focus on highway engineering.
  • Expansion into other infrastructure sectors like bridges, urban planning, and water supply.
  • Growth through organic expansion and strategic acquisitions.
• Stock Exchange Listing Details and Market Capitalization: Listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
• Recent Financial Performance Highlights: Review recent annual reports and financial news to include details on revenue, profit, and growth rate.
• Management Team and Leadership Structure: The company is led by a board of directors and a management team.
• Any Notable Awards or Recognitions: Review the company website and press releases for any awards or recognitions received for their work.

Their Products #

• Complete Product Portfolio with Categories:
  • Highway Engineering: Detailed Project Report (DPR) preparation, design, supervision, and quality control.
  • Bridges and Flyovers: Design, engineering, and construction supervision.
  • Urban Planning: Master planning, infrastructure design for urban areas.
  • Water Supply and Sewerage: Design and project management.
  • Railways: General Consultancy Services
• Flagship or Signature Product Lines: Services related to highway engineering and DPR preparation are some of their core offerings.
• Quality Certifications and Standards: ISO 9001:2015 certification.
• Any Unique Selling Propositions or Technological Advantages: Focus on quality, timely delivery, and cost-effectiveness.

Primary Customers #

• Target Industries and Sectors: Infrastructure development, transportation, urban development, and water resources.
• Geographic Markets (domestic vs. international): Primarily India, with increasing presence in international markets.
• Major Client Segments: Government agencies (NHAI, state PWDs), infrastructure developers, construction companies, and municipal corporations.

Major Competitors #

• Direct Competitors in India and Globally: L&T Infrastructure Engineering, RITES Limited, Consulting Engineering Services (CES), AECOM, and Jacobs.
• How they differentiate from competitors: Focus on specialized infrastructure consultancy and cost-effectiveness.
• Industry challenges and opportunities: Growing infrastructure investments in India, government focus on infrastructure development, and competition from larger players.
• Market positioning strategy: Positioning themselves as a reliable and cost-effective infrastructure consultancy service provider.

Future Outlook #

• Expansion plans or growth strategy: Focus on expanding their service offerings, geographic presence, and technological capabilities.
• Industry trends affecting their business: Government policies on infrastructure development, adoption of new technologies (BIM, GIS), and environmental regulations.
• Long-term vision and strategic goals: To be a leading infrastructure consultancy company in India and internationally.

Dhruv Consultancy Services Limited Performance Overview #

Three-Year Trend Analysis of Key Financial Metrics (Standalone Basis) #

Key Observations:

• Revenue Growth: While initial growth was strong, FY24 shows revenue stabilization.
• Profitability: Both EBITDA and PAT margins demonstrate substantial improvement in FY24, indicating better cost control and operational efficiency.
• Debt Reduction: The decreasing debt-equity ratio is a positive sign of improved financial health.
• Return on Equity: A positive Return on Equity shows increase in the profitability.

Business Segment Performance #

The provided document predominantly focuses on “Infrastructure Project Consultancy” as a whole, without providing a detailed breakdown of individual business segments. The following clients and projects are noted.

Clients #

• National Highways Authority of India
• City and Industrial Development Corporation
• Uttar Pradesh State Bridge Corporation Ltd
• Ministry of Road Transport and Highways
• The Mumbai Metropolitan Region Development Authority
• PUNEMETROPOLIS
• Pune Metropolitan Region Development Authority
• National Highways & Infrastructure Development Corporation Limited
• Indian Highways Management Company Limited
• Asian Development Bank
• Uttar Pradesh Expressways Industrial Development Authority

Projects #

• Entry into Railway and Metro sectors in FY24.
• Ongoing projects in multiple expressway projects.
• Geographic diversification spanning 23 states in India.

Major Strategic Initiatives and Their Progress #

• Global Expansion: Establishment of Dhruv International Private Limited in the UK, serving as a hub for international operations. Shortlisting for 21 out of 142 international project submissions.
• Diversification of Project Portfolio: Collaboration with multiple government bodies to bid for projects worth INR 1000 crore.
• Equity Route for raising funds: Planning to raise funds by equity route.
• Focus on Higher-Value Projects: Prioritizing projects with higher technical scores (95+) and larger ticket sizes.
• Technological Advancement: Leveraging advanced equipment and design software. Implementing an integrated ERP solution on the Mendix platform.
• Human Capital Development: Initiatives include campus recruitment in rural Maharashtra and leadership development programs.
• ESOP: Implementation of Employee Stock Ownership Plan (ESOP).

Risk Landscape Changes #

• Increased Geopolitical Risks: Escalating geopolitical tensions and trade fragmentation.
• Regulatory and Policy Risks: Changes in government policies, regulations, and tax laws.
• Project Execution Risks: Delays in project approvals and land acquisitions.
• Competition: Increased competition in the infrastructure consultancy sector.

ESG Initiatives and Metrics #

• Environmental Sustainability:
  • Consultation with horticulture experts for tree plantation.
  • Use of recycled materials in construction (fly ash, reclaimed asphalt).
  • Designing less congested road networks to reduce vehicle emissions.
  • Sourcing materials locally to reduce carbon footprint.
  • Water management through deep drains and rainfall collection pits.
  • Integration of solar power in roadside amenities.
• Social Responsibility:
  • Partnerships with colleges in tier 2 and tier 3 cities for academic-industry collaboration.
  • Health workshops for employees.
  • Community engagement in education, health, and sustainable development.
• Governance:
  • Emphasis on a culture charter promoting integrity, innovation, teamwork, and customer focus.

