MANAGEMENT DISCUSSION AND ANALYSIS

1. ECONOMY

Indian economy performed comparatively better in FY 2015-16 due to robust growth witnessed in the trying circumstances including uncertain external environment and truant monsoon. The much needed macro-economic stability was progressively attained due to low inflation, reduced current account and fiscal deficits and interest rate fall.

Gross Domestic Product (GDP) growth rate increased from 7.2% in FY 2014-15 to 7.6% in FY 2015-16. Achievement of increased growth along with reduced inflation was indeed remarkable given the fact that there generally remains a conflict between inflation and growth. The effective monetary policy, weakening global commodity prices particularly oil prices as well as astute food supply management helped in maintaining the moderate inflation. With the inflation rate staying benign, RBI cut its policy rates to more than 5 year low which ensured enough liquidity in the market. While inflation concerns have eased, worries remain on whether growth in the economy has stabilized.

India's trade deficit touched a 5 year low in March 2016 on account of lower net oil imports led by fall in price as well as a sharp decline in gold imports. Further, India's exports continued to deteriorate due to weak demand from its key global markets. Contracted trade deficit together with highest ever FDI inflows reduced the current account deficit.

The fiscal deficit was also contained at targeted 3.9% of GDP in FY 2015-16 due to significant increase in revenue receipts led by buoyant indirect tax collections, lower level of subsidies on petroleum products due to slump in prices despite a higher level of planned capital expenditure.

While consolidating the gains, two negative facets have been - the underinvestment cycle in the economy due to stressed corporate & bank balance sheets and the low level of capacity utilisation across industry. This sluggishness resulted into low electricity demand growth during FY 2015-16. Further, on account of planned energy efficiency targets and power saving devices, Power Ministry has lowered the estimated electricity demand for 2017-22 by 20% at 239 GW.

For India's improved economic outlook, stable macro-economic conditions and key sectoral reforms are fundamental.

2. INFRASTRUCTURE

The overall growth in the eight core industries registered a cumulative growth of just 2.7% in FY 2015-16 mainly due to increase in refinery products and fertilizers. This was much lower than 4.5% in FY 2014-15 owing to reduced growth in electricity and steel. The rise in stressed assets, led to increasing NPAs with several developers announcing exits from individual infrastructure projects to repay creditors.

With its continued focus, the Government has fast tracked approvals for stalled projects, allocated Rs.2.21 trillion for the sector for FY 2016-17, approved the National Investment and Infrastructure Fund and allowed issue of tax free bonds for rail, roads and irrigation programmes.

Though, all such measures have resulted in greater investor confidence, timely implementation of these reforms will be the key for the revival of infrastructure sector.

3. POWER SECTOR

Indian power system ranks third in electricity production globally. However, its per capita power consumption at ~1,000 units is way below world's average of ~3,000 units. One-fourth of the households in the country still have no access to electricity. The Government has realised the need to fight this energy poverty and thus FY 2015-16 saw a series of reforms including the Ujwal DISCOM Assurance Yojana (UDAY), private participation in coal mining, incentives / relaxations for the gas sector, programmes to expand share of renewable energy and combrhensive amendments to the National Tariff Policy. Though the efforts are in the right direction, realisation of gains is dependent upon speed and efficiency of action.

A) DEMAND - SUPPLY GAP

The energy deficit for FY 2015-16 has hit an all-time low of 2.1% (PY - 3.6%). The peak deficit also declined to 3.2% (PY - 4.7%). Increased power availability and low demand including low off-take by SEBs due to their weak financial health resulted into narrowing of the deficits.

B) GENERATION

In a clear departure from past, the year saw a quantum jump of ~30 GW in installed capacity to reach 302 GW level as on 31st March, 2016, fuel-wise breakup of which is depicted below:

Higher private participation at 41% in the installed capacity as compared to the Central and State sectors' share at 25% and 34% respectively as on 31st March, 2016 is an outcome of the liberal framework for power generation under the Electricity Act, 2003. During FY 2015-16, the capacity additions by Private sector stood at ~20 GW and that by Central and State sectors at ~4 GW and ~7 GW respectively.

