Directors Report of SAAG RR Infra Ltd.

Mar 31, 2013

To the Members,

The Directors hereby present their Eighteenth Annual Report on the business and operations of your Company along with audited financial statements for the Financial Year 2012-13.

Operations:

The Company recorded a turnover of Rs 12.3 Crores in 2012-13. Despite weakening growth rate in the economy, rising inflation costs, tough competition and low margin in the industry, the Company has completed two projects of Rs 20 Crores secured from M/s Cordon Bleu Properties & Infrastructure (P) Ltd, Coimbatore for construction of residential blocks at Coimbatore and finishing works of ETA Star Techcity (P) Ltd.

Efforts are being made to restructure the capital of the Company including the borrowings of Rs. 60 Crores from State Bank of India. The Company is negotiating to raise long term funds for repayment of loans and to augment its future growth. Immediate objective of the Company is to stabilize infrastructure business and then plan for its growth. However the present slowdown in the financial markets is not enabling the Company to negotiate a restructuring plan.

Dividend

In view of the loss during the year, your Directors are not recommending any dividend for the financial year 2012-13.

Report on Corporate Governance:

As required by the existing clause 49 of the listing agreement entered into with the stock exchanges a separate report on corporate governance is given as part of the annual report along with the auditors'' statement on its compliance.

Directors'' Responsibility Statement under section 217(2AA) of the Companies Act 1956

As required under Section 217 of the Companies Act, 1956, your Directors confirm that:

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

- The Directors have selected appropriate accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits of the Company for that period;

- The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

- The accounts for the financial year ended March 31, 2013 have been made on a going concern basis.

Auditors and their Report:

M/s. Sundar, Srini& Sridhar, Chartered Accountants, retire as Statutory Auditors at the ensuing Annual General Meeting and being eligible, are recommended for re-appointment. A certificate in this regard has been received to the effect that the re-appointment, if made, would be in accordance with Section 224(1B) of the Companies Act, 1956.

With regard to the observations made by the audit regarding (i) Fixed assets, major portion of reconciliation of fixed assets is being completed and description of assets and current location will be incorporated in the asset records upon such reconciliation.(ii) Adequacy of the internal audit system commensurate with the size of the Company and nature of its business, the Board is of the Opinion that the present system is adequate for the present level of business however steps will be taken to improve wherever required. (iii) Repayment of overdue amounts, the Company is planning to raise long term funds for settlement of loans and also augment working capital for future growth (iv) Erosion of net worth and incurring of cash losses, the Company is planning to raise long term funds for settlement of loans and also augment working capital for future growth. (v) Outstanding statutory dues, the Company will be making the pending statutory dues on receipts of some payments from clients in the near future or on receipt of Long Term Funds.

Information as per section 217(1) (e) of the Companies Act, 1956:

Your Company has no activity with regard to conservation of energy, Research & Development or technology absorption. There were no Foreign Currency earnings or expenditure during this year.

Risk Management:

The Company has recognized the need for an integrated risk management framework and has taken appropriate measures to design comprehensive risk identification and mitigation framework .The internal control policy is reviewed periodically and realigned to meet the risk mitigation requirements.

Personnel:

Your Directors would like to place on record and acknowledge the commitment and dedication on the part of the employees of your Company at all levels in continuing to contribute to your Company during these tough times. The Industrial Relations continues to be cordial.

No employee of the Company was in receipt of remuneration over and above the sum specified under section 217(2A) of the Companies Act, 1956.

Public Deposits:

The Company has not accepted any public deposits and as such, no amount on account of principal or interest on public deposits was outstanding as on the date of the Balance Sheet.

Particulars under section 212 of the Companies Act, 1956:

As required under the provisions of Section 212 of the Companies Act, 1956, a statement containing brief financial details of the Company''s subsidiaries for the financial year ended March 31, 2013 is included in the Annual Report.

