Ari Hant Dlo

8/22/2019 Ari Hant Dlo

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DRAFT LETTER OF OFFER(Private and Confidential)

For Equity Shareholders of the Company Only

ARIHANT SUPERSTRUCTURES LIMITED(Registration Number: 29643 of 1983)

(Our Company was originally incorporated as Shaktiman Mercantile Company Limited on March 26, 1983 under the Companies Act, 1956. The name

of our Company was changed to Shaktiman Constructions Limited on August 21, 2007 and was further changed to Arihant Superstructures Limited

consequent to a special resolution passed by the members at its Extra-Ordinary General Meeting held on August 10, 2009. Our Company received a

fresh certicate of incorporation on August 26, 2009.)For further details, see Our History and Certain Corporate Matters on page 58.

Registered & Corporate Ofce: 302, Persipolis, Plot No 74, sector 17, Above Andhra Bank Vashi, Navi Mumbai 400 704

(For the details of change in our Registered ofce, please refer to page no.59 of this Draft Letter of Offer)

Tel: +91 22 2788 2941 45; Fax: +91 22 2788 2946; Website: www.asl.net.in

Company Secretary: Ms. Rashmita Kamath Email: [email protected] and

Compliance Ofcer: Ms. Siddhi Bhagat; General Manager - Operations E-mail:[email protected]

Name of Promoters: Mr. Ashok B. Chhajer and Mrs. Sangeeta A. Chhajer

FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE COMPANY ONLY

DRAFT LETTER OF OFFER

ISSUE OF 14,691,000 EQUITY SHARES OF RS. 10 EACH AT PAR AGGREGATING TO Rs. 1,469.10 LACS TO THE EQUITY

SHAREHOLDERS ON RIGHTS BASIS IN THE RATIO OF 59 EQUITY SHARES FOR EVERY 1 EQUITY SHARE HELD ON

THE RECORD DATE I.E. [] (ISSUE). THE ISSUE PRICE FOR EQUITY SHARES IS 1 TIME OF THE FACE VALUE OF

THE EQUITY SHARE.

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 the Issue. For taking an investment decision, Investors must rely on their own examination of the Issuer and the Issue including

the risks involved. The securities being 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 document. Investors are advised to refer to the Risk Factors

on page x before making an investment in this Issue.

ISSUERS ABSOLUTE RESPONSIBILITY

The Issuer, having made all reasonable inquiries, accepts responsibility for and conrms that this Draft Letter of Offer contains all information

with regard to the Issuer and the Issue, which is material in the context of this Issue, that the information contained in this Draft Letter of Offer

is true and correct in all material respects 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 makes this Draft Letter of Offer as a whole or any such information orthe expression of any such opinions or intentions misleading in any material respect.

LISTING

The existing Equity Shares of our Company are listed on Bombay Stock Exchange Limited (BSE) the Designated Stock Exchange for this

issue. We have received in-principle approval from the BSE for listing of the Equity Shares from this Issue vide letter no [] dated [].

LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE

FORTUNE FINANCIAL SERVICES (INDIA) LIMITED

K.K. Chambers, 2nd Floor,Sir P.T. Marg,

Fort, Mumbai - 400 001

Tel: +91-22-2207 7931;

Fax: +91-22-2207 2948

E-mail: [email protected]

Website: www.ffsil.com

Contact Person: Mr. Chintan B. Hefa

SEBI Registration No.: INM000000529

ADROIT CORPORATE SERVICES PVT. LIMITED

19/20, Jaferbhoy Industrial Estate,Makwana Road, Marol Naka,

Andheri (East) Mumbai 400 059

Tel: +91 22 2859 4060/ 6060

Fax: +91 22 2850 3748

Email: [email protected]

Website: www.adroitcorporate.com

Contact Person: Ms. Veena Shetty

SEBI Registration No.: INR000002227

ISSUE PROGRAMME

ISSUE OPENS ON LAST DATE FOR REQUEST FOR SPLIT APPLICATION FORMS ISSUE CLOSES ON

[] [] []


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Table of Contents

SECTION I GENERAL ..................................... ...................................... ....................................... ............... iii

DEFINITIONS AND ABBREVIATIONS................................... ....................................... .................................. iii

OVERSEAS SHAREHOLDERS ................................... ....................................... ...................................... ......... vii

PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA ................................. .. viii

FORWARD-LOOKING STATEMENTS ................................... ....................................... .................................. ix

SECTION II - RISK FACTORS ................................. ....................................... ...................................... ......... x

SECTION III - INTRODUCTION................. ....................................... ...................................... ...................... 1

SUMMARY .................................... ....................................... ...................................... ....................................... .. 1

THE ISSUE..................................... ....................................... ...................................... ....................................... .. 4

SUMMARY OF FINANCIAL INFORMATION ..................................... ...................................... ...................... 5

GENERAL INFORMATION ................................... ...................................... ....................................... ............... 10

CAPITAL STRUCTURE................................... ....................................... ...................................... ...................... 14

OBJECTS OF THE ISSUE....................................... ...................................... ....................................... ............... 20BASIS FOR ISSUE PRICE ...................................... ...................................... ....................................... ............... 25

STATEMENT OF TAX BENEFITS ...................................... ...................................... ....................................... .. 27

SECTION IV ABOUT US ................................... ...................................... ....................................... ............... 31

INDUSTRY..................................... ....................................... ...................................... ....................................... .. 31

OUR BUSINESS .................................. ...................................... ....................................... .................................. 37

KEY INDUSTRY REGULATIONS ..................................... ...................................... ....................................... .. 46

HISTORY AND OTHER CORPORATE MATTERS .................................... ....................................... ............... 58

MANAGEMENT ................................... ...................................... ....................................... .................................. 61

OUR PROMOTERS AND PROMOTER GROUP .................................. ...................................... ...................... 74

RELATED PARTY TRANSACTIONS ................................. ...................................... ....................................... .. 87

DIVIDEND POLICY................................... ...................................... ....................................... ............................ 88

SECTION V - FINANCIAL INFORMATION .................................... ...................................... ...................... 89

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS ................................. ...................................... ....................................... ............... 108

DESCRIPTION OF CERTAIN INDEBTEDNESS.................................. ...................................... ...................... 113

SECTION VI - LEGAL AND OTHER INFORMATION ..................................... ....................................... .. 114

OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS .................................... ...................... 114

GOVERNMENT APPROVALS .................................... ....................................... ...................................... ......... 116

OTHER REGULATORY AND STATUTORY DECLARATIONS. ................................... .................................. 120

SECTION VIII. TERMS OF THE ISSUE..................................... ....................................... ............................ 129

SECTION IX - MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION ..................................... .. 150

SECTION X - OTHER INFORMATION .................................... ....................................... ............................ 186

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ................................. ............................ 186

DECLARATION.................................... ...................................... ....................................... .................................. 187


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ARIHANT SUPERSTRUCTURES LIMITED

iii

SECTION I GENERAL

DEFINITIONS AND ABBREVIATIONS

In this Draft Letter of Offer, the terms "we", "us", "our", "our Company" "" or "ASL", unless the context otherwiseimplies, refer to Arihant Superstructures Limited. All references to Rupees, Rs. refer to Indian Rupees, theofficial currency of Republic of India; references to the singular also refers to the plural and one gender also refersto any other gender, wherever applicable, and the words Lakh or Lacs mean 100 thousand and the wordmillion means 10 lakh and the word crore means 10 million or 100 lakhs and the word billion means1,000 million or 100 crores. Any discrepancies in any table between the total and the sums of the amountslisted are due to rounding off.

General and conventional terms and Abbreviations

Term Description

ACIT Assistant Commissioner of Income Tax

AGM Annual General Meeting.AS Accounting Standard as issued by The Institute of Chartered Accountants

of India.

Asst. Assessment

Act The Companies Act, 1956 as amended from time to time.

BSE The Bombay Stock Exchange Limited

CAGR Compounded Annual Growth Rate

CDSL Central Depository Services (India) Limited.