Unbrcedented capacity addition has been achieved in the 12th Five Year Plan (2012-17) where more than 95% of the target installation of 89 GW (excluding renewables) has been added till FY 2015-16. Despite this, the Plant Load Factor (PLF) of thermal plants has hit an all-time low of 60% in FY 2015-16, decreasing by 2% as compared to last year. The generation (excluding renewables) during FY 2015-16 standing at 1,155 BUs has shown a growth rate of ~6%, which is lower than ~8% achieved in FY 2014-15. Besides persistent fuel shortages, low off-take of power by discoms partially due to lower growth in the electricity demand and partially due to load shedding to contain their losses resulted into lower PLF in FY 2015-16. Around 12,000 MW of new capacity is stranded for want of power purchase agreements either due to reluctance of loss making discoms in off-taking such power or delay in statutory approvals.

The coal production by CIL has seen 9.01% growth rate at 539 million tonnes in FY 2015-16 resulting into lower imports by ~16%. For FY 2016-17, the target of coal production is set at 598 MT and Government aims to produce a billion tonnes by 2020. However, while pursuing these targets, the quality of delivered coal needs to be substantially improved. Out of 214 coal blocks cancelled by the Subrme Court last year, the Government awarded 31 blocks to private companies through transparent e-auction process and directly allotted 42 blocks to Central and State PSUs. This, besides being a prospective revenue source for coal bearing States, would also benefit the consumers in terms of tariff reduction. Further, Government has put an end on the four decade old State sector monopoly by allowing commercial coal mining by private sector. The Cabinet has recently approved new coal linkage policy which provides for re-allocation of coal by States to their needy utilities, allocation of coal to private sector power plants through auction and coal swapping from inefficient plants and from plants situated away from coal mines to minimise coal transportation costs.

In the wake of Paris climate deal, India, being heavily dependent on coal fuelled power, has to make efforts in the direction of developing low carbon technologies. The amendment in the Environment (Protection) Rules, 1986 making them significantly stringent for all coal based power plants and the doubling of coal cess to Rs.400/tonne, although would increase coal prices, but all the same demonstrate India's efforts towards fulfilling its commitment made at Paris Summit.

The Government's Scheme for utilisation of Gas based power generation capacity revived some of the fully and partially stranded gas based power plants to a certain extent during the year. Apart from supply of gas and various concessions, Government provided support from Power System Development Fund to the eligible plants. With the Government introducing HELP (Hydrocarbon Exploration Licensing Policy) by replacing NELP (New Exploration Licensing Policy), domestic gas production is expected to increase to ~110 mmscmd by FY 2020-21 and ~130 mmscmd by FY 2024-25 from the current level of ~90 mmscmd.

Alongside, due to the crash in oil prices and global gas glut, there are ample opportunities for sourcing short term as well as long term LNG. However, the country needs a robust LNG infrastructure and pipeline network to capitalise on the same. The current constrained regasification capacity in India at 25 mmtpa is expected to ease with its increase to ~ 44 mmtpa by FY 2019-20 and ~ 55 mmtpa by FY 2024-25.

Other major developments during FY 2015-16 in power generation segment include:

a. Combrhensive amendments in the National Tariff Policy which, inter-alia, include expansion of generating capacity by private developers from 50% to 100% of the existing capacity for sale of power without competitive bidding, allowing pass through of change in domestic duties, levies, cess, taxes and higher coal costs incurred for making up shortages for competitively bid projects.

b. Successful renegotiation by India's Petronet LNG Limited with Qatar's RasGas for the long term LNG supply contract, resulting into 50% reduction in LNG price to about $6.5/mmbtu.

c. Reduction in domestic gas price by 20% to $3.06/mmbtu on gross calorific value basis for six months applicable from April-September 2016.

d. Release of draft Case-II standard bidding documents for UMPPs on Build-Own-Operate basis and allowing pass through of increased fuel costs.

e. Banning duty-free capital goods import for power generation and transmission projects under the Export Promotion Capital Goods Scheme to support the domestic industry.

f. Final order by Appellate Tribunal for Electricity rejecting the compensatory tariff allowed by CERC in case of competitively bid projects of Adani Power and Coastal Gujarat Power, while holding that increase in coal price due to intervention by the Indonesian Regulation as also the non-availability / short supply of domestic coal constitute a Force Majeure Event and not Change in Law.

