MANAGEMENT DISCUSSION AND ANALYSIS We are pleased to brsent our performance highlights for FY 2014-15 and the business outlook for this year: 1. Business Overview : For the year 2014-15, the Company secured business worth Rs.2305 Crores with segment-wise breakup as follows:- Domestic Consultancy : Rs.610 crores Domestic Turnkey : Rs.442 crores Overseas : Rs.1253 crores Major contributions in our order inflows continue to be from Hydrocarbon and Petrochemical businesses. In the upstream segments, major assignments secured during the year were Project Management Contractor (PMC) for Mangala Phase-2 EOR Project and FEED for Bhagyam Polymer EOR Project of Cairn India Limited. In the refining & petrochemical sector, major consulting orders secured were DHDT Unit of BPCL Mumbai, Consultancy services for IOCL’s Delayed Coker Unit & allied facilities under Distillate Yield Improvement Project at Haldia, Conversion of Catalytic Reformer Unit into Isomerization Unit and Process Design & EPCM Consultancy Services for Tail Gas Treatment Units (TGTU) Project at Mumbai Refinery of BPCL. The Company further augmented its foray into the LNG sector with the award of FEED for LNG Terminal in Gir Somnath, Gujarat, for HPCL Shapoorji Energy Limited (HSEL) In the infrastructure field, EIL was awarded Projects from Indian Rare Earths Limited (IREL), Chatrapur, Ganjam, Odisha for Consultancy Services for Site related Civil, Electrical and Mechanical Piping Works of 5 MLD Sea Water Desalination Plant, Punjab Water Supply & Sewerage Board for DPR for Abatement of pollution in Buddha Nala in Ludhiana City and Kamarajar Port Limited for Development of Container Terminal through PPP mode on DBFOT basis The Company also secured business in newer areas such as Pre- Feasibility Study for Coal to Poly Generation Project at Mundra, Gujarat of Adani, Petcoke Gasification Feasibility Study report for NFL-Nangal, DFR of Solar Power Project at GAIL Pata. In the pipeline sector, EIL secured Project Management Consultancy Services for KG Basin Pipelines Restoration Works including Health Assessment/Integrity Check of the Pipeline System for GAIL and EPCM Services for re-routing of Mumbai- Manmad Pipeline for BPCL In LSTK domain, EIL was successful in securing the job for executing Hazira Modification Job under Daman Development Project on OBE basis from ONGC In the overseas markets, the Company achieved considerable success during the year. EIL has made significant foray into Africa by securing a PMC assignment for a Grassroot 460,000 BPSD Refinery and 690 KTPA Polypropylene plant for Dangote Oil Refining Company in Nigeria. This is, till date, the largest value consultancy order received by your Company. In addition to the above, EIL has secured Consultancy Services assignment for Lobito Refinery Project of Sonangol E.P. in Angola. EIL was also successful in securing a PMC assignment for a Fertilizer Project comprising Ammonia, Urea & Methanol Plants of Brass Fertilizer in Nigeria. The Company has also made a successful entry into South Sudan by securing a Feasibility assignment for building the South Sudan-Ethiopia-Djibouti Pipeline. EIL has been very successful in Oman this financial year. The Company secured PMC Services for an Integrated Petrochemical Complex near Sohar Refinery for Oman Refineries and Petroleum Industries Company (Orpic). This is a very significant project for Orpic as well as Oman. Additionally, EIL also bagged a PMC assignment for RFCC Revamp and improvement works for various units at Sohar Refinery and Preparation of FEED for Pet Coke Handling Facility.
In Bahrain, EIL was awarded its first Training Assignment, where the Company’s specialists provided training to Bahrain Petroleum Company (BAPCO) employees on Design and Engineering concepts. This has opened new avenues for EIL to undertake training assignments for BAPCO and other clients in the Hydrocarbon sector in the International market. EIL was successful in renewing its General Services Agreement with BAPCO for further 2 years which is also likely to pave the way for various engineering assignments for the Company. UAE has been a very consistent market and provided success to EIL in its effort to expand its business prospects overseas. The Company has already strengthened its existing engineering office in Abu Dhabi. In UAE, EIL succeeded in securing assignments from Takreer involving Consultancy services for Crude Unit Tower Debottlenecking at Abu Dhabi Refinery, Mussafah Terminal Fire Fighting Facility Adequacy Study and SOR Development and Protection Relay Coordination Study for Abu Dhabi Refinery Division Electrical Power Network EIL has also made entry into Russia by securing an assignment for a Natural Gas Based Urea Ammonia Plant. 