Contract Labour Act Contract Labour (Regulation & Abolition Act), 1970

DP Depository Participant

Depository A depository registered with SEBI under the SEBI (Depository andParticipant) Regulations, 1996, as amended from time to time.

Depositories Act The Depositories Act, 1996, as amended from time to time

Depositories Regulations The SEBI (Depository and Participant) Regulations, 1996, as amendedfrom time to time

EBIDTA Earnings Before Interest Depreciation, Tax and Amortization

EGM Extra-Ordinary General Meeting

EPF Act Employees Provident Funds and Miscellaneous Provisions Act, 1952

EPS Earnings Per Share

FDI Foreign Direct Investment

FEMA Foreign Exchange Management Act, 1999, and the subsequent amendmentsthereto

FICCI Federation of Indian Chambers of Commerce and Industry

FII Foreign Institutional Investor as defined Under SEBI (Foreign InstitutionalInvestors) Regulations, 1995 registered with SEBI and as defined underFEMA (Transfer or Issue of Security by a Person Resident Outside India)

Regulations, 2000 and under other applicable laws in India.FIPB Foreign Investment Promotion Board

FY/ Fiscal Year ended March 31.

GDP Gross Domestic Product

GoI Government of India

ISIN International Securities Identification Number allotted by the Depository.

IT Act Income Tax Act, 1961, as amended from time to time

LLA Leave and License Agreement

L.L.P Limited Liability Partnership

N. A. Not applicable

NBFC Non-Banking Financial Company as defined under Section 45-IA of theRBI Act.

NI Act Negotiable Instrument Act, 1881 as amended from time to time.

NRE Non- Resident (External) Rupee Account Scheme


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Term Description

NRO Non-Resident Ordinary Rupee Account Scheme

NSDL National Securities Depository Limited

OCB(s) Overseas Corporate Body(ies)P/E ratio Price to Earnings Ratio

PAN Permanent Account Number

PAT Profit after Tax

PLR Prime Lending Rate

ROI Return on Investment

RONW Return on Networth

RBI Reserve Bank of India

RBI Act Reserve Bank of India Act, 1934

SEBI Securities and Exchange Board of India

SEBI Regulations SEBI (Issue of Capital and Disclosures Requirements) Regulations, 2009 asamended

Takeover Code Securities and Exchange Board of India (Substantial Acquisition of Shares

and Takeovers) Regulations, 1997 read with amendments issuedsubsequent to that date

UIN Unique Identification Number

Issue related terms

Term Description

Abridged Letter of Offer The abridged letter of offer to be sent to Eligible Equity Shareholders ofour Company with respect to this Issue in accordance with SEBIRegulations

Allotment Unless the context otherwise requires, the allotment of Rights EquityShares pursuant to the Issue.

Allottee An Investor to whom Rights Equity Shares are allotted

Application Unless the context otherwise requires, refers to an application for allotmentof the Rights Equity Shares in the Issue.

Bankers to the Issue [x]

Business Day Any day, other than a Saturday or a Sunday, on which commercial banks inMumbai are open for business

Composite Application Form / CAF The form used by an Investor to make an application for allotment of theRights Equity Shares in the Issue.

Designated Stock Exchange BSE

Draft Letter of Offer This draft letter of offer dated [], [] filed with the SEBI.

Eligible Equity Shareholders The Equity Shareholders of our Company as on the Record Date

Equity Shares Equity Shares of our Company having a face value of Rs. 10 each

Equity Shareholders The Equity Shareholders of our Company

FFSIL / Lead Manager / LM Lead Manager to the Issue i.e. Fortune Financial Services (India) Limited

ISIN International Securities Identifying NumberInvestors The Eligible Equity Shareholders of our Company as on the Record Date

and the Renouncees

Issue Issue of 1,469,1000 Rights Equity Shares of face value Rs. 10/- each at paraggregating upto Rs. 1,469.10 lacs to the Eligible Equity Shareholders ofour Company on rights basis in the ratio of 59 Rights Equity Shares forevery 1 Equity Shares held on the Record Date [].

Issue Closing Date []

Issue Opening Date []

Issue Price Rs. 10 per Rights Equity Share

Issue Proceeds The proceeds of this Issue that is available to our Company.

Lead Manager Fortune Financial Services (India) Limited

Letter of Offer The Letter of Offer filed with the Stock Exchanges after incorporating

SEBI comments on this Draft Letter of Offer dated [], []


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Term Description

Record Date []

Renouncee(s) Any person(s) who has / have acquired Rights Entitlements from the

Eligible Equity ShareholdersRights Entitlement The number of Equity Shares that an Eligible Equity Shareholder is entitled

to in proportion to his / her shareholding in the Company as on the RecordDate.

Rights Equity Shares The Equity Shares being offered to the Eligible Equity Shareholders of ourCompany in this Issue

Registrar to the Issue Adroit Corporate Services Private Limited

Stock Exchange The Bombay Stock Exchange Limited where the Equity Shares of ourCompany are listed and where the Rights Equity Shares are proposed to belisted.

Company related terms

Term DescriptionAOA/ Articles / Articles ofAssociation

Articles of Association of our Company

Auditors T.N.Gala & Associates, the statutory auditors of our Company

Board / Board of Directors The Board of Directors of our Company or a Committee authorized to acton their behalf

Company Secretary Ms. Rashmita Kamath

Compliance Officer Ms. Siddhi Bhagat, General Manager Operations

Corporate Office 302, Persipolis, plot No 74, sector 17, Above Andhra Bank Vashi, NaviMumbai 400 704

Developable Area The total area which we develop in each of our projects, and includescarpet area, common area, service and storage area as well as other openarea including car parking

Director(s) A director on the Board of our CompanyGroup Companies The companies and entities, as described in the section Our Promoters and

Promoter Group on page 74

MOA / Memorandum /Memorandum of Association

Memorandum of Association of our Company

Ongoing Projects Our projects where we have commenced excavation work

our Company / the Company / Issuer/ ASL/ We / Us / Our

Except as stated otherwise, refers to Arihant Superstructures Limited, aCompany incorporated under the Act having its Registered Office at 302,Persipolis, plot No 74, sector 17, Above Andhra Bank Vashi, Navi Mumbai400 704

Promoters Promoters of our Company i.e. Mr. Ashok B.Chhajer and Mrs. SangeetaA.Chhajer

Promoter Group The individuals, companies and entities enumerated in the section titled

Our Promoters and Promoter Group beginning on page 74 of this DraftLetter of Offer.

Registered Office 302, Persipolis, plot No 74, sector 17, Above Andhra Bank Vashi, NaviMumbai 400 704

ROC / RoC Registrar of Companies

Saleable Area That part of Developable Area relating to our economic interest in eachproject

Upcoming Projects Our projects for which (i) land has been acquired or a memorandum ofunderstanding or development agreement has been executed or an advanceamount has been paid; (ii) preliminary architect plans and managementdevelopment plans are either in process or complete but (iii) no applicationshave been made for approvals to commence developments


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Industry related terms

Term Description

BHK Bedroom Hall KitchenFSI Floor Space Index

IOA Intimation of Approval

IOD Intimation of Disapproval

LIG Lower Income Group

MIG Middle Income Group

NSSO National Sample Survey Organisation

SBA Super Built-up Area

Sq. ft Square feet

Sq. mtr Square metre

UMIG Upper Middle Income Group


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vii

OVERSEAS SHAREHOLDERS

NO OFFER IN UNITED STATES

The Rights Equity Shares and the Rights Entitlement of the Company have not been and will not be registeredunder the United States Securities Act of 1933, as amended (Securities Act) or any U.S. state securities laws andmay not be offered, sold, resold or otherwise transferred within the United States of America or the territories orpossessions thereof (the United States or U.S.), except in a transaction exempt from the registrationrequirements of the Securities Act. The Rights Entitlement and Rights Equity Shares referred to in this Draft Letterof Offer are being offered in India but not in the United States of America. The offering to which this Draft Letterof Offer relates is not, and under no circumstances is to be construed as, an offering of any securities or rights forsale in the United States of America, or as a solicitation therein of an offer to buy any of the Rights Equity Sharesand / or Rights Entitlement. Accordingly, this Draft Letter of Offer should not be forwarded to or transmitted in orinto the United States of America at any time.

