MANAGEMEN DISCUSSION AND ANALYSIS

INDIAN ECONOMY

India reported a decline in inflation, increased domestic demand, growing investments, a stable rupee and a declining oil bill. This reality was in contrast to the situation in the earlier years, marked by rampant inflation, high fiscal deficit, dwindling domestic demand, external account imbalance and an oscillating rupee.

The decline in inflation during the initial months of the year was faster than anticipated. A decline in the price of crude and tradeable commodities helped moderate headline inflation. A tight monetary policy helped contain demand brssures, creating a buffer against external shocks and moderating rupee volatility vis-a-vis other currencies.

The latest estimates of national income (Source: Central Statistics Office) indicate that growth revival, which had commenced in 2013-14, gained vigour in 2014-15. From a macroeconomic perspective, it is becoming increasingly evident that the worst is over.

India is estimated to grow by 7.4% in 2014-15 (6.9% in 2013-14). India grew by 7.5% in the October-December quarter, exceeding China's 7.3% in the same quarter. This makes India the fastest growing major economy in the world, having surpassed the $2.1-trillion mark on the back of a better performance from the manufacturing sector and rising public expenditure. The brvailing economic scenario could catapult India towards double-digit growth across the medium-term. (Source: Economic Survey 2015)

POWER SECTOR OVERVIEW

India is the fifth largest producer and consumer of electricity in the world after the US, China, Japan and Russia. The demand for electricity in the country has been growing at a rapid rate and is expected to grow further. Owing to increasing urbanisation and industrialisation, the Central Government has taken decisive steps to revive the power sector. The Central Government is targeting a capacity addition of ~89 GW during the 12th Five Year Plan (2012-17) period entailing an investment of $224 billion and 100 GW during the 13th Five Year Plan (2017-22) period.

The Indian power sector is undergoing a significant change. The Government of India's focus to attain 'Power for All' has accelerated capacity addition. At the same time, the competitive intensity is increasing on both the market as well as supply side (fuel, logistics, finances and manpower).

With India facing a massive power deficit, the Central Government intends to revitalise the sector. The Government of India has identified the power sector as key to promote sustained industrial growth.

The Re-invest 2015 which concluded on February 17, 2015, is a significant step in making India self-reliant in terms of energy. The three day Re-invest 2015 received 2,800 delegates participating from 42 countries and saw green energy commitments amounting to 266,000 MW.

Some of the initiatives taken by the Government of India to boost the power sector of India are as follows:

• A joint Indo-US PACEsetter Fund has been established with a contribution of US$ 4 million from each side to enhance clean energy cooperation.

• The Government of India has announced a massive renewable power production target of 175,000 MW by 2022, comprising 100,000 MW from solar power, 60,000 MW from wind energy, 10,000 MW from biomass and 5,000 MW from small hydro power projects.

•The Union Cabinet of India has approved 15,000 MW of grid-connected solar power projects of National Thermal Power Corporation Limited.

• The North Central Railway has signed a bilateral power procurement agreement with the Damodar Valley Corporation. This is the first time the Railways will directly buy power from a supplier.

• US federal agencies have committed a total of US$ 4 billion for project and equipment sourcing, one of the biggest deals for the growing renewable energy sector in India.

• A memorandum of collaboration was signed in New Delhi on January 20, 2015 between the Indian Institutes of Technology and Oil & Natural Gas Corporation to work towards a collective research and development programme for developing indigenous technologies to enhance exploration and exploitation of hydrocarbons and alternate sources of energy (Source: Power Ministry).

GOVERNMENTAL STRATEGIES

The government has laid out the following broad strategies to achieve the objectives:

Generation: Focusing on low-cost generation, optimisation of capacity utilisation, control of input costs, optimisation of fuel mix, technology upgrades and utilisation of non-conventional energy sources.

Transmission: Focusing on developing the National Grid, including interstate connections, technology upgradation and optimisation of transmission costs.

Distribution: Achieving distribution reforms by focusing on system upgrades, loss reduction, theft control, and consumer service orientation, quality power supply commercialization, decentralised distribution and supply for rural areas.

Regulation: Protecting consumer interests and making the sector commercially viable.

Financing: To generate resources for required growth of the power sector.

Conservation: To optimise the utilisation of electricity with a focus on demand and load management and technology upgradation to provide energy-efficient equipment.

GOVERNMENTAL INITIATIVES

In order to boost the power sector, the government has taken various initiatives as given below:

• India and Bhutan have signed a power project pact for the 600 MW Kholongchu Hydroelectric Project. It will be the first hydroelectric project to be developed by a joint venture between public sector units of the two countries.