2. Business Environment & Future Outlook As per latest World Economic Outlook report, global growth still remains in low gear. For FY 2015, it is projected at 3.5%. In USA, growth is expected to rise from 2.7% in 2014 to around 3.6% in 2015. In Euro area, growth in the third quarter of 2014 was modestly weaker than expected and continues to decline. In Japan, the economy fell into technical recession in the third quarter of 2014 but it may strengthen in 2015–16. Russia’s sharp slowdown and debrciation of the Rouble have also severely weakened the outlook for other economies in the Commonwealth of Independent States (CIS) group. China’s economic growth is expected to reduce from 7.4% to 6.8% in 2015. Sizable uncertainty about oil prices in the future and the underlying drivers of the price decline have added a new risk dimension to the global growth outlook in Sub-Saharan Africa, Nigeria and South Africa. Indian GDP at Constant prices (2011-12) in Q3 has registered a growth of 7.5% (at factor cost it is 5.8%) during the year 2014- 15. The growth in the ‘construction’ and ‘manufacturing’ sector is estimated to be 4.5% and 6.8% respectively. India’s position in the global economy is showing signs of stabilizing and is expected to improve in the coming years. With the drop in Crude Oil Price, the current account deficit is also under control. India is the world's fourth largest energy consumer. The total size of the Indian Oil & Gas sector is estimated to be around US$ 139.8 billion. In view of the rapid economic advance being made by the country, oil consumption is expected to grow at Compounded Annual Growth Rate of 3.2% between FY 2008 and FY 2016. By 2025, the Indian demand for oil will outstrip Japan to become the third-largest consumer of oil in the world. With shortfall of domestic gas supplies, India increasingly relies on imported LNG. LNG imports account for almost 25% to the total gas demand in the country. In the next five years, the demand for gas is expected to more than double. India was the fourth-largest importer of LNG in 2013, accounting for more than 5.5% to total global imports. India's LNG imports are forecasted to increase at a CAGR of 33% during 2012-17. EIL is hopeful that with a stable government at the centre, there will be a renewed focus on revival of investment climate both in energy and infrastructure sectors which can provide growth opportunities for us. The diversified segments of Renewables, Water & Waste water management, Infrastructure and fertilizers have strong potential for future growth and will continue to be focus areas. In Renewables space, your Company is planning to make inroads for setting up solar power projects in India. We also plan to capitalize on the current success from overseas markets and build on the credentials for PMC and FEED services for green field and brown field expansion projects in hydrocarbons. 3.1 Segment wise Performance In line with Accounting Standard (AS-17) "Segment Reporting", the Company has (segmented) strategized its business activity into two business segments i.e. Consultancy & Engineering Projects and Turnkey Projects, taking into account the organizational structure and internal reporting system as well as different risks and rewards of these segments. Segment results are given below: 3.2 Financial Performance in relation to Operational Performance The Company has registered turnover of Rs.171300 Lakhs in FY2014-15, as stated in the audited financial statement. The revenue from consultancy business is Rs.94797 Lakhs and from Turnkey Project was Rs.76503 Lakhs. The Company has recommended a final dividend of Rs.2.00 per share (Face value Rs.5/- per share) in addition to interim dividend of Rs.3.00 per share paid during the year. 4. Risk & Concerns The Company has a Risk Management policy with a robust supporting risk management framework which facilitates identification and assessment of new risks and review of brsently identified risks. The process is based on identified risks and the risk events or factors which require regular assessment and quick response. Based on the probability and impact of the risk, the requisite controls and action plans have been designed and implemented. The objective of risk management in the Company is to act as enabler in maintaining its knowledge edge, sustaining and expanding the business, being competitive and ensuring execution of projects within budgeted cost and time, resulting in improved turnover and profitability. Some new initiatives have been taken up in the field of risk management like Risk wise audit. It assesses the status of risk at a particular point (duration) of time and helps in quick reassessment of existing controls/action plans. The elements of risks have been identified by the Company and disclosed for the benefit of all stakeholders. To cover all the elements of risks at enterprise level, all risks have been divided into nine categories. Risks, their root causes, controls and action plans are brpared by process owners and updated regularly. These are approved by the Risk Management Committee (RMC) with Director (Finance) as chairman of RMC and all the Executive Directors, HOD (ITS) & Company Secretary as members. Risk compliance verifications are conducted regularly to test the compliance of controls and the same is reported to the RMC. The risk identification & assessment processes and risk audit process are being handled through Enterprise Risk Management System (ERMS) software and improvement is done regularly. Based on periodic reviews and implementation of recommendations resulting from review process, the ERM process is continuously improved and strengthened. Project Risk Management has been implemented for high value and important projects as per the criteria approved by the RMC. A risk register is brpared by listing all possible risk events of every discipline associated with the project. Risk Management Team constituted for the project approves the first risk register and meets every month to update it and continuously focuses on mitigation of the identified risks. The risk severities are categorized in critical, major, cautionary and minor based on the probability and overall impact. Project Risk Management