The Company, or any person acting on behalf of the Company, will not accept subscriptions from any person, or

his agent, who appears to be, or who the Company, or any person acting on behalf of the Company, has reason tobelieve is, a resident of the United States of America and to whom an offer, if made, would result in requiringregistration of this Draft Letter of Offer with the United States Securities and Exchange Commission.

The Company is making this Issue on a rights basis to its Eligible Equity Shareholders and the Letter of Offer /Abridged Letter of Offer will be dispatched to the Eligible Equity Shareholders who have an Indian address.

Any person who acquires Rights Entitlements and Rights Equity Shares will be deemed to have declared,represented, warranted and agreed (i) that it is not and that at the time of subscribing for the Rights Equity Shares,it will not be, in the United States when the buy order is made, (ii) it is not a U.S. person (as defined inRegulation S), and does not have a registered address (and is not otherwise located) in the United States, and (iii) isauthorized to acquire the Rights Entitlements and the Rights Equity Shares in compliance with all applicable lawsand regulations.


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PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA

Unless stated otherwise, the financial data in this Letter of Offer is derived from our restated financial information

which has been prepared in accordance with Indian GAAP and restated in accordance with SEBI Regulations. Ourcurrent financial year commenced on April 1, 2009 and will end on March 31, 2010.

In this Letter of Offer, any discrepancies in any table between the total and the sums of the amounts listed are dueto rounding-off, and unless otherwise specified, all financial numbers in parenthesis represent negative figures.

Unless stated otherwise, industry data used throughout this Letter of Offer has been obtained from industrypublications. Industry publications generally state that the information contained in those publications has beenobtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and theirreliability cannot be assured. Although we believe that industry data used in this Letter of Offer is reliable, it hasnot been independently verified.


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ix

FORWARD-LOOKING STATEMENTS

We have included statements in this Draft Letter of Offer which contain words or phrases such as will, aim, is

likely to result, believe, expect, will continue, anticipate, estimate, intend, plan, seek to,future, objective, goal, project, should and similar expressions or variations of such expressions, that areforward looking statements.

All forward-looking statements are subject to risks, uncertainties and assumptions about us that could cause actualresults to differ materially from those contemplated by the relevant forward-looking statement. Important factorsthat could cause actual results to differ materially from our expectations include but are not limited to:

x General economic and business conditions in the markets in which we operate and in the local, regional andnational economies;

x Increasing competition in or other factors affecting the industry segments in which our Company operates;

x Changes in laws and regulations relating to the industries in which we operate;

x Our ability to successfully implement our growth strategy and expansion plans, and to successfully launch and

implement various projects and business plans;x Our ability to meet our capital expenditure requirements and/or increase in capital expenditure;

x Fluctuations in operating costs and impact on the financial results;

x Our ability to attract and retain qualified personnel;

x Changes in technology in future;

x Changes in political and social conditions in India or in countries that we may enter, the monetary policies ofIndia and other countries, inflation, deflation, unanticipated turbulence in interest rates, equity prices or otherrates or prices;

x Variations in exchange rates;

x The performance of the financial markets in India and globally;

x Any adverse outcome in the legal proceedings in which we are involved

For a further discussion of factors that could cause our actual results to differ, please refer to the sections titled

Risk Factors, Our Business and Managements Discussion and Analysis of Financial Condition and Resultsof Operations on page nos. x, 37 and 108 respectively of this Draft Letter of Offer. By their nature, certain marketrisk disclosures are only estimates and could be materially different from what actually occurs in the future. As aresult, actual future gains or losses could materially differ from those that have been estimated. Neither theCompany nor the Lead Manager nor any of their respective affiliates have any obligation to update or otherwiserevise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence ofunderlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI / StockExchange requirements, the Company and Lead Manager will ensure that investors in India are informed ofmaterial developments until the time of the grant of listing and trading permission by the Stock Exchange.


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x

SECTION II - RISK FACTORS

An investment in equity and equity related securities involves a high degree of risk and you should not invest any

funds in this Issue unless you can afford to take the risk of losing your investment. You should carefully considerall of the information in this Draft Letter of Offer, including the risks and uncertainties described below, beforemaking an investment. If any of the following risks, or other risks that are not currently known or are now deemed

immaterial, actually occur, our business, financial condition and results of operations could suffer, the tradingprice of the Securities could decline and you may lose all or part of your investment. The financial and other

implications or material impact of risks concerned, wherever quantifiable, have been disclosed in the risk factorsmentioned below. However, there are some risk factors where the impact is not quantifiable and hence has not

been disclosed below. The ordering of the risk factors is intended to facilitate ease of reading and reference anddoes not in any manner indicate the importance of one risk factor over another.

This Draft Letter of Offer contains forward-looking statements that involve risks and uncertainties. The Companys

actual results could differ materially from those anticipated in these forward-looking statements as a result of

certain factors, including the considerations described below and elsewhere in this Draft Letter of Offer.

You are advised to read the following risk factors carefully before making an investment in the Securities offered in

this Issue. You must rely on your own examination of the Company and this Issue, including the risks anduncertainties involved. The Equity Shares have not been recommended or approved by SEBI nor does SEBI

guarantee the accuracy or adequacy of this Draft Letter of Offer.

Internal Risk Factors

1. We and our Promoter Group companies are party to certain legal proceedings that, if decided against us /

them, could have an adverse effect on our reputation, business prospects and results of operations

The following table sets out the summary details of pending litigation against our Company and our PromoterGroup Companies:

Our Company

Category Number of Litigations Aggregate Amount involved (Rs.)

Civil 1 60,051.00 (Inclusive of interest @18% p.a)

Labour Nil -

Promoter Group Companies

Category Number of Litigations Aggregate Amount involved (Rs. In Lacs)

Civil / Statutory Liabilities 1 As may be decided by the Assistant P.F Commissionerunder the provision of the employees Provident Fundand Miscellaneous Provisions Act , 1952

Labour Nil -

For further details, please refer to the section titled Outstanding Litigation and Material Developments on page114 of this Draft Letter of Offer.

2. Some of our Promoter Group entities have incurred losses during the last three financial years

Some of our Promoter Group entities have incurred losses in the recent past. The details of losses incurred by ourPromoter Group entities are set out below:

(Rs. in lacs)

For the year endedPromoter Group entities

March 31, 2009 March 31, 2008 March 31, 2007

Abhinandan Enterprises Nil Nil 0.30

Arihant Estate Nil Nil 0.08

Adeshwar Realty (P)Ltd. Nil Nil 0.17


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For the year endedPromoter Group entities

March 31, 2009 March 31, 2008 March 31, 2007

Arihant Paradise Realty (P) Ltd 0.04 Nil Nil

In the event that our Promoter Group entities incur losses or continue to incur losses, our Companys results ofoperations and financial condition will continue to be adversely affected. For further details, please refer to the titlePromoter Group beginning on page 75 of this Draft Letter of Offer.

3. Contingent liabilities as on September 30, 2009

As of September 30, 2009, our Company has no outstanding contingent liabilities as disclosed in our restatedfinancial statements. For further details, please refer to the section titled Financial Information beginning onpage 89 of this Draft Letter of Offer.

4. Our Company requires significant working capital funds and if we are unable to obtain the necessary funds

on acceptable terms, we may not be able to fund the real estate projects and our business may be adversely

affected.

The development of real estate projects is working capital intensive and requires significant working capitalexpenditure. Whilst, our Company may approach various lender institutions for financial commitments, thesecommitments are subject to a number of conditions precedent, such as completion of documentation satisfactory toparties thereto, among others. Our Company may not be able to fulfill all or any of the conditions or agree oncommercial terms or non-commercial terms with these banks and financial institutions, in which case they wouldhave no obligation to provide any loans to our Company. Our Companys ability to finance the workingrequirement plans on acceptable terms or at all is also subject to a number of risks, contingencies and other factors,some of which are beyond the control of our Company. If our Company fails to raise additional funds in suchamounts and at such times as our Company may need, our Company may be forced to reduce its capitalexpenditures and construction of real estate projects to a level that can be adequately supported by available fundsand resources. This could delay the construction of the projects or reduce the real estate development activitieswhich may result in increasing the cost of construction and consequently may result in lower profit and loss in the

project.