• India and Nepal have signed the power trade agreement effective for the next 25 years which deals with power trade, cross-border transmission lines and grid connectivity.

• The Ministry of New and Renewable Energy has initiated a scheme for setting up 25 solar parks, each with a capacity of 500 MW and above, to be developed over the next five years across various states.

The Indian Renewable Energy Development Agency has signed a MoU with the US Exim Bank with respect to cooperation in clean energy investment

POWER GENERATION IN INDIA

During FY2014-15, power stations in the country generated 1,048.403 billion units of power, which was 8.40% higher as compared to year ago. The growth in total power generation was driven by an imbrssive performance by the thermal power segment. The power generation target for the financial year 2016 was fixed at 1,137.5 billion units i.e. a growth of around 8.47% over the actual generation of 1,048.673 billion units for 2015. This was driven by a strong growth in nuclear and thermal power generation. Nuclear power generation is expected to jump by 19.3% to 41.1 billion units. Thermal power generation is expected to grow by 8.2% in FY16 to 950.3 billion units. Capacity additions and increase in raw material availability will push thermal power generation upwards.

Proposed capacity additions during the 12th Five Year Plan period (2012-17)

The 12th Five Year Plan recommends generation planning based on an estimated 9% growth in required energy each year. Consequently, a capacity addition of 75,785 MW is recommended:

Required capacity addition foreseen during the 13th Five Year Plan period

The requirement of installed capacity and capacity addition to meet the generation requirement during the 13th Five Year Plan period (2017-22

Plant load factor and installed capacity

The national plant load factor registered a decline from 65.55% in 2013-14 to 64.46% in 2014-15. Across the Central and State government and private sectors, the plant load factor has been declining since 2011-12.

Installed capacity in India

India is among the largest power-generating countries in the world with installed capacity of 267.637 GW as of March, 2015. Thermal power had a share of 71% followed by hydro, renewable and nuclear. In terms of sectors, the private sector is the dominant one with a 37% share.

Commercial sources of power generation in India include coal, lignite, natural gas, oil, hydro and nuclear power, while viable non-conventional sources include wind, solar and biomass. This sector provides one of the most important inputs for the development of a country and availability of reliable and inexpensive power is critical towards ensuring sustainable economic development. There are three main pillars of power sector these are generation, transmission, and distribution. As far as generation is concerned it is mainly divided into three sectors these are Central, State, and private.

Investments

With a production of 1,108 tW, India is the world's fifth largest producer and consumer of electricity with a total demand expected to reach 1,905 tW by 2022. The power sector accounts for almost a quarter of the projected investments amongst all the infrastructure sectors between 2012 and 2017. The Central Government is keen on promoting hydro, renewable and gas-based projects, as well as adoption of clean coal technology.

Renewable energy is fast emerging as a major source of power. Renewable energy capacity additions up to 41 GW are planned till 2017 to meet the growing energy demand. Demand for electricity is expected to increase at a CAGR of 9% to reach 1,915 tWh over FY07-22. The Central Government is targeting a capacity addition of 88.5 GW during 2012-17 and 86.4 GW during 2017-22.

The Government of India has allowed 100%-foreign direct investment under the automatic route for the power sector except for atomic energy.

Total FDI inflows in the power sector touched USD 9.4 billion during April 2000 to October 2014, accounting for 4% of the total FDI inflow in India.

Foreign direct investment is permitted in the following categories:

• Generation and transmission of electric energy produced in hydroelectric, coal, lignite, oil and gas-based thermal power plants.

•Non-conventional energy generation and distribution.

•The distribution of electric energy to households, industrial, commercial and others.

•Power trading.

•FDI in power exchanges up to 49% (26% FDI + 23% in FIIs/FPIs) under the automatic route.

FII/FPI purchases shall be restricted to secondary market only. No non-resident investor/entity, including persons acting in concert, will hold more than 5% of the equity in these companies and the foreign investment would be in compliance with SEBI regulations. Other applicable laws/regulations, security and other conditions apply. (Source: IBEF; makeinindia.com)

Electricity demand trends

During the FY15, the energy availability was 1,030.785 billion kWh with a short fall of requirement by 38.138 billion kWh (-3.6%) against the anticipated deficit of 5.1%. The peak load met was 141,180 MW with a short fall of requirement by 7,006 MW (-4.7%) against the 2.0% deficit anticipated. For the FY16, a base load energy deficit and peaking shortage is estimated to be 2.1% and 2.6% respectively. Southern and North Eastern regions are anticipated to face energy shortage up to 11.3%. The marginal deficit figures clearly reflect that India would become electricity surplus during the 12th Five Year Plan period.