helps in facilitating management towards risk mitigation for effective project implementation. During the year, Review of Project Risk Management Plan was done by the RMC as well. Communication is maintained regularly across the organization to sbrad awareness on risks, root causes and action plans through in-house risk management awareness programs, external trainings & seminars and certification programs on Project Risk Management. To create awareness and increase the involvement of employees, a bi-monthly risk newsletter 'Risk Screen' is being published. It is being shared with all the employees to inform them about various risk management activities/achievements, new topics/ practices/updates on ERM or PRM and to create enthusiasm in them to control risks in their work processes and areas. The Company is committed to further strengthen its risk management capabilities in order to protect and enhance shareholder value. Continuous efforts in creating new opportunities, improving competencies/knowledge in various areas leading to improved performance and leveraging existing knowledge resources, in line with the risk appetite of the company, helps to protect the shareholders' interests. 5. Internal Control Systems The Company has in place adequate systems of internal controls and documented procedures covering all financial and operating functions. These have been designed to provide reasonable assurance with regard to maintaining proper accounting controls, monitoring economy and efficiency of operations, protecting assets from unauthorized use or losses and ensuring reliability of financial and operational information. The Company has continued its efforts to align all its processes and controls with global best practices. Some significant features of the internal control systems are: • Preparation and monitoring of annual budgets for all operating and service functions. • A well established Internal Audit team reviews and reports to management and audit committee regularly on the adequacy and compliance of internal controls across the organization. • Clear delegation of power with authority limits for incurring capital and revenue expenditure. • Corporate policies on accounting and capital acquisition. • Periodic meetings of the management committee at apex level to review operations and plans in key business areas. 6. Memorandum of Understanding (MoU) with the Govt. of India EIL signed an MoU with Ministry of Petroleum & Natural Gas (MoP&NG) for the year 2015-16 with targets for turnover and gross operating margin rate along with initiatives for Human Resource Management, R&D, Productivity & Internal Processes and Sustainability projects. 7. Significant Initiatives In the current refining scenario, the Gross Refining Margins (GRMs) of vintage refineries with small capacities and low complexity are under stress. In order to maintain leadership position and consolidate business in the core area, EIL has therefore, made significant suo-moto initiatives to offer prospective clients with opportunities for improving performance by means of energy optimization, yield improvement, refinery petrochemical integration, pet-coke gasification for refinery-fertilizer integration, bottoms upgradation etc. Focus on internationalization has also been given significant thrust by means of plans to ramp-up the Company's brsence in Middle East and focus on South East Asia as a new geography for leveraging its technological competence in the core sectors. Africa as a sunrise sector and USA as a strategic area are also under focus. 7.1 Human Resources The HR function works in close alignment with the Organization's business priorities and aspirations of its people. Endeavours taken during the year have further consolidated the initiatives taken in the past and built on them further for creating systems for sustainable performance. The year focused on strengthening HR's resolve in creating a more transparent, performance driven and nurturing environment for its key stakeholders - the people. The HR Agenda drawn for the year 2014-15 facilitated in prioritizing key action areas and synergized the HR teams to work in unison towards achievement of Organizational Goals. Action points that emerged from the Employee Engagement Survey-'Abhivyakti' were taken up for implementation in a phased manner. The HR Meets and HOD meet-Vicharavesh continued to provide valuable platforms for effective brainstorming which brought forth various suggestions for implementation thereby creating an environment of ownership, trust and collaboration. To create robust systems of performance assessment in line with Industry best practices, the performance appraisal process and promotion policy for officers was reviewed and significant changes were brought about to drive higher engagement. The Rewards and Recognition scheme was implemented and Annual Awards were brsented to meritorious employees in recognition of exemplary contributions made in their areas of work. The learning & development function was engaged in the task of creating multifarious learning opportunities for the employees. The core competencies of the Company were further strengthened by designing and organizing Domain & Specialized Programmes, whereas the managerial and behavioral capabilities were further strengthened through adequate focus on soft skills programmes. Training Division also organized programmes for client organizations in its newly acquired Profit Centre role. In order to meet the