5. Since our Real Estate Development business is a newly formed entity pursuant to the takeover of Shaktiman

Constructions Limited (now, Arihant Superstructures Limited) by the present Promoters it has limited

operating history and therefore investors may not be able to assess our Companys prospects based on pastresults.

Our Company was originally incorporated as Shaktiman Mercantile Company Limited on March 26, 1983 underthe Companies Act, 1956 to carry out trading business of various commodities. The name of our Company waschanged to Shaktiman Constructions Limited with effect from August 21, 2007 to undertake construction contractsin respect of infrastructure projects such as pipe line projects, road construction projects etc. Our Company wastaken over by Mr. Ashok B.Chhajer and Mrs. Sangeeta A.Chhajer vide Letter of Offer dated November 5, 2008from the then promoters. The Company has recently entered into the business of real estate development.. Past

performance of the ASL should not be construed as an indication of the future performance of ASL. Companies intheir initial stages of development present substantial business and financial risks and may suffer significant losses.The results of our Companys operations will depend on many factors, including but not limited to, the successfulcompletion of construction of our real estate project developments including Commercial/IT-ITES, residential,retail and hospitality developments, the availability of further opportunities for the acquisition or development ofreal estate assets, the successful completion of the construction of various projects and the availability of financeand general economic conditions in India.

However, our Promoters are well experienced in the field of real estate development and related activities for thepast 21 years and have set up various Companies/ partnership firms/ joint development firms to construct anddevelop residential cum commercial projects. Arihant Group is a well known name in Residential Real Estatesegment, a registered member of Maharashtra Chamber of Housing Industry (MCHI), since its inception, in theyear 1988. As on September 30, 2009, the group has successfully implemented 30 projects and presently being

implemented 7 projects aggregating to 3000 dwelling units / flats in and around Mumbai & Navi Mumbai totalingto 26.50 lac sq.ft. of real estate projects. Therefore, based on the past experience and successful completion of the


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projects for Arihant Group, our Promoters would be in position to carry on the business of real estate developmentin ASL also.

6. Our Company may not be successful in identifying suitable projects, which may hinder its growth.

Our Companys ability to identify suitable projects is fundamental to its business and involves certain risksincluding identifying and acquiring appropriate land, meeting the demands of the residential customers forresidential projects, understanding and responding to the expectations and demands. Our Companys ability toidentify commercial projects also involves certain risks. While our Company has successfully identified suitableprojects in the recent past, it may not be as successful in identifying suitable projects that meet market demand inthe future. Any failure to identify suitable projects, build or develop saleable properties or anticipate and respond tocustomer demand in a timely manner could have an adverse effect on our Companys business, financial conditionand results of operations.

7. Our Company has not obtained certain approvals for the proposed projects which may lead to the non-

execution of the projects

Our Company requires approval from local authorities for constructing the residential and commercial projects.Our Company has obtained initial approvals for commencement and has applied for further permissions forexecuting constructions at sites. In the normal course of business such approvals can be obtained at appropriatestage of construction. While, our Company believes that it will be able to obtain such approvals in the requisitetime frame, however, there may be some delays on account of obtaining such permissions. For further details onthe land reserves for the aforesaid category of land, please refer the title Our Land Reserves beginning on page40 of this Draft Letter of Offer.

8. Limited supply of land, increasing competition and applicable regulations are likely to result in land price

escalation and a further shortage of developable land

Our Company is in the business of real estate development. Due to increased demand for land development ofresidential and commercial properties, our Company is experiencing increasing competition in acquiring land in

various geographies where our Company operates or proposes to operate. In addition, the unavailability or shortageof suitable parcels of land for development leads to an escalation in land prices. Any such escalation in the price ofdevelopable land could materially and adversely affect our business, prospects, financial condition and results ofoperations.

Additionally, the availability of land, its use and development, is subject to regulations by various local authorities.For example, if a specific parcel of land has been delineated as agricultural land, no commercial or residentialdevelopment is permitted without the prior approval of the local authorities. For further details, please refer to thesection titled Key Industry Regulations beginning on page 46 of this Draft Letter of Offer.

9. Our Companys inability to procure contiguous parcels of land may affect its future development activities.

Our Company acquires parcels of land and development rights over parcels of land in various locations from

various landholders, over a period of time, for future development. These parcels of land are subsequentlyconsolidated to form a contiguous land mass, upon which our Company undertakes development. Our Companymay not be able to procure such parcels of land at all or on terms that are acceptable to it, which may affect ourCompanys ability to consolidate parcels of land into a contiguous mass. Failure to acquire such parcels of landmay cause delays or force our Company to abandon or modify the development of the land in such locations,which may result in our Company failing to realise its investment for acquiring such parcels of land. Accordingly,our Companys inability to procure contiguous parcels of land may adversely affect its business, results ofoperations, financial condition and prospects.

10. The business and future results of operations of our Company may be adversely affected if it incurs any

time or cost overruns.

Our Companys business plans are subject to various risks including time and cost overruns and delays in obtainingregulatory approvals. In the event that, our Company incurs significant time and cost overruns in relation to itsprojects, such delays and cost overruns could adversely affect our Companys financial condition and results of


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operations. Additionally, our Company may not achieve the economic benefits expected of such projects andfailure to obtain expected economic benefits could adversely affect our Companys business, financial conditionand results of operations.

11. Our Company may enter into MoUs, Agreements to sell and similar agreements with third parties to acquire

land or land development rights, which entails certain risks.

Our Company may enter into and proposes to enter into in future MoUs, agreements to sell and similar agreementswith third parties to acquire title or land development rights with respect to certain land. Since formal transfer oftitle or land development rights with respect to such land is completed only after all requisite governmentalconsents and approvals have been obtained and all conditions precedent to such agreements have been complied,our Company is subject to the risk that pending such consents and approvals sellers may transfer the land to otherpurchasers or that our Company may never acquire registration of title or land development rights with respect tosuch land. Our Company may also require to make partial payments to third parties to acquire certain land or landdevelopment rights which our Company may be unable to recover under certain circumstances. Our Companysinability to acquire such land or land development rights, or if our Company fails to recover the partial paymentmade by it with respect to such land, may adversely affect our Companys business, financial condition and resultsof operation. For further details on the land reserves for the aforesaid category of land, please refer to the title OurLand Reserves beginning on page 40 of this Draft Letter of Offer.

12. Our Companys strategy to venture into affordable housing segment may not be successful.

Our Company is currently engaged in the development of residential real estate properties. Our Company proposesto venture into and develop residential projects which are affordable (less than Rs. 12 lacs per unit). Our Companycannot assure you that it will be successful in this venture or will be able to generate positive returns on itsinvestments in such projects, which may have a material, and adverse affect on the business, financial conditionand results of operations of our Company.

13. Our Company is subject to interest rate risk.

Though at present Company has not availed any debt from the lending agencies, however, it may opt for long termor short term debt from the lending agencies to meet its financial requirements in future. To that extent ourCompany may raise debts with floating rate of interest for its real estate projects. Any changes in interest rates mayincrease its cost of borrowing, impacting its profitability and having an adverse effect on its ability to paydividends to its shareholders. Interest rates are highly sensitive to many factors, including governmental, monetaryand tax policies, domestic and international economic and political conditions, and other factors beyond ourCompanys control. Interest rate increases could result in our Companys interest expense exceeding the incomefrom its property portfolio, which may result in operating losses for our Company.

14. Our Company has obtained unsecured debt from our Promoter and others that are repayable on demand,

which may adversely affect our business, financial condition and results of operations.Our Company has obtained unsecured debt from our Promoter and others that are repayable on demand. In theevent that our Promoter and others call in these loans, we cannot provide any assurance that we will be able to

refinance any of our unsecured debt on commercially reasonable terms, or at all. If we are unable to repay orrefinance the unsecured debt, or if we are unable to obtain additional financings on terms acceptable to us, ourbusiness, financial condition and results of operations may be adversely affected. For further details in this regard,see the section titled Financial Information and Description of Certain Indebtedness beginning on pages 89 and113, respectively of this Draft Letter of Offer.