C) TRANSMISSION

The transmission segment, though has not been able to keep pace with the increasing generation capacity, saw an addition of 84,070 ckm transmission lines and 2,49,398 MVA of transformer capacity till FY 2015-16 out of ~1,07,440 ckm of transmission lines and ~2,70,000 MVA of transformer capacity planned for 12th Five Year Plan. As on 31st March, 2016, total length of transmission lines and transformer capacity stood at 3,41,551 ckm and 6,58,949 MVA respectively.

The country's first 800 kV HVDC line - Bishwanath Chariyali to Agra - which will carry 6,000 MW of power, was operationalised during the year. The announcement of additional debrciation at the rate of 20% in budget FY 2016-17 is expected to incentivise additions to transmission capacity.

Integration of rapidly expanding renewable generation is key focus area for transmission planners. Realising this, Powergrid, is developing nine high capacity green transmission corridors.

However, Right-of-Way issues, delay in obtaining various permissions, wire thefts, etc. continue to be major areas of concern amongst others, in development of adequate transmission network.

D) DISTRIBUTION

Distribution segment continues to be plagued by financial distress and high Aggregate Technical & Commercial (AT&C) losses. Continued inadequate tariff hikes have led to a surge in the debts of discoms to ~Rs.4.43 trillion and accumulated losses to ~Rs.3.8 trillion, while power theft, poorly maintained distribution network and ineffective metering have kept the AT&C losses at a high level of 27%.

A combrhensive package - UDAY, has been launched by the Government for financial and operational turnaround of discoms. Despite, being an optional scheme, total of 15 out of 29 states and Union Territories have voluntarily joined UDAY, covering 90% of the total debt of discoms.

The amended Tariff Policy stipulating for tariff revision on a quarterly / monthly basis, enabling early recovery of the extra costs for electricity supplied, providing for faster installation of smart meters, revision in cross subsidy formula, etc. is likely to improve the financial health of discoms, thereby aiding accomplishment of '24x7 power for all'.

The AT&C losses are expected to reduce gradually with the ongoing Deen Dayal Upadhyaya Gram Jyoti Yojana in rural areas and Integrated Power Development Scheme in urban areas.

E) RENEWABLE ENERGY

Encouraged by the progressive policies and action oriented plans, renewable energy segment has perhaps seen the most phenomenal growth during FY 2015-16. With an addition of 7 GW during the year, the total installed capacity reached to 43 GW as on 31st March, 2016. Wind energy continues to hold the majority share at 27 GW followed by solar energy at 7 GW. Despite low share, solar energy installation is increasingly outpacing wind energy which is evident from the fact that during FY 2015-16, when addition in wind installations at 3.3 GW surpassed the target by 38%, additions in solar installations at 3 GW did so by 116%.

The country has an ambitious target of achieving 175 GW of renewable capacity addition by the year 2022 comprising mainly of 100 GW solar and 60 GW wind. As a part of the implementation of Jawaharlal Nehru National Solar Mission, Solar Energy Corporation and NTPC are playing an important role by inviting bids for establishment of solar projects. However, recently many players in the market have been quoting unviable tariffs in the said bids which would lead to delay / abandonment of bid projects thus impeding the growth of solar projects.

Various developments towards achieving the ambitious capacity addition target include:

1. India's commitment during the Paris Summit to reduce the emissions intensity of its GDP by 33-35% by 2030 from 2005 level and to achieve 40% of its cumulative electric power installed capacity from non-fossil fuel based energy resources, mainly renewable power.

2. Cabinet approval for an intra-state transmission system for renewable power evacuation.

3. Inclusion of renewable energy projects in priority sector lending norms of commercial banks.

4. Amendments to the National Tariff Policy providing for 8% of total consumption of electricity from solar energy by March 2022, enforcement of Renewable Generation Obligation and waiver of inter-state transmission charges and losses for renewable projects.