TRANSMISSION AND DISTRIBUTION

Overview

Power Grid Corporation of India Limited

(POWERGRID, the CTU (Central Transmission  Utility) of the country and a Navratna company operating under the Ministry of Power, has been engaged in the power transmission business with the responsibility for planning, implementation, operating and maintenance of inter-state transmission system and operation of national and regional power grids.

Power Grid Corporation of India Limited has been implementing various transmission projects for capacity addition via ultra-mega power projects, independent power producers and other projects. As on December 31, 2014, the Company owns and operates transmission network of about 1,13,587 circuit kilometres of transmission lines and 188 EHVAC and HVDC substations with transformation capacity of about 2,19,579 mVA. The Company continues to wheel about 50% of total power generated in the country through its transmission network at a consistent 99% .

Investment in the transmission and distribution space during the 12th Five Year Plan period is expected to be ~$35 billion, with $19 billion expected to come from the Power Grid Corporation of India Limited while the remaining $16 is expected to come from the private sector. Techno expects to carve out ~5% of this $35 billion opportunity.

Requirements for development of transmission in India

India has great potential for generation of electricity. The natural resources for electricity generation are unevenly dispersed and concentrated in a few pockets in the country. It is important to transfer the electricity generated from the point of generation to the point of usage. For this transmission networks are required. Power transmission is the movement of energy from its place of generation to a location where it is applied to performing useful work.

Transmission congestion has become a serious issue in the recent time. Congestion occurs when demand for transmission capacity exceeds the available transfer capability. Absence of sufficient transmission infrastructure causes frequent congestion and market splitting.

Congestion in transmission caused a loss of 3.1 billion units of electricity on the Indian Energy Exchange in 2014-15 which has though decreased from 5.3 billion units in 2013-14 but still is a significant amount. This power loss due to congestion is equivalent to energy requirement of Delhi for over a month or the entire state of Maharashtra for over a week. This undoubtedly indicates the necessity for consolidating the transmission network in the country.

Power generation has doubled during the past decade due to de-licensing of generation and recent spurt of renewable energy. But the expansion of the transmission network has not been able to keep pace with the increase in the generation leading to congestion in transmission networks. Thus, even after brsence of surplus power many regions are still deprived of electricity. In other words, demand in a market could not be met even as supply was available elsewhere. This has also led to unsold capacity in some regions pushing down the market prices and resulting in lower plant load factors. Congestion has also led to decrease in reliability of the supply leading to unsatisfied consumers.

The central transmission utility, Power Grid Corporation of India enjoys the major share of the  market but has failed to keep pace with growth in the country's generation capacity. Difficulty in acquiring land, delays in forest clearances and governmental monopoly in the transmission sector are some of the major hindrances for power transmission projects. To cope with these problems it is imperative to take certain steps at the earliest.

The power transmission sector in India, which has for long been the brserve of the state-owned transmission company, Power Grid Corporation of India Limited, should now be opening up to privatisation. Earlier also there had been some participation by the private sector in transmission in the form of joint ventures. Private sector accounts for less than 5% in transmission as compared to 38% in India's installed generation capacity Foreign investments are being encouraged and welcomed. The Power Ministry is planning to introduce the Integrated Power Development Scheme which is aimed at strengthening power sub-transmission and distribution in urban areas in states and union territories.

Understanding the importance of transmission network and issues that can arise due to lack of infrastructural development in the sector, the Government will have to focus on building transmission corridors with the help of innovations and modern technologies to achieve the goal of providing uninterrupted power to all by 2019.

Ultra-mega power projects in India

For meeting the growing needs of the economy, generation capacity needs to double every ten years for the next three decades. As such there is need to develop large capacity projects at the national level to meet the requirement of different states.

Development of ultra-mega power projects is one step in that direction. These are very large-sized projects, approximately 4,000 MW each involving an estimated investment of about C25,000 crore. The projects will substantially reduce power shortages in the country.

These projects will meet the power needs of a number of distribution companies located in these states, and are being developed on DBFOT (Design, Build, Finance, Operate and Transfer) basis.

In view of the fact that promotion of competition is one of the key objectives of the Electricity Act, 2003, and of the legal provisions regarding procurement of electricity by distribution companies, identification of the project developer for these projects is being done on the basis of tariff-based competitive bidding.

Salient features of the plant and choice of technology

• The ultra-mega power projects would use super critical technology with a view to achieve higher levels of fuel efficiency, which results in fuel saving and lower greenhouse gas emissions.

• Flexibility in unit size subject to adoption of specified minimum supercritical parameters.

• Integrated power project with dedicated captive coal blocks for pithead projects.