15. Changes in interest rates have a significant impact on the real estate financing and the demand forresidential real estate projects.

Rising interest rates affects a prospective customers ability to obtain affordable financing for purchase of ourCompanys properties, particularly the purchase of completed residential developments by individuals. The interestrate at which our Companys residential real estate customers may borrow funds for the purchase of its residentialproperties, and the availability of credit to such customers, affects the affordability of, and hence the marketdemand for, our Companys residential real estate developments. Any adverse changes in the interest rates


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resulting in significant decline in the demand for residential or other real estate projects could adversely affect ourCompanys business, financial condition and results of operations.

16. Our Companys projects are subject to risks associated with the engagement of third party contractors.

The construction work for ongoing projects executed by our Company is carried out by third party contractors. OurCompany will have direct control over the day-to-day activities of such contractors and will be reliant on suchcontractors performing these services in accordance with the relevant construction contracts. If our Company failsto enter into such contracts or if the contractors fail to perform their obligations in a manner consistent with theircontracts, the ongoing project of our Company may not be completed as or when envisaged, if at all, thus leadingto unexpected costs. If a contractor engaged to work on a development becomes insolvent, it may prove impossibleto recover compensation for such defective work or materials and our Company may incur losses as a result offunding the repair of the defective work or paying damages to persons who have suffered loss as a result of suchdefective work.

17. Our Companys joint development/ venture partners may not perform their obligations satisfactorily.

Our Company may in the future undertake development of projects through joint development/ ventures with thirdparty. The success of these joint development/ ventures depends significantly on the satisfactory performance bythe joint development/ venture partners and the fulfillment of their obligations. If either party fails to perform itsobligations satisfactorily, the joint development/ venture may be unable to perform adequately or deliver itscontracted services. In such a case, our Company may be required to make additional investments in the jointdevelopment/ venture or become liable for its obligations, which could result in reduced profits or in some cases,significant losses and delays in completion of development projects. The inability of a joint development/ venturepartner to continue with a project due to financial or legal difficulties may put our Company also in financial andlegal difficulties to the extent of our share which may have impact on our results of operations. For further detailson the land reserves for the aforesaid category of land, please refer title Our Land Reserves beginning on page 40of this Draft Letter of Offer.

18. Any material adverse effect on our Companys future earnings, financial condition, cash flows will affect

the ability of our Company to pay dividends in future.

The ability of our Company to pay dividends in future will depend on the earnings, financial condition and capitalrequirements and that of its subsidiaries and the dividends they distribute to our Company. Our Companysbusiness is working capital intensive to complete various real estate projects that it is developing as described inthis Draft Letter of Offer. Our Companys ability to pay dividends is also restricted under certain financingarrangements. Our Company may be unable to pay dividends in the near or medium term, and its future dividendpolicy will depend on its capital requirements and financing arrangements in respect of its real estate projects,financial condition and results of operations.

19. Our Companys success depends in large part upon its senior management, directors and key personnel and

its ability to retain them and attract new key personnel when necessary.

Our Companys senior management and key personnel collectively have many years of experience and would bedifficult to replace. Our Company does not maintain keyman insurance for many of its senior managers or otherkey personnel. Any loss of its senior managers or other key personnel or the inability to recruit further seniormanagers or other key personnel could impair our Companys future by impairing its day-to-day operations,hindering its development of new projects and harming its ability to develop, maintain and expand clientrelationships.

20. Our operations involve hiring of contract labour, which involves compliance with various applicable

regulations the non-compliance of which may have financial implications

In order to retain flexibility and keep our fixed overhead to the minimum, in line with industry practice, we appointcontractors who in turn engage on-site contract labour for performance of our low skill operations. From aregulatory perspective, we face the risk that on an application made by the contract labourers, the appropriate court/ tribunal may direct us that the contract labourers are required to be regularized or absorbed, and / or that we paycertain contributions in this regard that can adversely impact our financial performance.


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21. Our Companys statements as to areas under development are based on management estimates and have

not been independently appraised.

The acreage and square footage data presented in relation to our Companys land developments are based onmanagement estimates and have not been independently appraised. Further, the acreage and square footage actuallydeveloped or under development may differ from the amounts presented herein, based on various factors such asmarket conditions, changes in development plans and the attendant change in building norms, title defects and anyinability to obtain required regulatory approvals.

22. Our Company has entered into, and will continue to enter into, related party transactions.

Our Company may in the course of its business enter into transactions with related parties that include itsPromoters and companies forming part of its Promoter Group. While our Company believes that all suchtransactions have been conducted on an arms length basis, there can be no assurance that our Company could nothave achieved more favourable terms had such transactions not been entered into with related parties. Furthermore,it is likely that our Company may enter into related party transactions in the future. There can be no assurance thatsuch transactions, individually or in the aggregate, will not have an adverse effect on Companys financialcondition and results of operations.

23. Our Companys inability to manage growth could disrupt its business and reduce its profitability.

Our Company has embarked on an ambitious growth strategy, which involves a substantial expansion of ourCompanys current business lines, in terms of size and geographical scope. The growth strategy will placesignificant demands on our Companys management, financial and other resources. It will require our Company tocontinuously develop and improve its operational, financial and internal controls. Continuous expansion increasesthe challenges involved in financial management, recruitment, training, retention of high quality human resources,preserving our Companys values and entrepreneurial environment, and developing and improving its internaladministrative infrastructure. If our Company is unable to manage its growth effectively, its business and financialresults could be adversely affected.

24. Environmental problems could adversely affect our Companys projects.

Our Company is required to conduct an environmental assessment for most of its projects before receivingregulatory approval for these projects. These environmental assessments may reveal material environmentalproblems, which could result in our Company not obtaining the required approvals. Additionally, if environmentalproblems are discovered during or after the development of a project, it may incur substantial liabilities relating tocleanup and other remedial measures and the value of the relevant properties could be adversely affected, whichwould eventually lead in delay of the projects.

25. Our Companys funding requirements and deployment of the net proceeds may be subject to changes and

delays.

Our Companys funding requirements and the deployment of the net proceeds of this Issue is based onmanagement estimates and has not been independently appraised by any institution or organisation. Our Companymay have to revise its estimates from time to time due to various factors including market conditions and,consequently, the funding requirements may also change. This may also result in the rescheduling of theexpenditure programs and an increase or decrease in our Companys proposed expenditure plans. Additionally, thenet proceeds of the Issue are to be deployed at the sole discretion of the Board of Directors of our Company.

26. There are potential conflicts of interest with and within our Promoter Group entities

Our Promoters and our Promoter Group have equity interests or investments in other entities that may offerservices that are related to our business, i.e. the real estate business. There may be conflicts of interest in addressingbusiness opportunities and strategies where other companies in which our Promoters or our Promoter Group haveequity interests are also involved. In addition, new business opportunities may be directed to these affiliatedcompanies instead of our Company. We may also be prevented from entering into certain businesses which relate


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to our business and which may be important for our future growth, as our Promoters or members of our PromoterGroup may already have interests in such businesses.

For further details, please refer to the section titled Our Promoters and Promoter Group beginning on page 74 ofthis Draft Letter of Offer.

Objects related Risks

1. We have not commissioned an independent appraisal or an independent monitoring agency for the use of

the proceeds of this Issue

The requirement of funds for meeting the objects of this Issue have not been appraised by any bank or financialinstitution and are based on our managements internal estimates. Further, the deployment of funds is at thediscretion of our Board of Directors and not subject to monitoring by any independent agency as well proceeds ofthe issue will be less than the prescribed limit stipulated in SEBI Regulations.