5. Approval of National Offshore Wind Energy Policy.

6. Reduction of excise duty from 12.5% to 6% on materials used for parts and sub-parts of rotor blades for wind turbines.

The negatives for the segment include reduction in Accelerated Debrciation limit for wind projects from 80% to 40% effective from FY 2017-18 and the laxity in the enforcement of Renewable Purchase Obligations.

The steadily falling prices of solar equipment together with various incentives will surely help solar energy to achieve grid parity. Also, with expanding renewable energy, there arises a need for corresponding grid stability, sufficient transmission network, ease in land acquisition, sufficient water availability (particularly for solar sites in barren lands) and focus on improving discoms' health. Needless to state, despite the welcome developments in the renewable segment, the thermal energy will continue to have a prime place in sustaining the economic development of the country.

F) POWER TRADING

Short-term power transactions, at 1,15,230 MUs in FY 2015-16, have witnessed a growth of 16.41% over FY 2014-15 as tabulated below. Though the segment has grown in absolute terms, its share in the total generation stagnates at ~10%:

The increase in surplus generation capacity led to high volumes being offered in the spot market which eventually led to lower prices leading to growth of short term market. The state utilities have been actively leveraging the exchange market not only to balance their demand-supply portfolio but also to optimize their power procurement by replacing their high variable cost power with competitively priced power making gains which are then shared with consumers.

With the revised National Tariff Policy, power trading is likely to get a boost as generators have been allowed to utilise un-requisitioned generation capacity and sell power in the free market and share revenue with concerned discoms. Greater emphasis on implementation of open access provisions could also lead to a pick-up in power trading and business of Power Exchanges.

G) POWER & CONTROL CABLES

The power & control cables market, whose demand is closely related to growth in power sector, is estimated to be at ~Rs.12,000 Crore. As power sector is currently passing through recessionary phase, cable manufacturing capacity utilisation is estimated to be 55% to 60%. Overall situation (demand, prices, realisation and margins) is however expected to improve with Government's efforts towards infrastructure & manufacturing sectors.

Competition from overseas markets, fluctuating raw material prices, delayed realisation of debtors, etc. are some of the risks and concerns being faced by this segment.

OVERVIEW OF COMPANY'S BUSINESS DURING THE YEAR

The Company is an integrated utility engaged in the business of power generation, transmission & distribution with operations in the States of Gujarat, Maharashtra, and Uttar Pradesh. It is also engaged in the business of cables manufacturing with operations in the State of Gujarat.

1. GENERATION:

A) Gas based Plants

? 1147.5 MW SUGEN Mega Power Plant near Surat

During the year, the Plant achieved a Plant Availability Factor (PAF) of 98.38% (PY - 98.12%). PLF increased to 35.78% (PY - 25.70%) due to judicious usage of spot LNG and participation in the Scheme for utilisation of Gas based power generation capacity. However, non-availability of domestic gas and unwillingness of long term buyers to off-take power based on expensive imported LNG kept the PLF at low levels. During the year, 3,516 MUs were dispatched (PY - 2,518 MUs).

For technical and commercial flexibility in sourcing LNG, the Company has booked regasification and storage capacity up to 1 mmtpa with PLL for 20 years starting from April 2017. Revision in current pricing formula between RasGas and PLL has reduced gas supply rate by ~50% resulting into revision in contract terms between IOCL and PLL. Pending execution of back to back revised contract between IOCL and the Company, the supplies are being charged by IOCL at revised terms from January 2016.

SUGEN Plant has received final true-up tariff order dated 25th June, 2015 for the tariff period 2009-14 and tariff order dated 6th October, 2015 for the tariff period 2014-19.

? 382.5 MW UNOSUGEN Power Plant near Surat

During the year, the Plant achieved PAF of 95.68% (PY - 90.30%). The Plant operated at PLF of 25.41% during the year (PY - Nil) through participation in the Scheme for utilisation of Gas based power generation capacity and consequently, it dispatched 832 MUs (PY - Nil).

