MANAGEMENT DISCUSSION & ANALYSIS REPORT The Management of the Company (PFC) is pleased to brsent its Report on Industry scenario including Company's performance during the FY 2014-15. Industry Structure and Development Power sector is a critical infrastructure element required for the smooth functioning of the economy. An efficient, resilient and financially healthy power sector is essential for growth and poverty reduction. The availability of reliable, quality and affordable power helps in the rapid agriculture, industrial and overall economic development of a country. Electricity consumption is one of the most important indices that decide the development level of a nation. The per capita electricity consumption which was mere 16.3 kWh in 1947 has increased to 1010 KWh in 2014-15. Power Supply position in the country has also improved during FY 2014-15. The gap between requirement & availability of energy reduced from 4.2% during FY 2013-14 to 3.6% during FY 2014-15. However, gap between peak demand & supply increased from 4.5% during FY 2013-14 to 4.7% during FY 2014-15. Generation Installed Capacity As on March 31, 2015, India's total installed capacity was 2,67,637 MW. Thermal sources continued to have a dominant share at 71% (1,88,898 MW) followed by Hydro 15% (41,267 MW), renewable 12% (31,692 MW) and nuclear 2% (5,780 MW). The installed capacity stood at 96,963 MW (36%) in state sector, 98,153 MW (37%) in private sector and 72,521 MW (27%) in central sector. Capacity addition The capacity addition target for the FY 2014-15 was set at 17,830 MW. However exceeding the target, a capacity addition of 22,566 MW has been achieved during the FY 2014-15, the details of which are as follows: For the 12thPlan period (2012-17), the capacity addition has been estimated at 88,537 MW comprising 26,182 MW in the central sector, 15,530 MW in the state sector, and 46,825 MW in the private sector respectively. Generation capacity of 61,014 MW has been added upto March 31, 2015 comprising 12,367 MW in the central sector, 12,221 MW in the state sector, and 36,426 MW in the private sector respectively. This is 69% of the target. Transmission Transmission forms an indispensable link in the power sector value chain. The large expansion in production and consumption of electricity has to be supported by a significant expansion and strengthening of the transmission network. Nationwide synchronous power grid, interconnecting all the five regional grids, has been established in the country with which both the scale and the scope of transmission-related activities have increased manifold. Against a target of adding 20,882 Ckms of transmission lines for FY 2014-15, 22,101 Ckms have been commissioned/ready for commissioning which is 105.84% of the target. Also, 55,956 Ckms of transmission lines have been added upto March 31, 2015 against the target of 1,07,440 Ckms for the 12th Five year Plan which is 52% of the target. Further, 65,554 MVAs of transformation capacity has been added during FY 2014-15, against the target of 47,871 MVA, which is 136.94% of the target. Against a target of 2,82,750 MVA for addition of transformation capacity under the 12th Five year Plan, 1,86,549 MVAs have been added upto March 31, 2015 which is 65.98% of the target. Distribution In the overall functioning of the power sector, Distribution segment plays a crucial role since it is the part of the system which generates the revenues needed to pay generation and transmission utilities. Therefore, the viability of power sector depends upon the distribution sector. To reduce aggregate technical and commercial (AT&C) losses, establish IT-enabled energy accounting/auditing, and improve collective efficiency, a new scheme, the 'Integrated Power Development Scheme (IPDS)' which subsumes the Restructured Accelerated Power Development and Reforms Programme (R-APDRP), has been launched. The outlay for the IPDS is Rs.32,612 crore. Its key features are strengthening of the sub transmission and distribution network in urban areas, metering of distribution/ feeders/ transformers /consumers in urban areas and roof top solar panels. A new scheme, the 'Deendayal Upadhyaya Gram Jyoti Yojana' (DDUGJY), has also been launched with the objectives of: (a) separating agriculture and non-agriculture feeders to facilitate distribution companies (discoms) in the judicious rostering of supply to agricultural and non-agricultural consumers; (b) strengthening and augmentation of sub-transmission and distribution infrastructure in rural areas; and (c) metering in rural areas. The existing 'Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)' is subsumed under the DDUGJY. Under the new scheme all discoms including private sector discoms are eligible for availing of financial support. Opportunities/Threats/Risks/Concerns Over the past 60 years or so, India has taken rapid strides in the development of the power sector both in terms of enhancing power generation as well as in making power available to widely distributed geographical boundaries. In order to meet the increasing demand for electricity, to fuel the economic growth of the country, large additions to the installed generating capacity and development of associated transmission and distribution network are required. However this developmental process has to be within the realms of sustainable development and environmental concerns. On the basis of envisaged capacity mix, proposed capacity addition schedule and associated project cost, the total funds required during 12th Plan have been estimated at Rs.13,72,580 crore with a debt requirement of Rs.10,18,730 crore and equity requirement of Rs.3,53,850 crore. PFC is dedicated to Power Sector financing and committed to the integrated development of the power and associated sectors. PFC's product portfolio comprise of Financial Products and Services like Project Term Loan, Equipment Lease Financing, Discounting of Bills, Short Term Loan, and Consultancy Services etc. for various Power projects in Generation, Transmission, and Distribution sector as well as for Renovation & Modernization of existing power projects. PFC's priorities include not only accelerating the pace of existing business of funding