Real Estate Investment and Property Development related Risks

1. Land title in India is uncertain and there is no assurance of clean title to our Companys real estate assets.

In India, property records do not constitute conclusive evidence and do not provide a guarantee of the title to theland. The method of documentation of land records has not been fully computerized and are generally maintainedand updated manually. The land records are often in a poor condition, hand-written, in local languages and may notbe legible, which make it difficult to ascertain the contents of the records and sometimes materially impedes thetitle investigation process. This could also result in investigations being inaccurate. As a result, the title of the realproperty that our Company has invested and/or might invest in future may not be clear. More often than not, thetitle to land is fragmented and it is possible that land relating to one property may have come from multiple owners.Some land may have irregularities of title, such as non-execution or non-registration of conveyance deeds andinadequate stamping and may be subject to encumbrances of which our Company may be unaware. It is alsodifficult to obtain title insurance in India due to the limited availability of such insurance coverage. A lack of title

insurance, coupled with difficulties in verifying title to land, may increase Companys exposure to third partiesclaiming title to the property or otherwise materially prejudice the development of the property which could in turnhave an adverse effect on Companys business, financial condition, results of operations and prospects.

2. Property litigation is common in India and time consuming.

Property litigation particularly litigation with respect to land ownership is common (including public interestlitigation) and is generally time consuming and involves considerable costs. If any property in which our Companyhas invested is subject to any litigation or is subjected to any litigation in future, it could delay a developmentproject and/or have an adverse impact, financial or otherwise, on our Company.

3. The real estate sector in India is subject to heavy regulation and legislation.

The real estate market in India is subject to numerous legal requirements mandated by central and state laws andregulations, including policies and procedures established by local authorities. Additionally, in order to developand complete a real estate project, developers must obtain various approvals, permits and licenses from the relevantadministrative authorities at various stages of project development. Any delay in applying or obtaining suchapprovals or licenses will have an impact on timing of project development and consequential returns to ourCompany.

4. The real estate sector is subject to local and municipal laws which vary from region to region and ensuring

compliance with such laws could be time consuming and costly.

The real estate sector is subject to local and municipal laws and taxes, in addition to central and state level laws andtaxes, which vary from region to region. Further, such laws and taxes are subject to changes or revisions from timeto time. Municipal taxes and statutory expenses for compliance with such laws could lead to a reduction in thereturn on our Companys investments. The land held or acquired by our Company may be adversely affected bysuch revisions thereby reducing the value of such investments and delay in project development.


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5. Building and other consents in relation to the real estate assets may not be granted.

There can be no assurance that any building permits, consents or other approvals required from third partiesincluding central, state and local governmental bodies, in connection with the construction and letting of existing ornew development projects will be issued or granted at all, or in a timely manner to our Company. It is possible thatsome projects will be located in areas that will require significant infrastructure support, including roads, electricalpower, telecommunications, water and waste treatment. Our Company may be dependent on third parties,including local authorities, to provide such services. Any delay or failure by any third party to provide suchadditional services or a failure to obtain any required consents and approvals on acceptable terms or in a timelyfashion may affect our Companys ability to execute or complete existing and/or new development projects.

6. The operations and success of our Company are subject to fluctuations in the market value of the real

estate market and economic conditions generally.

The real estate business is significantly affected by changes in government policies, economic conditions, such aseconomic slowdown or recession, rising interest rates, demographic trends, employment levels, availability offinancing or declining demand for real estate, relatively illiquid market for both the land and developed propertiesor the public perception that any of these events may occur. These factors can negatively affect the demand for andpricing of the developed and undeveloped land and constructed inventories at the expected rental or sale price and,as a result, could materially and adversely affect the return on investments of our Company.

7. Our Company may suffer uninsured losses.

Our Companys real estate projects could suffer physical damage from fire or other causes, resulting in losses,including loss of rent, which may not be fully compensated by insurance. In addition, our Company could sufferdamage due to earthquakes, floods, hurricanes, terrorism or acts of war, which may be uninsurable or are notinsurable at a reasonable premium. The proceeds of any insurance claim may be insufficient to cover rebuildingcosts as a result of inflation, changes in building regulations, environmental issues as well as other factors. OurCompany would also remain liable for any debt or other financial obligation related to that property. Our Company

cannot be certain that material losses in excess of insurance proceeds will not occur in the future.

8. Company may face risks associated with the uncompleted property developments such as the undertaking

of development activities within the projects.

Property developments typically require substantial capital outlay during the construction period and it may take anextended period of time to complete and to occupy before a potential return can be generated. The time and costsrequired to complete a property development may be subject to substantial extensions and increases due to manyfactors, including shortages of, or price increases with respect to, construction materials (which may provedefective), equipment, technical skills and labour, adverse weather conditions, third party performance risks,environmental risks, changes in market conditions, changes in government or regulatory policies, delays inobtaining the requisite approvals, permits, licenses or certifications from the relevant authorities and otherunforeseeable problems and circumstances. Any of these factors may lead to delays in, or prevent the completion

of, a property development project and result in costs substantially exceeding those originally budgeted for whichour Company may not be adequately compensated by insurance proceeds (if any) and/or contractual indemnities.This could have a material adverse affect on our Companys business, financial condition and results of operation.

9. Our Companys operations and its work force are exposed to various hazards and our Company is exposed

to risks arising from construction related activities that could result in material liabilities, increased

expenses and diminished revenues.

There are certain unanticipated or unforeseen risks that may arise in the course of property development due toadverse weather and geological conditions such as such as storm, hurricane, lightning, flood, landslide andearthquake. Additionally, our Companys operations are subject to hazards inherent in providing architectural andconstruction services, such as risk of equipment failure, impact from falling objects, collision, work accidents, fireor explosion, including hazards that may cause injury and loss of life, severe damage to and destruction of propertyand equipment, and environmental damage.


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10. Inadequate health and safety precautions may affect our Company.

In developing countries, such as India, the health and safety standards on construction sites may not be applied as

stringently as in industrialised countries. Construction companies in India are however still subject to varioushealth and safety laws and regulations as well as laws and regulations governing its relationship with its employeesin areas such as minimum wages, maximum working hours, overtime, working conditions, hiring and terminatingemployees, contract labour and work permits. Accidents and, in particular, fatalities may have an adverse impacton our Companys reputation and may result in fines and/or investigations by public authorities as well as litigationfrom injured workers or their dependants.

11. Corrupt practices or improper conduct may delay the development of a project and affect the results of

operations of our Company.

The real estate development and construction industries are not immune to the risks of corrupt practices. Largeconstruction projects in all parts of the world provide opportunities for corruption. Such corruption may includebribery, deliberate poor workmanship or the deliberate supply of low quality materials. If the Arihant Group, orany other person involved in any of the projects is the victim of or involved in any such corruption, the ability ofthe Arihant Group to complete the relevant projects as planned may be disrupted thereby materially affecting thebusiness, financial condition and results of operations of our Company.

12. The success of our Companys residential development business is dependent on its ability to anticipate and

respond to consumer requirements.

The changing lifestyle and growing disposable income has resulted in a substantial change in the nature ofdemands in this sector. Increasingly, consumers are seeking better housing and better amenities in new residentialdevelopments. Our Companys focus on the development of high quality luxury residential accommodationrequires our Company to satisfy demanding consumer expectations including 24-hour electricity and running waterand amenities such as parking, gardens, playgrounds, swimming pools, fitness centres, tennis courts and golfcourses. If our Company fails to anticipate and respond to consumer requirements, it could lose potential clients tocompetitors, which in turn could adversely affect our Companys business and prospects.

13. Our Companys operations and its work force are exposed to various hazards and our Company is exposed

to risks arising from construction related activities that could result in material liabilities, increased

expenses and diminished revenues.

There are certain unanticipated or unforeseen risks that may arise in the course of property development due toadverse weather and geological conditions such as such as storm, hurricane, lightning, flood, landslide andearthquake. Additionally, our Companys operations are subject to hazards inherent in providing architectural andconstruction services, such as risk of equipment failure, impact from falling objects, collision, work accidents, fireor explosion, including hazards that may cause injury and loss of life, severe damage to and destruction of propertyand equipment, and environmental damage.

14. The success of our Companys residential property business is dependent on its ability to anticipate and

respond to consumer requirements.