Management Outlook #

• Optimistic Growth Projections: Anticipating bidding for consultancy assignments worth INR 2000 crore in FY24-25, with a target of doubling the order book.
• Global Expansion Focus: Continued emphasis on expanding international presence.
• Continued Investment in Technology and Innovation: Ongoing efforts to integrate and enhance ERP systems and utilize advanced design software.
• Commitment to Sustainability: Integration of sustainable practices into all projects.

Detailed Analysis #

Financial Analysis of Dhruv Consultancy Services Limited #

Balance Sheet Analysis #

Three-Year Comparative Analysis (Assets, Liabilities, and Equity) #

( . in Lakh)

Significant Changes in Major Line Items (>10% YoY) #

• Other Financial Assets (Current): Increased significantly, from 99.95 lakh to 1,511.73 lakh. This warrants further investigation to understand the nature of these assets.
• Other Current Assets: Decreased by around 22%, potentially due to changes in unbilled work-in-progress.
• Long Term Borrowings: The increase is 156%, from 243.45 to 623.12. A big change that requires attention.
• Long-Term Lease Liabilities: Decreased.
• Other Current Liabilities: Decreased.
• Short-Term Provisions: Decreased substantially, indicating lower provisions for anticipated short-term obligations.
• Other Equity: The large increase in Other Equity is driven, by the increase in retained earnings and other reserves.
• Trade Receivables: Increased by about 27%, indicating either increased sales or potentially slower collections.
• Other Non-Current Assets: The increase is ~29%.

Working Capital Trends #

Working Capital = Current Assets - Current Liabilities

• Trend: Working capital has significantly improved between the two periods. This is generally a positive sign, indicating greater ability to meet short-term obligations.

Asset Quality Metrics #

• Trade Receivables Turnover Ratio: This is provided in the report. It went from 4.06 in FY23 to 5.43 times in FY24. A higher ratio is generally better, suggesting improved efficiency in collecting receivables. However, an excessively high ratio could indicate an overly strict credit policy.
• Fixed Asset Turnover: Total income (8241.1)/Fixed Asset, net (1621.59) = 5.08 times. Shows efficiency in usage of fixed assets.

Debt Structure and Maturity Profile #

• Debt-to-Equity Ratio: The provided data shows this ratio improved slightly from 0.24 to 0.23. This is a relatively low level of debt, indicating conservative financing.
• Long-Term vs. Short-Term Debt: A considerable portion of the debt is short-term (current borrowings), with a noticeable amount in current maturities. This indicates the company may have near term repayment obligations.
• Interest Coverage Ratio: The report states this improved from 4.73 to 5.76. A higher ratio indicates a better ability to meet interest obligations.
• Maturity Profile: As per Annexure B of auditor’s report, the maturity pattern for borrowings is as follows:

Off-Balance Sheet Items #

• Contingent Liabilities: The report mentions bank guarantees of 2,320.74 lakh. This is a significant amount and needs further investigation to understand the nature of these guarantees.

Overall Observations #

The analysis of provided data indicates a generally healthy financial position with low leverage and improved profitability. The growth in working capital and improvement in certain key ratios are positive.

Dhruv Consultancy Services Limited: Financial Analysis #

Revenue Breakdown #

• Segment Breakdown: The document indicates that the core business is infrastructure consultancy, with services spanning Design and Engineering, Project Management Consultancy, and Techno-Advisory services. These services are further divided into Authority Engineer Services, Detail Project Report Services, and other allied services. A clear revenue segregation between these services is unavailable.
• Geographic Breakdown:
  • Domestic (India): The primary focus is on India, with projects across 23 states.
  • International: Dhruv is actively pursuing expansion in the UK (through a new subsidiary), the Gulf, Africa, and South Asia. They have been shortlisted for several projects, but no revenue is reported yet from outside India.
• Growth Rates:
  • Overall Revenue: Total revenue experienced slight growth of 0.4%, from ₹8,117.96 lakh in FY2022-23 to ₹8,150.10 lakh in FY2023-24. The company attributes this to the completion of MORT&H 2 and 4-lane projects, as well as a slowdown in revenue recognition due to the Code of Conduct.

Cost Structure Analysis #

• Major Cost Components:
  • Employee Benefit Expenses: Increased by 18.7% in FY2023-24 (₹2,272.7 lakh) compared to the previous year (₹1,913.9 lakh).
  • Other Administrative Expenses: The largest expense category, though it decreased slightly. This includes professional fees, site maintenance, travel, and other operational costs.
  • Finance Costs: Increased substantially (70%) due to higher borrowings and lease financing, reaching ₹297.8 lakh in FY2023-24.
  • Depreciation and Amortization: Increased significantly (71.8%), indicating investment in fixed and intangible assets.
• Cost Trends: Employee and finance costs are trending upward, while other administrative expenses have decreased slightly.

Margin Analysis #

• Operating Margin:
  • FY2023-24: 12.06%
  • FY2022-23: 9.14%
  • Trend: Improved significantly (+31.95%).
• Net Profit Margin:
  • FY2023-24: 7.23%
  • FY2022-23: 5.94%
  • Trend: Improved (+22%).

EPS Analysis #

• Basic EPS:
  • FY2023-24: ₹3.88
  • FY2022-23: ₹3.28
  • Increase: +17.93%
• Diluted EPS: Same as basic EPS, at ₹3.88.

