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Risk Management Policy

Risk Management Policy

Risk is an inevitable and necessary adjunct to the functioning of an organisation. Whether it is strategic decision making or carrying out the normal day-to- day operations of a Company, almost every activity involves an element of risk or uncertainty. Risk Management assists in identification, assessment and prioritisation of the various risks faced by a Company. It helps the organisation to understand potential risks, its impact and provides an opportunity to be prepared with alternative risk responses to mitigate/reduce the occurrence or impact of such risks.

The Company’s primary activity is promotion and development of real estate projects while it also runs a small hospitality business. The risk associated with hospitality business are unlikely to cause any serious impact on company financial and workings. Therefore, this policy mainly covers the risks associated with the primary business of the Company i.e. real estate promotion and development. However, for hospitality business as well the Company takes adequate safeguardsto protect its properties and operations.

Being primarily engaged in the construction and development of properties, the Company is exposed to varying degrees of uncertainty both at the micro and macro levels which affects the economy as a whole and the sector as well. Effective risk management is, therefore, crucial for the Company to optimise its performance.

Risks can be broadly divided into three categories

  • Hazard Risks - which can have only negative outcomes
  • Control Risks - which have a high degree of uncertainty associated with them
  • Opportunity Risks - which involve expectation of positive returns
Hazard Risk

Disaster Risks
The occurrence of natural disasters, including earthquakes, fires, pandemic disease and man- made disasters like acts of terrorism and military actions could adversely affect the Company’s operating results.

Risk Containment Strategy and Measures
The Company takes adequate insurance cover for managing disaster-related risks and takes suitable measures to reduce the incidence of man- made disasters. The Company also ensures that the structural design of the buildings are able to withstand the impact of seismic activities.

Control Risk

1. Sales Market Risk
Customers play a vital role in determining the performance of a real estate Company. While owning a home is an aspiration for many in India, the decision to purchase can always be deferred. A decline in the real estate market may cause potential buyers to remain risk averse, and market spending to turn cautious. The downturn in the economy could also lead to a decrease in sales or market rates for residential projects. Prospective customers may not be able to obtain housing finance. The Company may also run the risk of customer insolvencies though the registration of property happens only on receipt

2. Customer Risk
A significant portion of sales from real estate operations is generated from NCR and cities situated in the Northern India, which is the base of the Company’s operations. A decline in the real estate market in these areas, entry of new competitors, or a shift in customer preference may have an adverse effect on the Company’s business and operating results.

3. Borrowing Risk
The real estate sector is capital intensive and requires a significant expenditure for land acquisition and development. The Company is subject to the risks normally associated with debt financing and may be required to dedicate a portion of its cash flow towards repayment of its debt commitments. This may reduce the availability of funds for other business purposes such as working capital expenditure, financing of acquisitions and investments. It may not be possible to generate adequate cash flows to service principal and interest payments. In certain cases, lenders also have the right to recall the loan. Such an event could impact the liquidity and credit rating of the Company.

4. Liquidity Risk
Investments in the real estate sector are relatively illiquid. The Company may not be able to liquidate its assets promptly in response to economic, real estate market or other conditions. It may even be required to give a substantial reduction in the price to ensure a quick sale.

5. Land Related Risk
One of the primary inputs for a construction Company is the availability of and. The unavailability or shortage of suitable parcels of land for development could lead to escalation in land prices. Such escalations could adversely affect the business. Also, the availability of land, its use, and development are subject to regulations by various local authorities. In India, the uncertainty of underlying title of land is also a major factor involving the risk of legal disputes and related costs. The land prices are also volatile. A drop in land prices may erode the book value carrying cost of land. This in turn could affect the profitability of the Company.

6. Joint Venture Risk
The Company undertakes certain projects in collaboration with other parties. Credit risk arises when they do not discharge their obligations and in such circumstances, the Company may be required to make additional investments in the joint venture or become liable for the other party’s obligations.

7. Project Implementation Risk
The real estate projects are subject to a number of implementation risks such as regulatory delays, construction delays, material shortages, cost overruns, migratory labour, availability of skilled labour, accidents and quality control. The Company’s operations may be unfavourably impacted if these risks are not effectively managed.

8. Input Costs Risk
Fluctuating input cost is a risk inherent to the real estate business. The Company’s operations are subject to budget overruns due to a number of factors like increase in construction costs, repair and maintenance costs, sub-contracted service costs and labour costs. Increased operating expenses may affect profit margins as the prices of properties sold cannot be altered. Correspondingly, if the selling price of unsold properties is increased, the demand may be adversely affected.

9. Supply Chain Risk
If the suppliers of raw materials curtail, discontinue or otherwise disrupt the supply of materials, the Company’s ability to meet the material requirements for projects could be impaired. This could lead to disruption of construction schedules and projects may not be completed on time.

10. Personnel Risk
The Company’s performance depends to a large extent on the abilities of its employees. Employee attrition could have an adverse impact on the Company’s business. The Company’s performance could be affected if it is unable to identify, attract and retain its key employees like engineers and architects.