Pursuant to the provision of Section 212(8) of the Act, the Ministry of Corporate Affairs vide its circular dated 8th February 2011 has granted general exemption from attaching the Balance Sheet, Profit and Loss Account and other documents of the subsidiary companies with the Balance Sheet of the Company. The annual accounts of these subsidiaries and the related detailed information will be made available to any member of the Company/its subsidiaries seeking such information at any point of time and are also available for inspection by any member of the Company/its subsidiaries at the registered office of the Company. The annual accounts of the said subsidiaries will also be available for inspection, as above, at the head offices/registered offices of the respective subsidiary companies. The Company shall furnish a copy of details of annual accounts of subsidiaries to any member on demand.

Acknowledgement

Your Directors would like to place on record their sincere thanks to the Company''s suppliers, contractors, clients, shareholders, auditors and bankers and other acquaintances for their continued support during the year and look forward to their continued support in the future.

For and on Behalf of the Board

Place: Chennai

Date: 31/05/2013 Mr. R. Sriram

Managing Director

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Mar 31, 2010

The Directors hereby present their report on the business and operations of your Company along with the Annual Report and Audited Financial Statements for the financial year 2009-10.

OPERATIONS :

The adverse impact of economic downturn felt in the previous year 2008-09 continued. Revenue from operations during the current year was at Rs 16.87 Crores as against Rs. 35.85 crores in 2008-09 due to premature closure of projects. The operating margin was positive at Rs 1.69 lakh. However, the Company incurred a net loss mainly due to high interest and finance charges and provision for stressed assets. The Company was able to reduce its losses during the year 2009-10 to Rs. 3.9 crores as compared to a loss of Rs.12.92 crores in 2008-09. The Company made efforts to restructure its finances and operations. The Company raised Rs.9.4 crores through preferential allotment of equity shares and is in the process of raising additional funds to meet its expansion/ diversification plans.

The Company divested its holdings in its subsidiaries M/s. TPS Builders Ltd and M/s. SAAG RR Oil and Gas Technology Ltd (now known as SAAG Oil Technology (India) Ltd)

DIVIDEND:

In view of the losses incurred during the year and the need to conserve resources of the Company, your Directors have not recommended dividend for the financial year 2009-10.

STATUS OF ONGC CONTRACTS:

The workover rig ‘SAAG Pacific’ is currently at the Mumbai port undergoing final verification for compliance with ONGC’s contract specifications. Mobilisation of `SAAG Pacific’ can only be determined upon completion of Third Party Inspection sometime in October 2010 and on ONGC accepting the rig. The mobilization of the workover rig ‘SAAG Saffron’ will only be expected after successful deployment of `SAAG Pacific’.

MANAGEMENT DISCUSSION & ANALYSIS:

Global Economy:

The year 2009-10 saw the major economies recovering from the recession and posting a moderate GDP growth. The concerted efforts of the developed world coupled with stimulus packages has had a major influence on the recovery.

Indian Economy:

The Indian Economy has been on the path of a sustainable recovery from the economic slow-down of 2008-09 and has clocked a growth rate of around 7.2 percent in 2009-10 exceeding the expectations. It is poised to grow at the rate of 8.5% in 2010-11. The rate of investment is around 36% of GDP in 2009-10 and is expected to rise to 37% of GDP in 2010-11 and 38.5% of GDP in 2011-12. These rates should enable the Indian economy to grow in a sustained manner at around 9%. Private corporate investments and total investment in fixed assets are also expected to recover strongly.

Company’s Business Profile, Future Outlook & New Business Opportunities:

SAAG RR is involved in the business of construction and infrastructure since 1995. SAAG RR specialises in executing Civil, Mechanical and Electrical contracts and is pre-qualified to execute: Multi-storeyed towers of residential flats; specialised industrial structures including major assembly hangers; sewage & effluent treatment plants; water treatment plants and IT Parks. With the support of SAAG Malaysia, the Company is making its entry into the oil & gas industry. The Company now owns the offshore workover rig ‘SAAG Pacific’. The Company with the technical collaboration of M/s. SAAG Drilling and Well Services Sdn Bhd has the experience, in-house capability for design, engineering and construction and the necessary manpower for executing the contract.