• Coastal projects to use imported coal.

Four ultra-mega power projects namely Sasan in Madhya Pradesh, Mundra in Gujarat, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand have already been awarded to the successful bidders and are at different stages of development. (Source: Power Ministry)

RURAL ELECTRIFICATION

The Government of India has launched the Deendayal Upadhyaya Gram Jyoti Yojana scheme for rural electrification. The erstwhile Rajiv Gandhi Grameen Vidyutikaran Yojana scheme for village electrification and providing electricity distribution infrastructure in the rural areas has been subsumed in the Deendayal Upadhyaya Gram Jyoti Yojana scheme.

Rural Electrification Corporation is the nodal agency for implementation of Deendayal Upadhyaya Gram Jyoti Yojana. Under this, the Ministry of Power has sanctioned 921 projects to electrify 1,20,804 un-electrified villages, intensive electrification of 5,95,883 partially-electrified villages and provide free electricity connections to 396.45 lac BPL rural households. As on March 31, 2015, works in 1,09,524 un-electrified villages and intensive electrification of 3,14,958 partially-electrified villages have been completed and 218.33 lac free electricity connections have been released to BPL households.

The Rural Electrification Corporation Limited, a Navratna Public Sector Enterprise under the Ministry of Power, was incorporated on July 25, 1969 under the Companies Act 1956. The main objective of the rural electrification corporation is to finance and promote rural electrification projects all over the country. It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects.

Its corporate office is located in New Delhi and 20 field units dotted across most of the states. These coordinate the financing activities with the concerned State Electricity Boards and facilitate in formulation of schemes, loan sanction and disbursement and implementation of schemes.

RENEWABLE ENERGY IN INDIA •

India's renewable energy market is witnessing the first signs of revival as the installed capacity surged by 12.9% during the financial year 2015. India added 4,089 MW renewable energy capacity in financial year  2015, a capacity addition of 8.46% more than the targeted figure of 3,770 MW. It was also possibly one of the rarest moments in India's renewable energy sector when all three leading sub-sectors overachieved  on the allocated targets. 2.3 GW wind energy capacity was added as against a target of 2 GW.

Solar power technology also surpassed biomassbased power generation as the third-largest renewable energy source in terms of installed capacity in India. Solar power capacity now has a share of 10.5%, up from 8.3% at the end of 2014.

The capacity addition target of 250 MW for the small hydro power technology was also achieved. Hydro power projects with less than 25 MW installed capacity are considered renewable energy projects. Capacity addition target was overachieved in bagasse-based co generation where projects worth 360 MW were added as against a target of 300 MW. Biomass-based power generation missed the capacity addition target, adding only 45% of the targeted value. Just 4% of the capacity addition target was achieved in waste-to-power category. The total renewable energy capacity stood at 35.77 GW.

The government is planning to increase this capacity to 175 GW by 2022.

Renewable energy has progressively emerged as a major power source over the last three decades. Renewable energy comprises wind power, hydro power, solar power and biomass. Wind energy being the largest source of renewable energy accounts for ~87% of the total installed capacity.

With an aim to reduce dependence on imports, the Central Government is promoting wind energy generation by encouraging the addition of 10,000 MW every year. Renewable energy companies are also entitled to incentives like renewable energy certificates, clean development mechanism, generation-based incentives along with various tax incentives like tax holiday for 10 years (within first 15 years of operations) and excise duty relief.

Renewable power installed capacity

India’s wind power capacity increased in 2014-15 by 2,297 MW, marginally higher than its achievement of 2,146 MW in the brvious year. These numbers are lower than what the industry had hoped at the beginning of the year.

As of December 2014, solar, wind, biomass and small hydropower contribute about 13% of the total installed capacity for electricity. The total installed capacity touched the figure of 33,791 MW with wind power contributing 22,465 MW, solar accounting for 3,062 MW, biomass 4,272 MW and small hydro 3,990 MW.

Renewable energy potential

India has an estimated renewable energy potential of about 900 GW from commercially exploitable sources viz. Wind – 100 GW (at 80 metre mast height); small hydro – 20 GW; biomass – 25 GW; and solar power - 750 GW, assuming 3% of waste land is made available. In addition, there exists significant potential from decentralised distributed applications for meeting hot water requirements for residential, commercial and industrial sector through solar energy and for meeting cooking energy needs in the rural areas through biogas.

Renewable energy has a great capacity to usher in universal energy access. In a standalone mode, renewable energy is an appropriate, scaleable and viable solution for providing power to un-electrified or power-deficient villages and hamlets.