Hon'ble CERC has issued final true-up tariff order dated 30th October, 2015 for the tariff period 2009-14. The Company has filed petition for determination of tariff for the period 2014-19 with Hon'ble CERC and final order is awaited.

? 1200 MW DGEN Power Plant at Dahej SEZ near Bharuch

During the year, the Plant achieved PAF of 89.64%. The Plant operated at PLF of 25.66% during the year through participation in the Scheme for utilisation of Gas based power generation capacity and consequently, it dispatched 2,637 MUs.

The Company has filed petition for determination of tariff for the period 2014-19 with Hon'ble CERC and final order is awaited.

During the year, the Company received Rs.88 Crore towards LOP (list of pending items) settlement as per the EPC contract from Siemens India and Siemens AG. This has, inter-alia, further reduced the project cost to Rs.5,240 Crore (other than additional works and DGEN Navsari Line) reported during FY 2014-15, reflecting a total savings of Rs.85 Crore as compared to the original project cost of Rs.5,325 Crore.

The Company refrained from participating in the e-auction of gas allocation for UNOSUGEN and DGEN under Phase III (for April 2016 to September 2016) of Scheme for utilisation of Gas based power generation capacity as the scheme for that period envisaged zero financial support to discoms and also allowed negative bidding in the reverse e-auction. As a result, the corresponding concessions from the State Government became uncertain. In these circumstances, power generated under this scheme no longer remained commercially viable or affordable to the discoms. Government cancelled the auction for Plants receiving domestic gas and hence, SUGEN Plant did not get gas allocation under Phase III.

For 2016-17, based on Regulator's approval, the Company proposes to buy / import spot RLNG / LNG at competitive costs.

B) Coal based Plant

? 422 MW AMGEN Power Plant at Ahmedabad

During the year, the Plant achieved a higher PAF of 95.63% (PY - 90.05%) due to increased reliability after up rating & sustained O&M excellence, PLF of 65.05% (PY - 80.69%) and dispatched 2,188 MUs (PY - 2,718 MUs). The reduction in PLF during the year was mainly due to non-operation of C station for most part of the year owing to low system demand and application of merit order dispatch system.

Ministry of Environment, Forests and Climate Change (MoEFCC) has made the emission norms for all thermal plants significantly stringent which may affect the operations of the Plant.

Hon'ble GERC has issued Multi Year Tariff Regulations, 2016 for determination of tariff for the control period 2016-21 whereby incentive, which was earlier based on PAF, has been linked to PLF.

C) Renewable Power Plants

? 49.6 MW Wind Power Plant at Lalpur, Jamnagar

During the year, the Plant achieved PAF of 96.68% (PY - 97.60%) and dispatched 94.94 MUs (PY - 87 MUs). The Plant, which was earlier registered under Renewable Energy Certificates (REC) mechanism, is under brferential tariff mechanism since 28th September, 2015.

? 51 MW Solar Power Plant at Charanka, Patan

The Plant, implemented by Torrent Solargen Limited, a wholly owned subsidiary of the Company, achieved PAF of 99.98% and dispatched 85.48 MUs during the year.

? 81 MW GENSU Solar Power Plant near Surat

The Company has fully commissioned the project in March 2016 in a cost effective manner. It is one of the largest single site solar PV project in the country. One of the distinguishing feature of the Plant is that some of the O&M activities are being handled by specially abled staff (with impaired hearing and speech). During the year, the Plant dispatched 7.92 MUs.

? Upcoming Projects

> The Company has entered into an agreement with M/s. Suzlon Energy Limited for developing, constructing and maintaining 201.6 MW Wind Power Project at Nakhatrana and Jamanwada in Kutch district and at Mahuva in Bhavnagar district in Gujarat.

> Torrent Solargen Limited has entered in to an agreement with M/s. Wind World India Ltd. for developing, constructing and maintaining 136.8 MW Wind Power Project at Mahidad in Rajkot and Surendranagar districts in Gujarat.

Power generated from all of the above renewable projects is for supplying to the Company's distribution business in Ahmedabad, Surat and Dahej SEZ for fulfilment of Renewable Power Obligations.