The changing lifestyle and growing disposable income has resulted in a substantial change in the nature ofdemands in this sector. Increasingly, consumers are seeking better housing and better amenities in new residentialdevelopments. Our Companys focus on the development of high quality luxury residential accommodationrequires our Company to satisfy demanding consumer expectations including 24-hour electricity and running waterand amenities such as parking, gardens, playgrounds, swimming pools, fitness centres and tennis courts. If ourCompany fails to anticipate and respond to consumer requirements, it could lose potential clients to competitors,which in turn could adversely affect our Companys business and prospects.

15. Our Company may suffer if it is unable to provide high quality property management services. (If

applicable)

As part of its business, our Company provides property management services to its completed residential,commercial and retail developments. These services may include, among others, book keeping, security


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management, building maintenance and the operation of leisure facilities such as swimming pools and fitnesscentres. Our Company believes that its property management services will form an integral part of its business andwill be important to the successful marketing and promotion of its property developments. If owners of the projects

that it has developed elect to discontinue Our Companys project management services, its property managementbusiness would be negatively impacted, which in turn could adversely affect the attractiveness of its developments.

16. Increased raw material costs may adversely affect our Companys results of operations.

Our Companys business is affected by the availability, cost and quality of the raw materials it needs to constructand develop its properties. Its principal raw materials include steel, cement and timber. The prices and supply ofthese and other raw materials depend on factors not under its control, including general economic conditions,competition, production levels, transportation costs and import duties. If, for any reason, its primary suppliers ofraw materials should curtail or discontinue their delivery of such materials to our Company in the quantities itneeds and at prices that are competitive, our Companys ability to meet its material requirements for its projectscould be impaired, construction schedules could be disrupted and our Companys business could suffer.

External Risks

1. Our Companys growth is dependent on the Indian economy.

Our Companys performance and the growth of its business is dependent on the performance of the Indianeconomy. Indias economy could be adversely affected by a general rise in interest rates, currency exchange rates,adverse conditions affecting food and agriculture, commodity and electricity prices or various other factors. Aslowdown in the Indian economy could adversely affect its business, including its ability to implement its strategy.The Indian economy is currently in a state of transition and it is difficult to predict the impact of certainfundamental economic changes upon our Companys business. Conditions outside India, such as slowdowns in theeconomic growth of other countries or increases in the price of oil, have an impact on the growth of the Indianeconomy, and government policy may change in response to such conditions. While recent governments have beenkeen on encouraging private participation in the industrial sector, any adverse change in policy could result in aslowdown of the Indian economy. Additionally, these policies will need continued support from stable regulatory

regimes that stimulate and encourage the investment of private capital into industrial development. Any downturnin the macroeconomic environment in India could adversely affect the price of our Companys Shares, its businessand results of operations.

2. The extent and reliability of Indian infrastructure could adversely affect our Companys results of

operations and financial condition.

Indias physical infrastructure is less developed than that of many developed nations. Any congestion or disruptionin its port, rail and road networks, electricity grid, communication systems or any other public facility could disruptour Companys normal business activity. Any deterioration of Indias physical infrastructure would harm thenational economy, disrupt the transportation of goods and supplies, and add costs to doing business in India. Theseproblems could interrupt our Companys business operations, which could have an adverse effect on its results ofoperations and financial condition.

3. Instability in financial markets could materially and adversely affect our Companys results of operations

and financial condition.

The Indian economy and financial markets are significantly influenced by worldwide economic, financial andmarket conditions. Any financial turmoil, especially in the United States of America, Europe or China, may have anegative impact on the Indian economy. Although economic conditions differ in each country, investors reactionsto any significant developments in one country can have adverse effects on the financial and market conditions inother countries. A loss in investor confidence in the financial systems, particularly in other emerging markets, maycause increased volatility in Indian financial markets.

The recent global financial turmoil, an outcome of the sub-prime mortgage crisis which originated in the UnitedStates of America, has led to a loss of investor confidence in worldwide financial markets. Indian financial marketshave also experienced the contagion effect of the global financial turmoil, evident from the sharp decline inSENSEX, BSEs benchmark index. Any prolonged financial crisis may have an adverse impact on the Indian


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economy, thereby resulting in a material and adverse effect on our Companys business, operations, financialcondition, profitability and price of its Shares.

4. Terrorist attacks, civil disturbances, regional conflicts and other acts of violence in India and abroad maydisrupt or otherwise adversely affect our Companys business and its profitability.

Certain events that are beyond the control of our Company, such as terrorist attacks and other acts of violence orwar, including those involving India, the United Kingdom, the United States or other countries, may adverselyaffect worldwide financial markets and could potentially lead to a severe economic recession, which couldadversely affect our Companys business, results of operations, financial condition and cash flows, and moregenerally, any of these events could lower confidence in Indias economy. Southern Asia has, from time to time,experienced instances of civil unrest and political tensions and hostilities among neighboring countries, includingIndia, Pakistan and China. India recently witnessed a major terrorist attack in Mumbai on November 26, 2008,which led to an escalation of political tensions between India and Pakistan. Political tensions could create aperception that there is a risk of disruption of services provided by India based companies, which could have anadverse effect on our Companys business, future financial performance and price of the Shares. Furthermore, ifIndia were to become engaged in armed hostilities, particularly hostilities that are protracted or involve the threator use of nuclear weapons, the Company's operations might be significantly affected.

India has from time to time experienced social and civil unrest and hostilities, including riots, regional conflicts andother acts of violence. Events of this nature in the future could have a material adverse effect on our Companysability to develop its business. As a result, our Companys business, results of operations and financial conditionmay be adversely affected.

5. Our Equity Shares may experience price and volume fluctuations or an active trading market for our

Equity Shares may not develop

The price of the Equity Shares may fluctuate after this Issue as a result of several factors, including volatility in theIndian and global securities markets, the results of our operations, the performance of our competitors,developments in the Indian real estate sector and changing perceptions in the market about investments in the

Indian real estate sector, adverse media reports on us or the Indian real estate sector, changes in the estimates of ourperformance or recommendations by financial analysts, significant developments in Indias economic liberalizationand deregulation policies, and significant developments in Indias fiscal regulations.

There has been no active trading in the Equity Shares may not develop or be sustained after this Issue. Further, theprice at which the Equity Shares are initially traded may not correspond to the prices at which the Equity Shareswill trade in the market subsequent to this Issue.

6. Conditions in the Indian securities market may affect the price or liquidity of the Equity Shares

The Indian securities markets are smaller than securities markets in more developed economies. Indian stockexchanges have in the past experienced substantial fluctuations in the prices of listed securities. These exchangeshave also experienced problems that have affected the market price and liquidity of the securities of Indian

companies, such as temporary exchange closures, broker defaults, settlement delays and strikes by brokers. Inaddition, the governing bodies of the Indian stock exchanges have from time to time restricted securities fromtrading, limited price movements and restricted margin requirements. Further, disputes have occurred on occasionbetween listed companies and the Indian stock exchanges and other regulatory bodies that, in some cases, have hada negative effect on market sentiment. If similar problems occur in the future, the market price and liquidity of theEquity Shares could be adversely affected.

7. Present equity paid up share capital of our Company is held in physical form which may affect the trading

in the Equity Shares on the Stock Exchange

The Company has entered in to a tri-partite agreement with NSDL and CDSL on November 13, 2009 andNovember 23, 2009 respectively and accordingly our equity shares are admitted in the de-materialised form. OurCompany has vide its letter dated November 26, 2009 has informed its existing shareholders about the abovedevelopment and requested them to submit their equity share certificate for de-materialising with NSDL or CDSL.


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8. Political instability or a change in economic liberalization and deregulation policies could seriously harm

business and economic conditions in India generally and business of our Company in particular.