Cash Management: Financial Analysis of Dhruv Consultancy Services Limited #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, and FCF Components #

(Rs. in Lakh)

Working Capital Management Efficiency #

• Debtors Turnover Ratio: Revenue from Operations / Average Trade Receivables. The Company’s Debtor Turnover Ratio Increased by 34% in the last Financial Year. This increase is because of the higher receivables amount.
• Trade Payables Turnover Ratio: Purchases / Average Trade Payables. The Company’s Trade Payables Turnover Ratio Increased by 36% in the last Financial Year. This increase is because of the decrease in payables amount.
• Net Capital Turnover Ratio: Net Sales / Working Capital. The Company’s Net Capital Turnover Ratio is decreased by 16% in the last Financial Year.

CAPEX Analysis #

• Property, Plant, and Equipment (PP&E): Rs. 769.28 Lakh was spent in FY23-24.
• Intangible Assets Under Development: 9.92 Lakh was likely spent, relating to software.

Dividend and Share Buyback Trends #

• Dividend: An interim dividend of Rs. 0.25 per share was paid in FY23-24. A final dividend of Rs 0.25 is proposed. This is a new development, as there was not dividend in the FY22-23.
• Share Buyback: There is no indication of a share buyback program in the provided information.
• Conversion of Share Warrants: 7,92,769 equity shares were issued pursuant to the conversion of share warrants in FY 2023-24.

Debt Service Coverage #

• Interpretation: The DSCR is > 1, which means Dhruv can meet its debt obligations.

Liquidity Position and Cash Conversion Cycle #

• Liquidity Position:
  • Current Ratio: (Current Assets / Current Liabilities). Slight Increase of 10% in the last Financial Year.
  • Cash and Cash Equivalents: Decreased from Rs. 708.62 Lakh to Rs. 652.41 Lakh.
• Cash Conversion Cycle (CCC): The increase in the debtors turnover ratio suggests potential challenges in collecting receivables, which would lengthen the CCC.

Free Cash Flow Yield Trends #

• Free Cash Flow (FCF):
  • FY23-24: 337.14- 769.28 = -432.14 Lakh (Negative Free Cash Flow)
  • FY 22-23: 1593.42 - 395.58 = 1197.84 Lakh
• Free Cash Flow Yield: The Market Capitalization increased from 70 Crores in the last year to 200 Crores in FY 23-24. The free cash flow yield has decreased in the current year.

Key Observations and Conclusions #

• Revenue and Profitability: Profit after tax (PAT) showed a substantial increase (22.2% on a standalone basis), indicating improved operational efficiency and cost management.
• CAPEX: The company is investing significantly in PP&E and Intangible Assets, supporting growth, but also causing negative free cash flow in the current year.
• Debt: The Debt to Equity ratio is low and improved slightly, suggesting conservative financial management. However, interest and finance costs increased significantly.
• Liquidity: The current ratio is healthy, but the decrease in cash and cash equivalents is a point to watch, especially combined with negative FCF.
• Working Capital: Improvement in Receivable collections is required.
• Dividend: Company started paying dividend from FY 23-24
• Global Expansion: The Company has invested in its Wholly Owned Subsidiary for Global presence.

Financial Analysis of Dhruv Consultancy Services Limited #

Profitability Ratios (3-Year Trends) #

Calculations:

• ROE: (Net Income / Average Shareholder’s Equity) * 100
  • FY24: (589.5 / ((6627.4 +5704.2)/2)) * 100 = 9.55%
  • FY23:(482.2/((5704.2+4572.8)/2))*100 = 8.9%
• FY22: Not possible to find the appropriate numbers.
• ROA: (Net Income / Average Total Assets) * 100
  • FY24: (589.5 / ((11213.3+10157.4)/2)) * 100 = 5.29%
  • FY23 (482.2/((10157.4+8544.4)/2))*100 = 7.02%
• Operating Margin: (EBITDA / Total Revenue) * 100 (Using EBITDA as a proxy for operating income, as EBIT isn’t directly provided)
  • FY24: (993.5 / 8241.49) * 100 = 12.06%
  • FY23:(818.56/8230.82)*100 = 9.9%
• Net Profit Margin: (Net Income / Total Revenue) * 100
  • FY24: (589.5 / 8241.49) * 100 = 7.13%
  • FY23:(482.2/8117.96)*100 = 5.94%

Liquidity Metrics #

Calculations:

• Current Ratio: Current Assets / Current Liabilities
  • FY24: 8326.7 / 4173.9 =1.99
  • FY23: 8410/3604.2 =2.33
• Quick Ratio: (Current Assets - Inventories) / Current Liabilities (Since there are minimal inventories, this is almost the same as the current ratio)
  • FY24: (8326.7-0)/ 4173.9 =1.99
  • FY23 (8410-49.2)/3604.2 =2.32
• Cash Ratio: (Cash and Cash Equivalents) / Current Liabilities
  • FY24: (652.41) / 4173.9 = 0.14
  • FY23: (708.62/3604.2)=0.2

Efficiency Ratios #

Calculations:

• Asset Turnover: Total Revenue / Average Total Assets
  • FY24: 8241.49 / ((11213.3+10157.4)/2) = 0.74
  • FY23: 8117.96/((8544.4+10157.4)/2) = 0.81
• Receivables Turnover: Total Revenue / Average Trade Receivables
  • FY24: 8150.1 / ((2147.5+1413.6)/2) =4.6
  • FY23:8117.96/((1413.6+956.7)/2) =6.9

Leverage Metrics #

Calculations:

• Debt-to-Equity Ratio: Total Debt / Total Equity
  • FY24: (1553.6) / (6627.4) = 0.23
  • FY23:(1342.1/5704.2) = 0.24
• Interest Coverage Ratio: EBIT / Interest Expense (Using EBITDA - Depreciation as a proxy for EBIT, and Finance Costs as Interest Expense)
  • FY24: (993.5-492.2) / 297.8=1.7
  • FY23:(818.56-286.44)/175.12=3.1

Working Capital Ratios #

Calculations

• Working Capital = Current Assets - Current Liabilities *FY24: 8326.7-4173.9 = 4152.8 *FY23:8410-3604.2 = 4805.8

Key Observations and Highlights #

• Profitability: Dhruv Consultancy has shown consistent profitability, with a good net profit margin. However the operating and net profit margins have fluctuated.
• Liquidity: The company maintains a healthy liquidity position.
• Leverage: Dhruv Consultancy has low leverage, relying more on equity financing.
• Efficiency: Receivable collection is inefficient, and can be worked upon.

Important Considerations #

• Industry Benchmarking: To provide a truly comprehensive analysis, it would be essential to compare these ratios against industry averages for infrastructure consultancy firms. This would provide context for whether Dhruv’s performance is strong or weak relative to its peers.
• Qualitative Factors: Financial ratios alone don’t tell the whole story. Factors like the company’s reputation, client relationships, project pipeline, and regulatory environment all play a significant role in its success.
• Future projections: There needs to be more work done on the ratios to improve and match with the future financial goals of the company.

Dhruv Consultancy Services Limited Financial Analysis #

Revenue and Profitability Metrics (FY2024) #

• Total Revenue (FY2024): ₹82.41 crore (Standalone), ₹82.81 crore (Consolidated)
  • Growth Rate (YoY, Standalone): 0.13% (from ₹82.30 crore in FY2023)
• PAT (FY2024): ₹5.86 crore (Standalone), ₹5.89 crore (Consolidated)
  • Growth Rate (YoY, Standalone): 21.58% (from ₹4.82 crore in FY2023)
• EBITDA Margin (FY2024): 17.89% (Standalone)
  • Growth Rate (YoY): 31.95% increase from 9.14% in FY23 (Operating Margin, Standalone)
• Net Profit Margin (FY2024): 7.23% (Standalone)
  • Growth Rate (YoY): 22% (from 5.94% in FY2023)
• Return on Equity (ROE) (FY2024): 8.9% (Standalone)
  • Growth Rate (YoY): 5.33% (from 8.45% in FY2023)
• EPS (Basic, FY2024): 3.88 (Standalone)
  • Growth Rate (YoY): 17.93% (from 3.28 during FY2023)
• Debt-Equity Ratio (FY2024): 0.23 (Standalone)
  • Growth Rate (YoY): -4.16% (from 0.24 during FY2023)

Analysis: #

• Marginal total revenue growth (0.13%), but significant improvement in profitability (PAT growth of 21.57%).
• Substantial increase in EBITDA margin (31.95%) and net profit margin (22%) indicates improved operational efficiency and cost management.
• The unexecuted order book value as of June 30, 2024, provides a solid revenue foundation for the next 2-3 years.

Market Share and Competitive Position #

• Market Share: Approximately 6% in the Indian Infrastructure Consultancy market.
• Competitive Position: Among India’s fastest-growing infrastructure consultancy firms and is recognized as one of the top five consultants in nation-building. The only firm among its competitors to be listed on the main boards of both the BSE and NSE, enhancing its credibility and financial flexibility.

Key Products/Services Performance #

• Core Services: Design and Engineering, Project Management Consultancy and Supervision, Technical Audits, Asset Management, Pre-bid Engineering, and Value Engineering.
• Key Project Categories: Diversified operations, including state highways, national highways, bridges, tunnels, and, recently, the railway and metro sectors. Currently has seven expressway projects, including Mumbai-Pune Missing Link, Delhi-Vadodara, Amritsar-Jamnagar, Amritsar-Bhatinda, Raipur-Vishakhapatnam, Delhi-Dehradun, and Bengaluru-Vijayawada.
• Specialized in expressway and 6-lane projects.

Geographic Distribution and Market Penetration #

• Domestic Presence: Projects across 23 states in India.
• International Expansion: Incorporated its first subsidiary in the UK (Dhruv International Private Limited) to spearhead international operations. Targeting markets in the Gulf, Africa, and South Asia. Shortlisted for 21 out of 142 international project submissions.

Analysis: #

• Strong national presence.
• Actively pursuing international expansion.

Segment-wise CAPEX and ROIC #

• ROIC: Return on Capital Employed (ROCE) is 10.70%.

Analysis: #

• ROCE of 10.70% suggests moderate efficiency in capital utilization.

Operational Efficiency Metrics #

• Debtors Turnover Ratio: Increased in FY2024 (34% increase mentioned), due to increased average receivables.
• Interest Coverage Ratio: Improved in FY2024 (22% increase mentioned).
• Staff Cost: Increased by 18.7% (2272.7 Lakh vs 1913.9 Lakh, standalone), due to higher expenditures in salaries and wages, staff welfare expenses and employee statutory contributions.

Analysis: #

• Operational efficiency improvement indicated by higher profit margins and better interest coverage.
• Increased debtor turnover is a concern.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Targeting an order book of ₹1000 crore in the next 2 years.
  • Expanding global presence, particularly in the Gulf, Africa, and South Asia.
  • Strategic partnerships with government bodies and private contractors.
  • Leveraging advanced technologies and implementing an integrated ERP solution.
  • Campus recruitment in rural Maharashtra to develop young talent.
• Challenges:
  • Navigating complex regulatory frameworks and obtaining necessary approvals.
  • Intense competition from both domestic and international players.
  • Potential project execution delays due to external factors.
  • Dependence on government infrastructure spending.
  • Managing geopolitical and environmental risks, especially in international expansions.