Infrastructure Sector Outlook & Opportunities:

The thrust by the Government of India on development of infrastructure in the country has resulted in a huge increase of investment in this sector. The investment in infrastructure in India has increased from 4.9% of GDP in 2002-03 to around 6 % in 2009-10. The expected expansion of investment in physical infrastructure, including housing will drive the construction sector. Accordingly, the GDP arising form the construction sub-sector would rise by 10% in 2010-11 and is likely to inch up to 11% in 2011-12. The Eleventh Plan projections imply that only about 70 % of the infrastructure needs can be met from public resources and the remaining 30% would come from private investments in various forms such as Public Private Partnerships (PPP). Such private participation would not only provide the much needed capital but also help in improving the efficiency. The scope for expansion in this sector coupled with the Government’s intention to boost infrastructure through its massive spending makes it one of the attractive sectors to invest in.

Indian Oil and Gas Industry Outlook:

The Indian oil and gas sector is one of the core industries in India and is significantly linked to the entire economy. India’s energy needs are expected to grow many times in the years to come. Hence, there is an emergent need for wider and intensive exploration for new finds, more efficient and effective recovery and optimally balanced global price regime. The current levels of per capita energy consumption in India are extremely low as compared to the rest of the world esp. when compared with the developed countries. India has approximately 5.6 billion barrels of proven oil reserves and 38 trillion cubic feet (Tcf) of proven natural gas as of January, 2010. India produced roughly 880 thousand barrels per day of total oil in 2009 from over 3600 oil wells. It produced approximately 1.4 Tcf of natural gas in 2009. In 2009, India consumed nearly 3 million barrels of oil per day, making it the fourth largest consumer of oil in the world. It consumed around 1.8Tcf of natural gas in 2009. It is expected that the growth in annual consumption of oil will be approximately 100 thousand barrels per day through 2011. As a net importer of oil, the Indian government has policies aimed at increasing domestic exploration and production (E&P) activities. As part of an effort to attract oil majors with deepwater drilling experience and other technical expertise, the Ministry of Petroleum and Natural Gas created the New Exploration License Policy (NELP) in 2000, which for the first time permits foreign companies to hold 100 % equity ownership in oil and natural gas projects. Despite this, international oil and gas companies currently operate a small number of fields. Most of India’s crude oil reserves are located offshore, in the west of the country, and onshore in the northeast. Substantial reserves, however, are located offshore in the Bay of Bengal and in Rajasthan state. India’s largest oil field is the offshore Mumbai High field, located north-west of Mumbai and operated by ONGC. Another of India’s large oil fields is the Krishna-Godavari basin, located in the Bay of Bengal.

Opportunities in the Workover Rig Business:

As a result of huge increase in energy demand in India, Oil majors are on a major drive to improve the efficiency and productivity of their wells. Hence there is an immediate and growing need for offshore work over rigs to maintain the oil wells and increase the productivity of the wells. The Company sees growing opportunity in the off shore work over rig industry and is positioning itself to tap into this market.

SWOT Analysis of SAAG RR:

Strength

It has got more than 15 years of experience in the execution of the various construction projects.

It is pre-qualified to execute single projects worth Rs.60 crores in Infrastructure business.

It has good engineering skills to complement the client and provide value addition to the end product. The Company has built teams to handle every aspect in execution of projects, Purchase, Execution, Finance, Planning and Monitoring and CRM.

Quality & Safety standards developed by the Company are benchmarked against international norms.

Alliance with SAAG has helped in improving the brand name and financial strength and this would also help technically in oil & gas projects.

Board members of the Company have multifaceted and professional expertise in different segments of infrastructure development activities.

Weakness

It is a mid sized Company, it will take some time to attract exceptional talent in the industry into its fold.

Growing geographically, it needs to strengthen its organizational structure to handle multiple sites.

- Due to high leverage, it is facing financial constraints.

- Is dependent on the expertise of SAAG group of companies in oil & gas business.

Opportunities

The Government of India’s planned investment in physical infrastructure and the Public Private Partnership model to develop infrastructure will throw up plenty of opportunities for Indian companies to participate in the Indian infrastructure growth story and benefit from it.

