MANAGEMENT DISCUSSION AND ANALYSIS REPORT

(Forming part of Directors' Report for the year ended 31st March, 2015)

Industry Structure and Developments

The Indian Power Industry is one of the largest and most important business in India as it fulfills the energy requirements of domestic and various other industries. It is one of the most critical components of Infrastructure that affects economic growth and the well being of our nation. India's GDP growth rate is related to the growth of power sector and hence, in order to achieve the growth of 8% to 9% in GDP, India needs to continuously add the power generation capacity commensurate with this pace.

Installed Power Generation Capacity in India

Out of the total installed power generation capacity, 34.83% is owned by the State, 26.69% is owned by the Centre and the balance 38.48% is owned by Private Sector

Electricity Demand

Per capita consumption of electricity in India has grown from 672 kwh/year in Fiscal 2002 to 957 kwh/year in Fiscal 2014 according to the International Energy Agency (IEA). According to the IEA per capita consumption in India remains relatively low compared to other leading developed and emerging economies which is in excess of 7000 Kwh per year.

The low per capita electricity consumption in India compared to the world average brsents potential for sustainable growth in demand. Even at the consumption levels of recent years, demand for electricity in India is substantially higher than the available supply. For Fiscal 2015, India faced an energy shortage and peaking shortage of approximately 3.6% and 4.7% of total energy requirements and peak demand requirements, respectively. (Source: CEA)

To achieve the GDP growth rate of India @ 8% plus per annum India needs the power sector to grow at 1.8 to 2 times the GDP rate of growth as espoused by economic planners and industry experts. This would mean year on year capacity additions of 18000 to 20000 MW to achieve this ambitious plan of moving India to a developed economy status as an economic global power house. The power sector will provide biggest avenues to participate in the development of India's infrastructure

Power generation in FY 2014-15 was 1048.403 billion units, 8.4% more than the brvious year. The compounded annual growth rate of electricity generation has been around 5% to 6%. The biggest contributor was coal-based power stations, which recorded an annual growth rate of 12.1% last financial year.

Note: Thermal plant includes plant based on fuel such as lignite, coke, residual oil, gas/naphtha and coal. According to CEA capacity of 88537 MW is expected to be added in 12th five Year Plan, inter-alia including 72340 MW in Thermal, 10897 MW in Hydro and 5300 MW in Nuclear. There has been a record capacity addition of 54962 MW in power sector during the 11th plan.

Thermal capacity addition of 20,830 MW in 2014-15 was the highest ever in the history of Indian Power Sector. It was in the year 2011-12 that the addition achieved first outran the target for the year.

The generation capacity addition during FY 2014-15 was 22,566 MW against a target of 17,830 MW, which is highest ever achievement in a single year. Capacity addition during the first three years (2012-13 to 2014-15) of 12th Plan was 61,014MW, which has not only exceeded the capacity addition of 54,964 MW of the entire 11th Plan (2007 to 2012) and is 68.9% of the total 12th Plan target of 88,537 MW.

Policy & Regulatory framework

Being a highly regulated sector, policies and regulations are playing a pivotal role in the development of this sector. Over the years, the government has realized the importance of the private sector participation. The Electricity Act, 2003 was a turning point in the reforms process which removed the need for license for generation projects, encouraged competition through international competitive bidding, identified transmission as a separate activity and invited a wider public and private sector participation among other things. Some of the other major reforms that have been implemented over the years include unbundling of SEBs, tax benefits, accelerated power development and reforms. Furthermore, National Tariff Policy of 2006 encourages private investment in the transmission sector through competitive bidding. Energy Conservation Act, 2001 provides for the legal framework, institutional arrangement and a regulatory mechanism at the Central and State level to embark upon energy efficiency drive in the country. Five major provisions of this Act relate to Designated Consumers, Standards and Labeling of Appliances, Energy Conservation Building Codes, Creation of Institutional Set up (Bureau of Energy Efficiency) and Establishment of Energy Conservation Fund. The power sector in India involves governance by the Central and State Regulatory Agencies. The three chief regulators for the power sector are Central Electricity Regulatory Commission, Central Electricity Authority and the State Electricity Regulatory Commission(s). Also the Indian Power Sector organization is segregated into five autonomous grids, namely, the Northern, Eastern, Western, Southern and North Eastern.

Capacity Addition

According to the CEA, India's installed power generation capacity at the end of the Tenth Plan was 199,877 MW. The capacity addition during the Eleventh Plan was 54,964 MW, which is 69.8% of the original 78,700 MW target and 88.1% of the 62,374 MW reduced target set in the Mid-Term Appraisal. The contribution from the private sector was significantly higher than the earlier plans, with the private sector contributing 42% of the 54,694 MW total capacity addition, the other 28% was from the Central Government and 30% from the state governments. (Source: CEA)

Twelfth Plan capacity additions upto March 2015

According to the MoP the Twelfth Plan requires 88,537 MW of capacity addition in power sector excluding renewable. The estimated fund requirement for the Twelfth Plan for power generation including renewable is around Rs.6,38,600 Crores, Rs.2,72,582 Crores of which are for advance action for Thirteenth Plan projects.

Source: CEA

In the first three years of the 12th Plan period (2012-17), the country's private sector contributed 63% to the record total thermal power capacity addition of 57,719 MW. This addition of 36,257 MW by the private sector is the highest it has delivered till date in a comparable period. The contribution of Centre is 16% of the achievement; states did the other 21% of the total. This is a major leap over the 11th Plan capacity addition, where the private sector contributed 21,719 MW. Transmission System

In India, the Transmission and Distribution (T&D) system is a three tier structure comprising regional grids, state grids and distribution networks. The distribution network and the state grids are mostly owned and operated by SEBs or state governments through SEBs/ Electricity Departments.