Key Strengths #

• Listed on the main boards of both the BSE and NSE.
• Empanelled with major government departments across India.
• Experienced management and liaison team.
• Broad geographic footprint and diverse operational base.
• Prioritizes quality assurance with high-precision technology

Risk Assessment for Dhruv Consultancy Services Limited #

1. Strategic Risks #

Dependence on Government Infrastructure Spending & Policy Changes #

• Severity: High
• Likelihood: Medium
• Trend: Stable, but with potential for increase
• Mitigation Strategies:
  • Diversification of client base (expanding to private sector and international projects).
  • Active engagement with government bodies to stay informed of policy changes.
  • Targeting a mix of project types (roads, railways, ports, etc.) to reduce dependence on a single sector.
• Control Effectiveness: Medium
• Potential Financial Impact: High
• YOY change: Stable but will need to do geographical diversification.

Competition and Market Share Erosion #

• Severity: Medium
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies:
  • Focus on innovation and technological advancement (use of advanced software, MBIU, FWD, etc.).
  • Building strong client relationships and a reputation for quality and timely delivery.
  • Developing specialized expertise in niche areas.
  • Strategic Bidding.
• Control Effectiveness: Medium
• Potential Financial Impact: Medium
• YOY change: Increased, new players might take part in tenders.

Geographic Expansion Risks (International) #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Thorough market research and due diligence.
  • Strategic partnerships with local firms.
  • Focus on projects funded by multilateral agencies (ADB, World Bank) to reduce payment risks.
  • Regulatory Compliance.
• Control Effectiveness: Low to Medium
• Potential Financial Impact: High
• YOY change: Increased

2. Operational Risks #

Project Execution Delays and Cost Overruns #

• Severity: High
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies:
  • Robust project management practices.
  • Use of advanced technology for monitoring and inspection.
  • Strong relationships with clients and subcontractors.
  • Experienced project teams.
  • Contigency Planning.
• Control Effectiveness: Medium to High
• Potential Financial Impact: Medium to High
• YOY change: Stable

Talent Acquisition and Retention #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Competitive compensation and benefits.
  • Employee Stock Ownership Plan (ESOP).
  • Training and development programs.
  • Campus recruitment initiatives.
  • Creating a Positive Work Environment.
• Control Effectiveness: Medium
• Potential Financial Impact: Medium
• YOY change: Increased

Technological Disruptions #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Continuous investment in R&D
  • Partnering with tech companies
  • Training Employees.
• Control Effectiveness: Medium
• Potential Financial impact: Medium
• YOY change: Increased

3. Financial Risks #

Liquidity and Cash Flow Management #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable, but needs careful monitoring
• Mitigation Strategies:
  • Robust financial planning and management.
  • Maintaining adequate working capital reserves.
  • Diversifying funding sources (equity, debt).
  • Negotiating favorable payment terms with clients.
• Control Effectiveness: Medium
• Potential Financial Impact: Medium
• YOY change: Stable.

Debt Management #

• Severity: Low
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies:
  • Prudent Borrowing.
  • Debt Restructuring.
  • Maintaining healthy Debt-equity ratio.
• Control Effectiveness: High
• Potential Financial Impact: Low to Medium.
• YOY change: Stable.

4. Compliance/Regulatory Risks #

Changes in Government Regulations and Policies #

• Severity: High
• Likelihood: Medium
• Trend: Stable, but with potential for increase due to evolving environmental and sustainability concerns
• Mitigation Strategies:
  • Continuous monitoring of regulatory changes.
  • Proactive engagement with policymakers.
  • Ensuring compliance with all applicable laws and regulations.
  • Adapting Operations.
• Control Effectiveness: Medium
• Potential Financial Impact: Medium to High
• YOY change: Increasing

Compliance with Listing Regulations #

• Severity: High
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies:
  • Designated compliance officer.
  • Regular audits and reviews.
• Control Effectiveness: High
• Potential Financial Impact: Medium to High.
• YOY change: Stable.

5. Emerging Risks #

Climate Change and Environmental Sustainability #

• Severity: Medium to High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Integrating sustainable practices into project design and execution.
  • Focusing on energy efficiency and reducing environmental impact.
  • Developing expertise in climate-resilient infrastructure.
• Control Effectiveness: Medium
• Potential Financial Impact: Medium to High
• YOY change: Increased

Cybersecurity Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Implementing robust IT security systems.
  • Regular security audits and training.
• Control Effectiveness: Not clear
• Potential Financial Impact: Medium
• YOY change: Increased

Geopolitical Instability #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Diversification in markets and projects.
  • Forming strategic local partnerships.
  • Conducting regular risk assessments.
  • Ensuring legal compliance.
  • Adapting operations flexibly.
  • Obtaining political risk insurance.
  • Engaging actively with stakeholders.
• Control Effectiveness: Low
• Potential Financial Impact: High
• YOY change: Increased

Dhruv Consultancy Services Limited: Strategic Analysis #

Long-Term Strategic Goals and Progress #

• Global Expansion: Targeting the Gulf, Africa, and South Asia with a UK subsidiary (Dhruv International Private Limited). Shortlisted for 21 out of 142 international project submissions. Strategy involves partnerships with local firms and projects funded by international development banks.
• Order Book Growth: Aiming for an order book of Rs. 1000 crore within two years, bidding on Rs. 2000 Crores worth of consultancy assignments in FY24-25.
• Diversification: Collaborating with multiple government bodies to reduce dependence on NHAI and MoRTH.
• Domestic Market Dominance: Expanding operations through landmark projects, critical developments, and alliances across various Indian Government Departments.