Demand for natural gas has been increasing at high rate in India and therefore the business potential in this sector is very high. There is a tremendous opportunity for growth in this sector for our Company.

The Company has two subsidiaries namely M/s. SAAG Energy Ltd and M/s. QEDi Proteus Energy Ltd which will enable the Company to venture into integrated engineering, manpower consultation and allied services to the companies in Oil & Gas sector.

Oil majors around the globe are on a major drive to improve the efficiency and productivity of its wells. They will require the services of offshore modular workover rigs and SAAG RR is well equipped with the support of SAAG group to capitalize on this opportunity.

Threat

All government and public sector undertakings award contracts to the lowest bidder. This results in under cutting and thinner margins. The Company with its quality and safety standards has to be extra cautious in bidding projects with the right margins to ensure continuous order book and at the same time maintain healthy margins.

Since the construction and infrastructure sector is fragmented, competition is very high and major players could give stiff competition as they are big in size and already have experience in executing the roads, water & sewer works, buildings and gas pipeline projects.

Sectors like oil & natural gas are very political sensitive both globally and domestically. Hence this could adversely affect your Company’s entry and sustenance in this sector.

SUBSIDIARIES :

(a) The Company has two subsidiaries, i.e. SAAG Energy Ltd and QEDi Proteus Energy Ltd. SAAG Energy Ltd is primarily engaged in manpower consultancy in the oil & gas sector. QEDi Proteus Energy Ltd is a subsidiary of SAAG Energy Ltd and is established to provide specialised engineering and support services to the oil & gas industry specific to India. QEDi Proteus Energy Ltd would become a wholly owned subsidiary of the Company on transfer of QEDi’s stake to Company. Further with the exit of Proteus Global Solutions and on proposed transfer of QEDi’s stake to SAAG RR Infra Ltd, the name of the Company is proposed to be changed.

(b) During the year 2009-10, Company has divested its entire equity stake in M/s. TPS Builders Ltd and M/s. SAAG Oil Technology (India) Ltd (earlier known as SAAG RR Oil and Gas Technology Ltd) to M/s. SAAG (Mauritius) Ltd. Consequently, both the companies are no longer subsidiaries of the Company.

FINANCIAL RESULTS:

(Rs. in Million)

Particulars 31.03.2010 31.03.2009

Contract Revenue 168.76 358.48

Other Income 79.32 7.55

Total Income 248.08 366.03

Expenditure

Project Expenses 143.98 301.34

Employee Cost 8.85 18.95

Administration Expenses 45.64 89.18

Total Expenses 198.47 409.47

PBDIT 49.61 (43.44)

Depreciation 914 8.28

Mis Exp not w/off - 3.34

PBIT 40.47 (5.06)

Finance cost 72.34 61.79

Prior period items 9.03 18.84

PBT (40.90) (135.70)

Provision for tax

Current tax 2.62 -

Deferred tax (1.15) (6.72)

Fringe benefit Tax - 0.20

PAT/ Loss (39.46) (129.21)

PBDIT% (19.99) % (11.87) %

PAT% (15.90) % (35.30) %

Analysis:

- Income from operations has decreased in FY 2009-10 to Rs.168.76 mn as compared to Rs.358.48 mn for FY 2008-09.

- Employee cost has decreased to Rs.8.85mn in 2009-10 as compared to Rs. 18.95 mn in 2008-09.

- Finance cost has increased from Rs.61.79 mn to Rs.72.34 mn due to the working capital facilities from Banks. The Company is planning to repay the high cost debt from the proceeds of the Preferential/ Rights issue which the Company plans to complete by this fiscal year end.

- The Company incurred a loss of Rs.39.46 mn. for the financial year ended March 31, 2010 as against a loss of Rs.129.21 mn. for the financ ial year ended March 31, 2009.

- Current Ratio is 1.63 as on March 31, 2010 as against 0.23 as on March 31, 2009 .