11. IT and System Risk
The Company uses an Enterprise Resource Planning system for integrating its core and back-end activities like architecture, engineering, projects and costing. A breakdown of existing IT systems or a delay in implementation could disrupt the Company’s ability to track, record and analyse the work in progress, or result in loss of valuable data.

12. Sector Specific Risk
Uncertainties in global and national economic systems, changing demographic profile of the country, inflation – all of these have a bearing on the functioning of companies operating in the real estate sector. The per capita income of the country has witnessed a steady growth and there has been a consequent increase in the purchasing power of customers. However, a downturn in the future may see increased levels of unemployment and a decline in income levels. This may impact the operations of the Company. The Company’s business is dependent on the availability of real estate financing in India. Economic slowdown and rising inflation may result in limited availability of funds.

13. Interest Rate Risk
The Company has incurred floating-rate indebtedness for its projects to a certain extent. Interest rates are subject to a number of factors, including government, monetary and tax policies, domestic/international economic and political conditions, and other factors beyond the Company’s control. Changes in interest rates may increase the Company’s cost of borrowing and impact its profitability.

14. Competition Risk
Real estate developers undertaking similar projects within the same regional markets as the Company would be in direct competition with it. Due to the fragmented nature of the real estate development business, adequate information about competitors’ projects may not be available and the Company could run the risk of underestimating the supply in the market.

15. Regulatory Risk
The Company is subject to extensive local, state and central laws and regulations governing the acquisition, construction and development of land, including those related to zoning, permitted land use, fire safety standards, height of buildings, and access to water and other utilities.

16. Legal Risk
The Company is involved in certain legal proceedings relating to the lands owned by it and claims in relation to taxation matters. Any adverse decision may have a significant effect on the Company’s business, prospects and financials.

17. Political Risk
Changes in government policy, social and civil unrest, and political developments in or affecting India could affect the Company’s business interests. Specific laws and policies affecting real estate, foreign investment and other matters affecting investment in the Company’s securities could change.

This reduces the reliance on external agents and brokers. A Customer Relationship Management (CRM) department has also been constituted to exclusively interact with customers, resolve their queries, address issues, streamline the purchase process and receive feedback. An online portal has been designed for customers where they can share their views and also check on the status of the project. The core responsibility of the CRM function is to ensure smooth and hassle-free transactions to the satisfaction of the customer.

On the real estate front, the Company has been steadily expanding its geographic presence. This diversification has reduced its dependence on a single market.

The Company has a proven track record in servicing its debt obligations. The Company is making all efforts to reduce its Gearing Ratio so as to reduce its debt obligations. The management believes in maintaining an optimum level of debt and is committed to reducing its debt equity ratio within 1.00.

Effective methodologies are in place for managing the land portfolio. Extensive diligence is carried out before acquiring land or entering into partnerships for joint ventures or joint development.

Employing well-governed processes ensures that project-level implementation risks are minimised. The Company has an in-house Quality, Safety and Technology department to address quality issues of the end product.

The Company has long-standing relationships with suppliers for the purchase of key materials. The Company also keeps a good number of suppliers for supply of similar items so that the material supply is available uninterrupted in case of problems with one supplier.

The Company has long-standing relationships with suppliers for the purchase of key materials. The Company also keeps a good number of suppliers for supply of similar items so that the material supply is available uninterrupted in case of problems with one supplier.

With a view to containing the risk of attrition and retaining personnel, effective policies are in place to keep them motivated.

The Company owns the intellectual property associated with the ERP system and has an in-house IT department, which caters to the development and maintenance of IT systems, ERP framework and associated IT-related issues.

The outlook for long-term demand for real estate in India is stable and positive. The emergence of Tier-II and Tier-III cities, urbanisation, large-scale employment generation in cities, nuclear family setup among other opportunities, will contribute to a substantial increase in demand for real estate and corporate space in the future.

Ansal Housing is one of the leading real estate companies in the country. With continuous improvement in construction processes and strengthening marketing and sales activities, we have been able to create a niche for ourselves in the market. Our products have an associated brand value built on quality and delivery, giving us an edge over our competitors. The Company has a strong in-house legal department. It also engages experts to mitigate legal and regulatory risks. It is an active member of trade associations like CREDAI and NAREDCO and is involved in making joint representations to the government and regulators on common issues faced by the sector.

Opportunity and Diversification and Investment Risk

Expansion into new geographies exposes the Company to risks such as a low level of familiarity with the development of properties in that area and attracting potential customers in a new market. Competitors may be better known in these markets and might enjoy better relationships with landowners and joint-venture partners. They could have early access to information regarding attractive land parcels and be better placed to acquire such land.

Investments usually have a gestation period spanning several years. Associated risks include those relating to obtaining the requisite regulatory approvals for the projects. Changing government policies may also impose restrictions on investments.

Risk Containment Strategy and Measures
The Company’s foray into new geographies is based on a thorough analysis of the prevailing market conditions and regulatory environment. Several projects have been successfully executed in the cities that the Company plans to enter and therefore, there is a good understanding of the local factors in play. The Company also engages locally available manpower resources to tackle some of the associated risks with diversification viz. a strong local partner.