Competitive Advantages and Market Positioning #

• Listing Status: Only infrastructure consultancy firm listed on the main boards of both the BSE and NSE.
• Government Empanelment: Empanelled with major government departments across India.
• Experienced Management & Liaison Team: Experienced management team and strong liaison team.
• Geographic Footprint: Broad geographic presence in India (23 states) and international expansion.
• Top Five Consultants: Recognized as one of the top five consultants in nation-building.

Innovation Initiatives and R&D Effectiveness #

• Technology Adoption: Leveraging state-of-the-art equipment (MBIU, FWD, ATCC, Retro Reflectometer) and advanced software (G-Star CAD, MIDAS Civil, STAAD Pro, Open Roads, Open Bridge).
• ERP Implementation: Integrating software systems (SAP Business One, Spine Software) into a single ERP solution on the Mendix platform.
• Sustainability Initiatives: Incorporating sustainable practices, such as using recycled materials, designing less congested road networks, and integrating renewable energy sources.

M&A Strategy and Execution #

Company had one wholly owned subsidiary, Dhruv International Private Limited, as of March 31, 2024. The company is involved in discussions with multiple contractors across multiple countries, implying possible future M&A deals.

Management’s Track Record in Execution #

• Project Completion: Over 175 projects completed and 98 ongoing, including state highways, national highways, bridges, and tunnels.
• Timely Completion: Reputation for timely project completion.
• Financial Performance: Revenue from operations has slightly increased and profit after tax has increased by 22% growth in FY23-24 compared to previous year.

Capital Allocation Strategy #

• Equity Shares Issuance: Issued equity shares to promoters and promoter groups, raising nearly Rs. 4 crore.
• Dividend Payout: Interim dividend paid to shareholders.
• Fund Raising: Plans to raise funds through the equity route.

Organizational Changes and Their Impact #

• Appointment of New Independent Director: Mr. Sharadchandra Chaphalkar appointed as an Independent Director.
• Leadership Development: Focusing on developing a third line of leaders within the organization, promoting individuals to General Manager positions.
• Culture Charter Implementation: Implementing a Culture Charter to promote core values.
• Company Secretary: There was a change in Company Secretary, with a new one appointed on May 27, 2024.

Dhruv Consultancy ESG Analysis (FY2023-24) #

Environmental Metrics and Targets #

Positive Initiatives #

• Horticulture Expertise: Deploys horticulture experts across India, planting trees suited to local conditions.
• Recycled Materials: Prioritizes recycled materials like fly ash and reclaimed asphalt in construction.
• Emission Reduction: Designs less congested road networks to reduce vehicle emissions.
• Local Sourcing: Sources materials locally to reduce transportation emissions and support regional economies.
• Water Management: Implements landscaping strategies for effective water management.
• Renewable Energy: Integrates solar power into roadside amenities.

Areas for Improvement #

• Quantifiable Metrics: Lacks specific, measurable, achievable, relevant, and time-bound (SMART) targets for environmental goals.
• Reporting Scope: Primarily focuses on project-level initiatives, lacking a comprehensive overview of the company’s overall environmental footprint.
• Materiality Assessment: Unclear if a materiality assessment has been conducted to identify the most significant environmental impacts.

Overall Assessment #

Dhruv Consultancy is taking positive steps toward environmental sustainability but needs to establish quantifiable targets, broaden the scope of its reporting, and conduct a materiality assessment.

Social Responsibility Programs #

Positive Initiatives #

• Academic-Industry Collaboration: Partners with colleges in tier 2 and tier 3 cities to provide students with industry exposure.
• Employee Well-being: Regular health workshops for employees.
• Community Engagement: Initiatives in education, health, and sustainable development, supporting socio-cultural development and job creation.
• Talent Development: Campus recruitment drives in rural Maharashtra.
• Diversity and Inclusion: Emphasis placed on equal opportunities, with programs specifically designed for women and minorities.

Areas for Improvement #

• Specificity: Lacks specific details about the programs, their reach, and impact.
• Stakeholder Engagement: Doesn’t elaborate on stakeholder engagement processes.
• Impact Measurement: Doesn’t provide quantifiable data on the social impact of its CSR initiatives.

Overall Assessment #

Dhruv Consultancy is engaging in socially responsible activities. To strengthen its CSR reporting, the company should provide more detailed information about its programs, stakeholder engagement processes, and measurable social impact.

Governance Structure and Effectiveness #

Positive Aspects #

• Board Composition: Mix of Executive, Non-Executive, and Independent Directors, including a Woman Director.
• Committees: Audit, Nomination and Remuneration, Stakeholders’ Relationship, and Corporate Social Responsibility committees established.
• Independent Directors: Receives declarations of independence from Independent Directors.
• Board Evaluation: Annual performance evaluations are conducted for the Board, individual Directors, and Committees.
• Code of Conduct: Has a ‘Code of Conduct for Business Ethics’ for Directors and Senior Management.
• Whistleblower Policy: Vigil Mechanism (Whistleblower policy) is in place.
• Insider Trading Code: Code of conduct for the prevention of insider trading adopted.
• Risk Management: A risk management policy is established to identify, assess, monitor, and mitigate various risks.