Most inter-state transmission links are owned and operated by the Power Grid Corporation of India Limited, or PGCIL, while some are jointly owned by the SEBs concerned. In addition, PGCIL owns and operates many inter-regional transmission lines (part of the national grid) to facilitate the transfer of power from a region of surplus to one with deficit. There are five regional grids, namely the Northern region, Eastern region, Western region, Southern region and the North-Eastern region

Opportunities

1. Wider participation of private sector because of discontinuation of license for generation of power.

2. According to the data from Ministry of Power, per capita consumption of energy in India has grown from 672 Kwh in 2002 to 957 Kwh in 2014 which is far below as compared to developed countries having per capital consumption is above 7000 Kwh. As Indian Economy continues to grow, it is expected that India's energy consumption will grow as well.

3. The Government of India expects that power requirements would double by 2020.

4. The Government aims to train as many as seven lac people for various segments in power generation in line with its ambitious plans of producing 1,75,000 MW renewable energy by 2022. The proposed training programme will cover manpower requirements in ramping up power generation, building transmission and sub-transmission networks among other things.

5. India's GDP growth at brsent is hovering around 7%. The Government envisages to have GDP growth of about 9% and in order to achieve the same India needs to continuously add the power generation. Besides, the addition of power would enhance the opportunities for employment.

6. 100 per cent foreign direct investment (FDI) under automatic route is permitted in power sector except atomic energy.

7. With an objective to provide 24x7 power across the country by 2020, the Government has taken several landmark decisions for generation of power, strengthening of transmission and distribution, separation of feeder and metering of power to consumers. The power ministry has signed a memorandum of understanding with Andhra Pradesh Government under its Power for all' initiative that aims to cover the entire state by October 2016. Plans for Delhi & Rajasthan are already complete and ready for implementation.

8. As per Section 80 -IA of Income Tax Act, 1961, power generation companies are eligible for 100% deduction of the profits for 10 consecutive years during the first 15 years of operations. This is a major advantage to project developers, as it will substantially reduce their tax burden.

Threats

1. India has historically failed to meet its power sector targets by a significant margin and has tremendous opportunities ahead. The power sector continues to be affected by a shortfall both in respect of generation as well as transmission.

2. Power plants and utilities face major constraints and delays regarding the availability of land and obtaining the requisite environment and other clearances for the projects.

3. Considering high financial stake involved through private investments, financing such large projects is a challenge.

4. Electricity losses in India during transmission and distribution are high.

6. Hon'ble Subrme Court of India has cancelled allotment of 204 coal blocks including dedicated coal blocks for the thermal power plants and had put up certain coal blocks for auction. The power producer(s) bid quite aggressively for acquisition of the coal blocks for captive use for the generation of power. The entire cost of production of coal might not be pass through for the regulated sale of power.

7. The major procurer of the power is Govt. Sector i.e State Electricity Boards through DISCOMs. The financial position of most of the State Electricity Boards is quite strained. State Electricity Boards are not in a position to pass on the entire cost of power to the end user resulting in delay or default in payment to the power producers which in turn adversely affect the financial position of the power producers.

Segment-wise or product-wise performance

The Company is primarily engaged in generating Power and thus has only one segment.

Outlook

The Company is of the view that while the conditions surrounding the recovery of Indian infrastructure and power sector have improved, recovery still remains a work-in-progress. The new Central Government has undertaken hosts of steps to improve the circumstances of the infrastructure and power sector, the Company expects the Outlook on power sector to improve in the times to come. Notwithstanding the difficulties the Company, has been able to complete its under implementation, power projects.

Risks and Concerns

The Company's projects in hydro power sector carry normal hydrological risks. The Company has been making all out efforts to source supply of fuel. Requisite environmental clearances have been/expected to be received. The Company is making best efforts to sell the power generated at remunerative prices.

Internal Control Systems and their adequacy

The Company has adequate system of Internal Financial Controls in place. It had adopted policies and procedures regarding financial and operating functions for ensuring the orderly and efficient conduct of its business including adherence to Company's assets, brvention & detection of frauds and errors and timely brparation of reliable financial information. The Internal Control Systems commensurate with the size of operations of the Company and are manned by qualified and experienced personnel.

In addition to internal controls, the internal audit function has also been set up by a firm of Chartered Accountant(s) who conducts audit on the basis of the Accounting Standards and Annual Audit Plan. The process includes review and evaluation of effectiveness of the existing processes, controls and compliances. It also ensures adherence to internal control policies and systems and mitigation of the operational risks perceived for each area under audit. The Internal Audit Report(s) are reviewed by the Audit Committee.

Financial performance with respect to operational performance The financial performance of the Company with respect to operational performance is satisfactory and the Company is taking all steps to enhance the value for equity shareholders.

Material developments in Human Resources/Industrial relations

The Company recognizes its human resources as the most valued asset. The Company has appointed specialized professionals in the fields of engineering, finance, administration and technical and non technical staff to take care of its operations and allied activities. As at 31st March, 2015, the Company had a total workforce of 2187 employees which include engineers, chartered accountants, managers and other employees.

Necessary training was imparted to the staff for operations and maintenance of power stations by specialist from related fields including the equipment suppliers from time to time. During the year, industrial relations continued to be cordial.

Cautionary Statement

Statement in the Management Discussion & Analysis Report detailing the Companies objectives, projections, estimates, expectations or brdictions may be forward looking statements within the meaning of applicable securities laws and regulations. These statements being based on certain assumptions and expectations of future event, actual results could differ from those exbrssed or implied. Important factors that could make a difference to the Company's operations include economic conditions affecting domestic demand supply conditions, finished goods prices, changes in Government Regulations, Financial Sector and Tax Regime etc. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of subsequent developments, information or events.