The Government has traditionally exercised and continues to exercise influence over many aspects of the economy.Our Companys business and the market price and liquidity of its Shares may be affected by interest rates, changesin Government policy, taxation, social and civil unrest and other political, economic or other developments in oraffecting India. The Government of India has in recent years sought to implement economic reforms and thecurrent government has implemented policies and undertaken initiatives that continue the economic liberalizationpolicies pursued by previous governments. There can be no assurance that liberalization policies will continue inthe future. The rate of economic liberalization could change, and specific laws and policies affecting power or realestate sector, foreign investment and other matters affecting investment in Our Companys securities could changeas well. A change in the Government pursuant to ongoing elections may result in significant change in theGovernment policies in the future. Any significant change in such liberalization and deregulation policies couldadversely affect business and economic conditions in India, generally, and our Companys results of operations andfinancial condition, in particular.

9. Natural calamities could have a negative impact on the Indian economy which may have an adverse affect

on Our Companys business and results of operations.

India has experienced floods, earthquakes, tsunamis, cyclones and droughts in recent years. Such naturalcatastrophes could disrupt Our Companys operations, production capabilities, distribution chains or damage itsmanufacturing facility. For example in December 2004, Southeast Asia, including the eastern coast of India,experienced a tsunami and in October 2005, the State of Jammu and Kashmir experienced an earthquake, both ofwhich caused significant loss of life and property damage. Our Company cannot assure the prospective investorsthat such events will not occur in the future or that its results of operations and financial condition will not beadversely affected.

Equity Shares related Risks

1. The price of the Shares may be highly volatile after the Issue.

The price of the Shares on the Indian Stock Exchanges may fluctuate after this Issue as a result of several factors,including: volatility in the Indian and global securities market; operations and performance of our Company;performance of its competitors and the perception in the market about investments in the real estate industry;adverse media reports on our Company or the Indian real estate industry; changes in the estimates of ourCompanys performance or recommendations by financial analysts; significant developments in Indias economicliberalization and deregulation policies; and significant developments in Indias fiscal and environmentalregulations. There can be no assurance that the prices at which the Shares are initially traded will correspond to theprices at which the Shares will trade in the market subsequently.

2. Fluctuation in the exchange rate between the Rupee and the United States dollar could have a material

adverse effect on the value of Shares, independent of our Companys operating results.

The Shares are quoted in Rupees on the BSE. Any dividends in respect of the Shares will be paid in Rupees andsubsequently converted into US dollars for repatriation. Any adverse movement in exchange rates during the timeit takes to undertake such conversion may reduce the net dividend to investors. In addition, any adverse movementin exchange rates during a delay in repatriating outside India the proceeds from a sale of Shares, for example,because of a delay in regulatory approvals that may be required for the sale of Shares may reduce the net proceedsreceived by shareholders.

The exchange rate between the Rupee and the U.S. dollar has changed substantially in the last two decades andcould fluctuate substantially in the future, which may have a material adverse effect on the value of the Shares andreturns from the Shares, independent of our Companys operating results.

3. Future issuances or sales of the Shares could significantly affect the trading price of the Shares

The future issuances of Shares by our Company or the disposal of Shares by any of the major shareholders of ourCompany or the perception that such issuance or sales may occur may significantly affect the trading price of the


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Shares. There can be no assurance that our Company will not issue further Shares or that the shareholders will notdispose of, pledge or otherwise encumber their Shares.

4. There is no guarantee that the Shares issued pursuant to the Issue will be listed on the BSE in a timelymanner or at all.

In accordance with Indian law and practice, permission for listing and trading of the Shares issued pursuant to theIssue will not be granted until after those Shares have been issued and allotted. Approval will require all otherrelevant documents authorising the issuing of Shares to be submitted. Approval will require all other relevantdocuments authorising the issuing of Shares to be submitted. There could be a failure or delay in listing the Shareson the BSE. Any failure or delay in obtaining the approval would restrict your ability to dispose of your Shares.Further, historical trading prices, therefore, may not be indicative of the prices at which the Shares will trade in thefuture.

5. Foreign investors are subject to foreign investment restrictions under Indian law that limit our Companys

ability to attract foreign investors, which may adversely impact the market price of the Shares.

Under the foreign exchange regulations currently in force in India, transfers of shares between non-residents andresidents freely permitted (subject to certain restrictions) if they comply with the pricing guidelines and reportingrequirements specified by the RBI. If the transfer or shares, which are sought to be transferred is not in compliancewith such pricing guidelines or reporting requirements or fall under any of the exceptions referred to above, thenthe prior approval of the RBI will be required. Additionally, shareholders who seek to convert the Rupee proceedsfrom a sale of shares in India into foreign currency and repatriate that foreign currency from India will require a noobjection/ tax clearance certificate from the income tax authority. Our Company cannot assure investors that anyrequired approval from the RBI or any other Government agency can be obtained on any particular terms or at all.

Notes to Risk Factors:

1. Issue of 14,691,000 Equity Shares of Rs. 10 each at par aggregating to an amount of up to Rs. 1,469.10 lacs tothe equity shareholders on rights basis in the ratio of 59 Equity Shares for every 1 Equity Share held on the

record date i.e. []. The Issue Price for Equity Shares is 1 times of the face value of the Equity Share.2. The net asset value per Equity Share was Rs. 11.74 and Rs. 14.02, based on the restated financial information

of our Company as on March 31, 2009 and September 30, 2009 respectively.

3. Based on our restated financial information, our net worth was Rs.34.91 lacs as on September 30, 2009 andRs. 29.23 lacs as on March 31, 2009.

4. The average cost of acquisition of the Equity Shares by the Promoters is:

Name of the Promoter Cost per Equity Share (Rs.)

Mr. Ashok B. Chhajer 10.83

Mrs. Sangeeta A. Chhajer 10.00

5. Except as disclosed in the section titled Capital Structure on page 14 of this Draft Letter of Offer, we have

not issued any Equity Shares for consideration other than cash.6. Our Company was incorporated as Shaktiman Mercantile Company Limited on March 26, 1983 under the

Companies Act, 1956. The name of our Company was changed to Shaktiman Constructions Limited onAugust 21, 2007 and was further changed to Arihant Superstructures Limited consequent to a specialresolution passed by the members at its Extra-Ordinary General Meeting held on August 10, 2009. OurCompany received a fresh certificate of incorporation on August 26, 2009. The said change of the name of ourCompany was intended to avail the benefit of the ARIHANT brand, its goodwill in the real estate sector andto establish affiliation with the Arihant group. The objects clause of our Memorandum, however, was notrequired to be amended pursuant to the change in our name. For further details, see the section titled Historyand Other Corporate Matters on page 58 of this Draft Letter of Offer.

7. Except as disclosed in the section titled Management and Our Promoters and Promoter Group on pages 61and 74 respectively and Related Party Transactions on page 87 as disclosed herein below of this Draft Letterof Offer, none of the Promoters, Directors and our key management personnel have any interest in our

Company except to the extent of remuneration and reimbursement of expenses and to the extent of the Equity


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Shares held by them or their relatives and associates or held by the companies, firms and trusts in which theyare interested as directors, member, partner and/or trustee and to the extent of the benefits arising out of suchshareholding.

8. Our Company has not made any loans and advances to our Directors, relatives of our Directors and anypersons or companies in which our Directors are interested.

9. For details on related party transactions, please refer to the section Financial Information on page 104,Annexure XVI of this Draft Letter of Offer

10. Investors may contact the Lead Manager for any complaints, information or clarifications pertaining to theIssue.

11. Before making an investment decision in respect of this Issue, investors are advised to review the entire DraftLetter of Offer, please also refer to the section titled Terms of the Issue Basis for the Issue on page 129 ofthis Draft Letter of Offer.

12. Refer to the section titled Terms of the Issue Basis of Allotment on page 135 of this Draft Letter of Offerfor details of the basis of allotment.

Our Company and the Lead Manager are obliged to keep this Draft Letter of Offer updated and inform investors ofany material developments / change.


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SECTION III - INTRODUCTION

SUMMARY

Industry Overview

The Indian Economy

India is the worlds largest democracy in terms of population, with Indias National Commission on Populationestimating a population of 1,145 million people as of June 12, 2009.(Source: http://populationcommission.nic.in/)

The pace of economic improvement in India enhanced considerably during the five yea

Ari Hant Dlo

Documents