2. DISTRIBUTION:

A) Ahmedabad and Surat Distribution

The sales were higher at 9,978 MUs in FY 2015-16 (PY - 9,759 MUs). However, the sales have been negatively impacted due to increasing open access consumption which was higher at 508 MUs for FY 2015-16 (PY - 431 MUs). The facilitation of e-bid RLNG under the Government's scheme made possible the supply of power from Company's Gas based Plants. Transmission and Distribution (T&D) loss marginally reduced to 6.33% in FY 2015-16 (PY - 6.52%) and is one of the lowest in the country. The consumer base as on 31st March, 2016 was 23.91 lacs (PY - 23.28 lacs). During the year, the peak system demand of Ahmedabad was higher at 1,576 MW (PY - 1,567 MW) and that of Surat was higher at 627 MW (PY - 624 MW).

Hon'ble GERC, vide its order dated 31st March, 2016 for true-up of FY 2014-15 and tariff determination for FY 2016-17 has reduced FPPPA to Rs.1.35/unit (Earlier rate Rs.1.98/unit), i.e. reduction of Rs.0.63/unit for both Ahmedabad and Surat License Areas in view of the recent trend of reduction in fuel price, particularly gas price. Further, Hon'ble GERC has allowed recovery of Regulatory Charge @ Rs.0.45/unit to address the gap of earlier years. Hence, there is effective reduction of around Rs.0.18/unit in the overall tariff.

Hon'ble GERC has capped cross subsidy surcharge, in line with the Tariff Policy 2016, at 20% of the tariff applicable to the open access consumers which translates to Rs.1.51/kWh for Ahmedabad and Rs.1.48/kWh for Surat (Earlier Rs.0.43/kWh and Rs.0.13/kWh respectively).

The Company has successfully met both solar and non-solar RPO aggregating to 9% specified by Hon'ble GERC for FY 2015-16.

B) Dahej Distribution

The sales were higher at 207 MUs in FY 2015-16 (PY - 145 MUs) mainly due to new consumers, extension in demand and improvement in load factor of existing consumers. T&D loss reduced to 0.76% in FY 2015-16 (PY - 1.13%). The consumer base as on 31st March, 2016 was 93 (PY - 89). The peak system demand was higher at 35 MW in FY 2015-16 (PY - 27 MW).

Hon'ble GERC, vide its orders dated 31st March, 2016 for true-up of FY 2014-15 and tariff determination for FY 2016-17, has reduced energy charges for all categories by Rs.0.50/unit.

C) Bhiwandi

During the year, the sales decreased to 2,857 MUs (PY - 2,955 MUs) and the AT&C loss increased to 25.02% (PY - 22.36%) mainly due to recessionary trend and strike during August 2015 in Powerloom Industry. The consumer base as on 31st March, 2016 was 2.86 lacs (PY - 2.70 lacs). The peak system demand was 586 MVA during FY 2015-16 (PY - 651 MVA).

Application for renewal of the Bhiwandi Distribution Franchisee Agreement, which is expiring in January 2017, has been submitted to MSEDCL and the response is awaited.

D) Agra

The sales were higher at 1,517 MUs in FY 2015-16 (PY - 1,358 MUs) mainly due to increase in consumer base and considerable reduction in AT&C loss to 30.83% (PY - 35.90%) on account of various loss reduction drives (undergrounding of the network, greater vigilance, illegal connection removal, etc). The consumer base as on 31st March, 2016 was 3.82 lacs (PY - 3.55 lacs). The peak system demand for Agra was 429 MVA during FY 2015-16 (PY - 453 MVA).

3. CABLES BUSINESS

During FY 2015-16, Cables Unit at Nadiad, Gujarat, has achieved the highest ever net sales of Rs.407 Crore (PY - Rs.271 Crore).

Using the existing production facilities, Cables Unit has successfully developed 1200 Sq. mm Aluminium 132 kV cables for the first time. Further, with the on-going expansion of the Unit, the revenue potential is expected to increase by Rs.100 Crore.

4. OVERALL RESULTS:

Increased sales at Ahmedabad, Surat and Agra led to growth in residential category.