expectations and aspirations of employees, policies regarding House Building Allowance, Leave, Medical, Grievance Management, Employee Benefits and entitlements etc. were revised and made more employee-centric. Extensive efforts were made during the year for image building through advertisements in international magazines catering to the oil & gas industry to provide worldwide coverage. Creatives on conferment of Navratna status, Swachh Bharat Abhiyaan etc. were developed as signages which were displayed at strategic locations. To commemorate the 50th Anniversary of EIL, a Commemorative Postage Stamp and Coffee Table Book were released by the Hon'ble Prime Minister of India during Urja Sangam - an international energy summit organized in New Delhi on March 27, 2015 under the aegis of the Ministry of Petroleum & Natural Gas. 7.2 Marketing EIL has continued to build further on its strengths in the hydrocarbon business in Middle East and Africa. EIL also made major breakthroughs in overseas markets with award of major Greenfield Projects in three new territories viz., Nigeria, Angola and Oman. The projects were secured against stiff international competition and this further strengthens our credentials in managing such multi-billion dollar projects in overseas territories as well. El L has been successful in widening its client base and geographical reach in various sectors. New clients added in the year includes Oman Refineries and Petroleum Industries Company (Orpic) in Hydrocarbon and Petrochemical sector, Sohar International Urea & Chemical Industries (SIUCI) in Fertilizer sector, Brass in Fertilizer sector in Nigeria, Dangote in Refinery sector in Nigeria, Sonangol in Refinery Sector in Angola, A & A Oil and Gas Group of South Sudan in pipelines, and Global Steel Holdings Limited, Russia in fertilizer sector. Potential business opportunities have been identified in UAE, Oman, Kuwait, Indonesia, Vietnam, Nigeria, Angola etc. where bids/br-qualifications are being submitted. EIL has expanded its infrastructure in Abu Dhabi by leasing an office space for 100 employees. This office is expected to enhance business prospects for the Company in UAE region. 7.3 Operational Improvements Keeping in view the Company's emphasis on improving the operational efficiency, various initiatives have been undertaken to move towards creating a robust Knowledge Management (KM) System. Electronic Document Management System (eDMS) is being utilized for live projects effectively for this purpose. 7.4 Diversification With the objective of sustained business growth for the organization and brand building, the Company plans to diversify into related high growth industries where the core technological strengths can be leveraged such as Power (including solar, nuclear, thermal, wind etc.) and Water & Waste Water Management. The Company also plans to expand its EPC business and enter Design, Build and Operate business by entering into strategic tie-ups with equipment manufacturers and construction agencies. Other focus areas of diversification being considered by EIL include strategic asset ownership in solar power sectors and Managed services. EIL is now entering into asset ownership in the fertilizer segment. 7.5 Cost Control & Monitoring Effective cost reduction measures like reduction of support staff and overheads, better cost control etc. have been taken up. 7.6 Corporate Social Responsibility CSR Policy of the Company is aligned with the national focus on inclusive growth, DPE Guidelines on CSR and the Companies Act 2013. The corporate systems and processes were strengthened with the formation of a CSR Committee of the Board and a CSR Council by EIL Management to provide direction and oversee the CSR initiatives of the Company. 8. Environment Protection & Conservation, Technological Conservation, Renewable Energy Development, Foreign Exchange Conservation EIL has taken steps for the implementation of clean and green technologies in order to reduce carbon footprint of its projects. State-of-the-art technologies in the field of effluent recycle/ reuse leading to Zero Liquid Discharge (ZLD) requirements, carbon management for control of volatile organic compounds, hazardous and solid waste management, recovery of oil from oily sludge and treatment of oily sludge using bioremediation process, opting for energy efficient processes and treatment systems have driven the Company's green initiatives. 9. Management Information System (MIS) MIS in EIL is constantly being fine tuned to cater to the ever growing information needs for effective and quick decision making as well as for statutory requirements. The MIS Division is providing vital data inputs to various Divisions and Senior Management highlighting operating variables, achievement visa-vis budgets and other decision support data. 10. Disclosure by Senior Management Personnel Reflecting EIL's commitment towards increasing transparency in all spheres, Senior Management Personnel have confirmed that none of them has material financial and commercial transactions where they have personal interest that may have a potential conflict with the interest of the Company at large. 11. Cautionary Statement Statements in Management Discussion and Analysis describing the Company's objectives, projections, expectations and estimates are based on current business environment. Actual results could differ from those exbrssed or implied based on future economic and other developments, both in India and abroad. |