Areas for Improvement #

• Board Diversity: Limited information on the broader diversity of the Board (e.g., age, skills, experience).
• Succession Planning: While there is a focus on leadership development, it is not comprehensive.
• Cybersecurity: No mention of cybersecurity governance or risk management.
• Effectiveness of internal controls: Statement on internal controls lacks substantiation.

Overall Assessment #

Dhruv Consultancy has a basic governance structure in place that meets regulatory requirements. The Board’s effectiveness could be further enhanced by having a more robust succession planning, and increasing transparency on other aspects of board diversity. Addressing cybersecurity governance is crucial. The audit reports did highlight late filing of forms and technical issues.

Sustainability Investments and ROI #

Areas for Improvement #

• Lack of Information: The report does not provide any information about the company’s investments in sustainability initiatives, nor does it discuss the return on investment (ROI) of these initiatives.

Overall Assessment #

The lack of information on sustainability investments and ROI is a significant gap in the report. Providing this information would significantly strengthen the report and demonstrate a more strategic approach to sustainability.

ESG Ratings and Peer Comparison #

Areas for Improvement #

• Obtain ESG Ratings: The company should consider obtaining ESG ratings from reputable agencies.
• Conduct Peer Benchmarking: Comparing the company’s ESG performance with that of its peers would help identify best practices and areas where the company lags.

Overall Assessment #

The absence of ESG ratings and peer comparison makes it difficult to assess Dhruv Consultancy’s ESG performance relative to external benchmarks and industry standards.

Regulatory Compliance and Future Preparations #

Areas for Improvement #

• The audit reports noted some delays and technical issues in the filing of forms, needing attention.

Overall Assessment #

The Company shows good compliance and preparation for future regulations.

Future Projections and Guidance #

Management Guidance and Assumptions #

• Growth Strategy: Expanding domestically (bidding for INR 1,000 crore projects with NHAI, MoRTH, etc.) and internationally (Gulf, Africa, South Asia via UK subsidiary).
• Order Book Target: Increase order book to INR 1,000 crore within two years and establish a strong global presence. Near-term guidance includes bidding on consultancy assignments worth INR 2000 crore.
• Project Quality: Focus on higher-quality projects (technical score of 95+) for higher profit margins, focusing on 4/6/8-lane National Highways and Greenfield Expressways.
• Financial Resource Planning: Raise funds through equity, leveraging improved stock prices.
• Sustainability: Integrate sustainable practices into all projects (recycled materials, emission reduction, renewable energy).
• Technological Advancement: Utilize state-of-the-art equipment and software, implementing integrated ERP solutions.
• Human Capital Development: Focus on people as the foundation of growth.

Market Growth Forecasts #

• Global Infrastructure Sector: Expected to grow at 6.48% (World Bank Report, June 2024).
• Indian Infrastructure Investment: Anticipated to reach US$1.4 trillion by 2025 under the National Infrastructure Pipeline (NIP).
• Indian Economy: Projected to become the world’s third-largest, with GDP reaching $5 trillion by 2027.
• Road & Highway Sector: The government targets building 22 new Greenfield expressways.

Planned Strategic Initiatives #

• Diversification of Clientele: Expanding beyond NHAI & MoRTH to include MSRDC, MSIDC, HUDCO, and PWD.
• International Expansion: Targeting projects in the Gulf, Africa, and South Asia, with a focus on projects funded by international bodies like the Asian Development Bank and Exim Bank. 142 Expressions of Interest submitted, with 21 shortlistings.
• Corporate Partnerships: Approaching corporate houses for services like Detailed Design, Project Management Consultancy, Safety Consultancy, and Proof Checking.
• Equity Fundraising: Plans to raise funds through equity to support growth initiatives.
• Employee Stock Ownership Plan (ESOP): Implementation to foster a culture of ownership and align employee interests with shareholders.
• Integrated ERP Solution: To be implemented to enhance the operational efficiency.
• CSR Initiatives: To be aligned with academic collaboration in tire 2 & 3 cities of Maharashtra.

Efficiency Improvement Targets #

• Software Integration: Implementing an integrated ERP solution (Mendix platform) to manage multiple projects more effectively and improve operational efficiency.
• Leadership Development: Focus on developing a third line of leaders within the organization and creating leadership levels as General Managers.
• Culture Charter Implementation: Focuses on promoting core values such as integrity, innovation, teamwork, and customer focus.
• Review Mechanisms: Fortnightly departmental reviews, daily review meetings, and a quarterly feedback system implemented.

Potential Challenges and Opportunities #

• Challenges:
  • Regulatory and Policy Risks: Changes in government policies, regulations, and tax laws.
  • Project Execution Risks: Delays in approvals, land acquisitions, and clearances. Dependence on JV partners.
  • Financial Risks: Variability in cash flows due to delayed payments.
  • Geopolitical Risks: Political instability and changes in government in operating regions.
  • Competition: Highly competitive sector with domestic and international players.
• Opportunities:
  • Government Initiatives: National Infrastructure Pipeline (NIP) and Pradhan Mantri Gati Shakti plan.
  • Urbanization: Rapid urbanization leading to increased demand for infrastructure.
  • Economic Growth: Strong economic growth requiring improved infrastructure.
  • Sustainability Focus: Stricter environmental regulations creating demand for sustainable solutions.
  • Foreign Direct Investment (FDI): Increased FDI in the infrastructure sector.
  • International Project Funding: Entry into a new geography, projects funded by ADB, EXIM, World Bank, and AfDB.
  • Customization of services: Adjusting approach in project management, tech and client communication as per regional requirement.