OUTLOOK

The Indian power sector is undergoing important changes that are redefining the industry outlook. Persistent economic growth continues to drive power demand in India. The government has signed agreements with Bhutan and Nepal. Further, the output of domestic coal is likely to rise in the coming financial year, driven by the improved performance of Coal India and the fast-track e-auction of disbarred coal mines. The government has set a target of 1 billion metric tonnes of coal for Coal India by FY20 at a CAGR of 14.9%.

The successful auction of coal blocks post the introduction of reforms in the coal sector by way of Coal Mines (Special Provisions) Ordinance 2014 would lead to an increase in the share of captive coal blocks to 11% in FY16. Capacity additions are expected to grow the renewable energy sector in FY16 on account of the growth in the solar segment. The share of solar capacity in the renewable energy sector is likely to increase to 11% in FY16

Based on exhaustive consultations, certain amendments to the Electricity Act, 2003 have been proposed broadly covering the following areas

Enhancing grid safety and security: In order to strengthen and enhance grid safety and security, specific measures regarding maintenance of spinning reserves along with strong and effective deterrence in the form of enhanced penalties for violations of the directions given by the state and regional load dispatch centres, among others have been envisaged.

(B Separation of carriage and content in the  distribution sector: To achieve the objectives of efficiency and for giving choice to consumers through competition in different segments of electricity market, concept of multiple supply licensees is proposed by segregating the carriage from content in the distribution sector and determination of tariff based on market principles, while continuing with the carriage (distribution network) as a regulated activity. To protect the interest of consumers, the tariff for retail sale of electricity is proposed to be capped through the regulator and one of the supply licensees is proposed to be a government controlled company. Further, the existing distribution licensees are proposed to continue till the expiry of their term as specified in their license.

Promotion of renewal energy: In order to accelerate the development of renewable energy sources, a number of measures including the provision for a separate National Renewable Energy Policy, development of renewable energy industry, renewable energy obligation on coal and lignite-based thermal power plants, specific exemptions to renewal energy sources from open access surcharge, separate penal provisions for non-compliance of renewal purchase obligation, among others have been envisaged under the renewable generation obligation for coal and lignite-based thermal power plants.

Tariff ealizationion: To ealization the tariff structure on the basis of sound financial principles for the viability of the distribution sector and recovery of revenue requirement of licensees without any gap, the provisions of tariff policy are proposed to be made mandatory for the determination of tariff. Further, the bill envisages timely filing of tariff petitions by utilities, disposal of the same by the appropriate commission within a specified time period and powers to appropriate commissions for initiating suo moto proceedings for determination of tariff in case the utility/generating companies do not file their petitions in time.

Miscellaneous: Suitable amendments are also proposed for improving the accountability and transparency in the working of appropriate commissions without affecting their functional autonomy; bringing clarity in regard to appointments, functions and powers of the electrical inspectors and levying of fees for electrical inspections; exemption to developer of SEZs, railways and metro rail for obtaining distribution license; collection and ealization of any dues along with the electricity dues, among others.

Large projects will ensure 24x7 power availability for all during the next five years”

the Central Government plans to execute large projects in the power sector leveling the playing field for one and all. Power, Coal and Renewable Energy Minister Piyush Goyal said that this will offer C 1 lac crore of power transmission projects over the next six to eight months and as a means to this end has initiated dialogues with State Governments to resuscitate ailing  state electricity distribution companies. Adding long-term transmission capacity and designing customised and innovative financial model for state distribution companies will be emerge as areas of focus in the second year of operations. This is expected to give the country a veritable boost as it continues to grapple with the problem of idling generation capacity.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Techno Electric has an adequate internal control system, commensurate with the size and nature of business, with regard to purchases of inventory and fixed assets and for sale of goods and services.  The system is being upgraded continuously in order to meet and adapt to statutory requirements and changing business conditions

FINANCIAL PERFORMANCE

During the year, Techno Electric's consolidated gross revenues stood at Rs. 814.13 crore as compared to Rs. 720.47 crore in 2013-14. The Company's consolidated net profit stood at Rs.105.08 crore in 2014-15 as compared to Rs.87.49 crore in 2013-14

HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS

Over the years, Techno Electric has prudently invested in bolstering its competencies through recruitment,  training and retention. The Company had an employee base of 382 as on March 31, 2015.

CAUTIONARY STATEMENT

Statements in the management discussion and analysis describing the Company's objectives, projections, estimates, expectations may be forward-looking statements within the meaning of applicable laws and regulations. Actual results could differ materially from those exbrssed or implied. Factors that could make a difference to the Company's operations, inter alia, include the economic conditions, government policies and their related/incidental factors.