DGEN & UNOSUGEN Plants recovered partial fixed cost due to availability of gas under Government’s Scheme for utilisation of Gas based power generation capacity

Pursuant to the tariff order issued by Hon'ble CERC in October 2015, under the CERC Tariff Regulations 2014-19 for SUGEN Plant, there was incremental recovery of approved fixed cost for FY 2015-16 including the differential fixed cost for FY 2014-15.

During the year, Ahmedabad and Surat Distribution showed improved performance mainly on account of full recovery of FPPPA for FY 2015-16 and recovery towards arrears of unrecovered FPPPA for FY 2014-15.

The overall performance in Agra improved due to significant reduction in AT&C loss during the year, however, in Bhiwandi, due to strike and recessionary trend in Powerloom Industry, the AT&C loss increased during the year.

The other operating income in FY 2015-16, increased, inter-alia, on account of reversal of earlier years' provisions due to change in the basis for charging O&M expenses under the supply and service agreements for Company's Gas based Plants in the context of change in CERC Regulations emphasizing PLF as against PAF for performance incentive.

There has been variation in the results between different quarters of the year, inter-alia, due to seasonality involved in business, recoveries and aforesaid reversals consequent to the regulatory orders and the introduction of Government's scheme for providing RLNG and PSDF support from June 2015 onwards.

5. RISKS AND CONCERNS

Significant risks and concerns of the Company are enumerated below:

Although Government has introduced the Scheme for utilisation of Gas based power generation capacity as an interim measure, uncertainty over the improvement in domestic gas availability continues to remain, resulting into lower capacity utilisation. Lower priority to power sector in the proposed Gas Allocation Policy also poses risk to the Company.

The Company is facing problems of inferior quality of coal and shortages in coal receipt from South Eastern Coalfields Limited. Also, partial dependency on imported coal exposes the Company to price volatility and sourcing risks.

MoEFCC has made the emission norms for all thermal power plants significantly stringent which may affect the operations of AMGEN Plant. Timeline to comply with new norms is December 2017. The Company is exploring various options to ensure compliance within stipulated timeline.

The Company operates in a regulatory environment and is subject to the risks of regulatory interventions, introduction of new laws and regulations including changes in competitive framework. Also, in particular, the distribution segment lacks due recognition or incentives for its efficient operations in the current regulatory framework. Although the Regulator provides mechanism for true-up and recovery of increase in fuel and power purchase costs, the full recovery of such costs is getting delayed. Further, non-pass through of REC costs (to fulfil RPO) through the FPPPA mechanism continues to burden the distribution segment. All these issues lead to postponement of recovery of said costs, resulting into deferred recovery and accrual of carrying cost.

Further, the proposed segregation of carriage and content in the Electricity Amendment Bill, 2014, would bring about a substantial change in the way the distribution business is conducted, though not impacting the Return on Equity on the investments in the distribution infrastructure.

Non-renewal of the Bhiwandi Distribution Franchisee Agreement, expiring in January 2017, may impact the performance of the Company.

Besides being affected by the sector specific risks, the Cable business of the Company also faces the risk of dependence on a very narrow product range.

Macro-economic risks such as growth slowdown & uncertainty in demand may impact the performance of the Company.

• Public Policy interventions could impact the traditional ways of doing business and may lead to changes in supply & demand sources.

• Non-availability of skilled manpower may result in disruptions in business operations or incorrect / delayed decision making.

6. INTERNAL CONTROL SYSTEM

The Company has an adequate system of Internal Controls aimed at achieving efficiency in operations, optimum utilisation of resources and compliance with all applicable laws and regulations. Independent firms of Chartered Accountants are appointed as Auditors for conduct of the Internal Audit function. The observations and recommendations following such audit, for improvement of the business operations and their implementation are reviewed by the Audit and Risk Management Committee.

7. CAUTIONARY STATEMENT

Certain statements in the Management Discussion and Analysis, describing the Company's analysis and interbrtations are forward-looking. Actual results may vary from those exbrssed or implied. The Company assumes no responsibility to publicly amend, modify or revise any such statements on the basis of subsequent developments, information or events.