Scenario Analysis and Sensitivity to Key Assumptions #

• Scenario 1: Accelerated Infrastructure Spending (Positive)
  • Assumption: Government significantly increases infrastructure spending, and project approvals are fast-tracked.
  • Impact: Surge in order book value, revenue, and profitability.
  • Sensitivity: Highly sensitive to government policy and budget allocations.
• Scenario 2: Delayed Project Approvals and Payments (Negative)
  • Assumption: Project approvals face significant delays, and government payments are slow.
  • Impact: Negatively impact cash flow, potentially leading to increased debt and reduced profitability.
  • Sensitivity: Highly sensitive to bureaucratic processes and government financial health.
• Scenario 3: Successful International Expansion (Positive)
  • Assumption: Dhruv successfully secures and executes multiple international projects.
  • Impact: Diversify revenue streams, reduce reliance on the Indian market, and potentially lead to higher margins.
  • Sensitivity: Sensitive to global economic conditions, geopolitical stability, and Dhruv’s ability to adapt to different regulatory environments.
• Scenario 4: Increased Competition (Neutral/Negative)
  • Assumption: Competition intensifies in the infrastructure consultancy sector.
  • Impact: Pressure on pricing and margins.
  • Sensitivity: Sensitive to the entry of new players and the aggressiveness of existing competitors.
• Scenario 5: Interest Rate Fluctuations (Neutral/Negative)
  • Assumption: The floating interest rate changes significantly.
  • Impact: Since majority of the borrowings are at fixed interest rate, the cash flow and profit or loss will not be affected.
  • Sensitivity: Low.
• Key Assumptions Sensitivity Summary:
  • Government Spending: High sensitivity.
  • Project Approvals/Payments: High sensitivity.
  • Global Economic Conditions: Medium sensitivity.
  • Competition: Medium sensitivity.
  • Interest Rate: Low sensitivity.

Audit & Compliance Analysis of Dhruv Consultancy Services Limited #

Auditor’s Opinion and Qualifications #

• Opinion: Mittal & Associates issued an unmodified opinion on both the standalone and consolidated financial statements, indicating a true and fair view in accordance with Indian Accounting Standards (Ind AS).
• Qualifications: The audit report does not contain any qualifications, reservations, or adverse remarks.
• Joint Statutory Auditor: S.N. Karani and Co appointed as Joint Statutory Auditor.

Key Accounting Policies #

• Key Policies:
  • Revenue Recognition (input method for construction contracts)
  • Property, Plant & Equipment (written-down value method)
  • Intangible Assets (software amortized over 3 years)
  • Lease Accounting (Right-of-Use assets and lease liabilities)
  • Financial Instruments (amortized cost or fair value)
  • Impairment of Financial Assets (Expected Credit Loss model)
  • Employee Benefits (defined contribution and defined benefit plans)
  • Income Taxes (current and deferred tax)
• Changes in Accounting Policies: No significant changes were highlighted.

Internal Control Effectiveness #

• Auditor’s Opinion: Unmodified opinion on the adequacy and operating effectiveness of internal financial controls over financial reporting as of March 31, 2024.
• Management’s Assertion: Robust system of internal controls in place.
• Internal Audit: Periodic review by Internal Auditors and recommendations reviewed by Audit Committee.

Regulatory Compliance Status #

• General Compliance: Compliance with applicable laws and regulations, including the Companies Act, 2013, SEBI Listing Regulations, and Secretarial Standards.
• Specific Compliance Points:
  • Listing Fees: Paid to BSE and NSE.
  • Insider Trading: Code of conduct in place and due compliance claimed.
  • Dividend Distribution Policy: Formulated and available on the company website.
  • Sexual Harassment Act: Policy adopted, and no complaints received.
  • Cost Records: Maintenance of cost records is not applicable.
• Areas of Minor Non-Compliance:
  • Belated filing of some forms under the Companies Act, 2013.
  • Charge registration/release forms not filed due to technical reasons.
  • Delays on charge creation.

Legal Proceedings and Potential Impact #

• Pending Litigations: No pending litigations that would impact its financial position.
• Contingent Liabilities: Contingent liabilities related to claims not acknowledged as debts and bank guarantees disclosed.

Related Party Transactions #

• Policy: Policy on Related Party Transactions in place; transactions at arm’s length and in the ordinary course of business, approved by the Audit Committee.
• Disclosure: Details in Form AOC-2 and notes to the financial statements. Key related parties include:
  • Samarth Softech Solutions Pvt. Ltd.
  • Innovision Infrasol Pvt. Ltd.
  • Innovision Studios
  • Directors and Key Managerial Personnel (KMP) and their relatives.
• Transactions mainly include professional fees and consultancy charges.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality:
  • Positive Indicators:
    • Unmodified audit opinions.
    • No qualifications or adverse remarks in the audit reports.
    • Compliance with Ind AS.
    • Detailed disclosure of accounting policies.
    • Internal audit function and Audit Committee oversight.
  • Areas for Further Scrutiny:
    • Reliance on management’s judgment in revenue recognition.
• Regulatory Risk Assessment:
  • Generally Low: Generally compliant with key regulations.
  • Areas of Concern:
    • Belated filing of forms and issues with charge registration/release.
  • Mitigating Factors:
    • Whistleblower Policy in place.
    • Appointment of a joint statutory auditor.