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company aims constant improvement and strives for better systems and controls. The Company has an adequate internal control system. Further, the Company has an Internal Audit System wherein the audit is conducted by an independent external agency. The Company for this purpose has appointed M/s. Sundar & Ram, Chartered Accountants, Chennai as Internal Auditors who report on the Internal Control Systems to the Audit Committee.

The Company uses a software (Construction Manager) to automize the systems and procedures for tendering, budgeting, planning, procurement, monitoring and control which lead to an improved control systems. The Construction Manager will ensure that the projects are executed within the budgets and provided valuable information on deviations and further analysis.

HUMAN RESOURCES:

The Company continues for creating an environment of a high performance work culture. The Company has 63 employees as on March 31, 2010 working at corporate office and project sites.

REPORT ON CORPORATE GOVERNANCE:

In line with the requirements of Clause 49 of the Listing Agreement, a separate report on corporate governance, along with a certificate of statutory auditors of the Company, is annexed herewith for the information of the members.

DIRECTORS:

There are six Directors on the Board of Directors of the Company. Mr.V.Vasudevan and Mr. V.Sivakumar are non-executive independent directors on the Board of the Company. Mr V. Sivakumar, Director of the Company is to retire by rotation at the ensuing annual general meeting and being eligible offers himself for reappointment.

Mr.R.Sriram, Managing Director, and Mr.G.V.Satish Narayana, Executive Director of the Company are being reappointed on the terms and conditions as specified in special business of the notice convening the fifteenth Annual General Meeting.

The directors and the senior management have affirmed compliance with the code of conduct for the year 2009-10.

DIRECTORS’ RESPONSIBILITY STATEMENT UNDER SECTION 217(2AA) OF THE COMPANIES ACT, 1956.

As required under Section 217 of the Companies Act, 1956, your Directors confirm that:

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

(b) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits of the Company for that period;

(c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

(d) The Directors have prepared the annual accounts on a going concern basis.

AUDITORS AND THEIR REPORT:

M/s. Sundar, Srini & Sridhar, Chartered Accountants, retire as Statutory Auditors at the ensuing annual general meeting and being eligible, are recommended for re-appointment. A certificate in this regard has been received to the effect that the re-appointment, if made, would be in accordance with Section 224(1B) of the Companies Act, 1956.

With regard to outstanding statutory dues and loans, we wish to state that despite cash constraints the Company has brought down the dues substantially compared to previous year and is committed to pay the remaining dues. With regard to the observation of the auditor on inadequacy of the internal audit system commensurate with the size of the Company and nature of its business, we wish to state that the Company took steps to improve the internal audit system by increasing the scope of the internal audit and frequency of reporting. However, we are taking further steps to strengthen the internal audit system.

INFORMATION AS PER SECTION 217(1) (e) OF THE COMPANIES ACT, 1956:

Your Company has no activity with regard to conservation of energy, research & development or technology absorption. There were no foreign currency earnings or expenditure during this year.

RISK MANAGEMENT:

The Company has recognized the need for an integrated risk management framework and has taken appropriate measures to design a comprehensive risk identification and mitigation framework which is currently put to use effectively. The Board of Directors and the Audit Committee review the risk reports periodically and facilitate the senior management to act accordingly to mitigate the risks faced by the Company. The internal control policy is also reviewed periodically and realigned to meet the risk mitigation requirements.

PERSONNEL:

Your Directors would like to place on record and acknowledge the commitment and dedication on the part of the employees of your Company at all levels in continuing to contribute to your Company during tough times. The industrial relations continues to be cordial. The Company strongly believes that the commitment and loyalty of the employees is the key to success of its growth plan.

No employee of the Company was in receipt of remuneration over and above the sum specified under section 217(2A) of the Companies Act, 1956.

ACKNOWLEDGEMENT:

Your Directors would like to place on record their sincere thanks to the Company’s suppliers, contractors, clients, shareholders, auditors and bankers and other acquaintances for their continued support during the year and look forward to their continued support in the future.

For and on Behalf of the Board

Place: Chennai V. Vasudevan,

Date: August 20, 2010. Chairman