generation, transmission and distribution projects but also to exploit the new opportunities available in the area of consortium lending, lending to capital equipment manufacturers and fuel supply projects and related infrastructure development projects, renewable energy and equity funding. In order to align the lending policies/guidelines with market necessities as well as its corporate objectives, PFC reviews and revises the same on continuous basis. In spite of growing competition in the market as well as concerns on interest rates on account of factors like movement in RBI key policy rates, inflation brvailing in the financial year, etc., your company could balance its objectives of business growth and profitability. During the past, the power sector was perceived to be riddled with some fundamental weaknesses. Being the fourth largest consumer of energy in the world after USA, China and Russia, India is not endowed with abundant energy resources. Further, the exponentially growing population of our country is creating more brssures on the power sector. We are urbanizing rapidly and in order to effectuate the increasing needs of power, fuel emerges as the most significant constraint, which project developers have to grapple with and the lenders are hesitant to take the risk. India has adopted a blend of commercial sources like coal, lignite, natural gas, oil, hydro and nuclear power to other viable non-conventional sources like wind, solar and agriculture and domestic waste. Poor financial condition of State utilities due to high AT&C losses and inadequate tariff also are major constraints in the sector. Other major constraints being faced by the power sector pertain to delays in environment clearances and other key inputs such as land and water. Shortage of talent and trained manpower in the construction sector is a long term problem and is likely to continue to push up project costs and risks. Power Industry being capital intensive, requires huge investment. Optimal use of installed capacity for the country as a whole is the key to economics of the power sector. Outlook Power Sector in India has grown significantly since independence both in the installed electricity generating capacity and transmission & distribution (T&D) system. The total power generating capacity of (utilities & non utilities) has increased from meagre 1362 MW in 1947 to 267 GW at the end of March, 2015. Despite this, the growth of electricity demand has surpassed the power supply and our country has been facing power shortages during peak electricity demand. Government of India lays special emphasis on reduction of T&D losses and demand side management to optimally utilize the limited resources. Concerted efforts are going on to bridge the gap of demand and supply through policy initiatives, such as Development of Power Projects on Tariff based bidding, New Hydro Policy, Private Sector Participation in Transmission sector, National Mission on Enhanced Energy Efficiency, Focus on development of Renewable Energy Sources (RES) and development of the Ultra Mega Power Projects (UMPP). The performance of the power sector shows many positive features, especially relating to the pace of addition to power generation but there are numerous problems relating to fuel supply which need to be resolved as also problems relating to the financial viability of the operation of the distribution companies. Corporate Social Responsibility and Sustainable Development (CSR&SD) CSR is a cornerstone of PFC's operations and it discharges its social responsibility obligations as a part of its growth philosophy. It has been your Company's endeavor to act as a responsible Corporate citizen committed to improving the quality of life of the society at large. For the FY 2014-15, the Board had approved the CSR budget of Rs.117.49 crore based on 2% of the average stand-alone PBT excluding dividend received from other companies as per Section 135 of the Companies Act 2013 and in line with Rule 2(f) (ii) of Companies (CSR Policy) Rules 2014. During the FY 2014-15, projects worth Rs.304.10 crore (Inclusive of Rs.1.78 crore on account of CSR administrative expenses incurred in FY 2014-15) were sanctioned and your company implemented wide range of activities in the field of Solar energy, Sanitation, Skill Development etc. in various states. Due to the gestation period involved in the sanctioned projects, the Company has disbursed 751.68 crore (inclusive of Rs.1.78 crore on account of CSR Administrative expenses incurred in FY 2014-15) out of the available sanctions and the remaining budget will be utilized/disbursed based on the progress achieved for completion of the projects. Internal control system and its adequacy The company maintained a robust system of internal control including suitable monitoring procedures which ensures accurate and timely financial reporting of various transactions, efficiency of operations and compliance with statutory laws, regulations and company policies. Suitable delegation of power and guidelines for accounting has been issued for uniform compliance. In order to ensure that all checks and balances are in place and all internal control systems are in order, regular and exhaustive internal audits are conducted by experienced firms of Chartered Accountants in close co-ordination with Company's own internal audit department. Besides, Company's Audit Committee periodically reviews the important findings of different Audits keeping a close watch on compliance with internal control system. PFCs internal audit system is strong & independent and works on a continuous basis, covering the entire gamut of operations and services. The internal control system has been designed to ensure that the financial and other records are reliable for brparing financial statements and other data and for maintaining accountability of assets. The internal control systems are supplemented by management reviews and documented policies, guidelines and procedures. There exists a reliable internal check system, which helps in improving the efficiency and effectiveness of internal control system. PFC is an ISO 9001:2008 certified Company. These stringent internal control processes and credit review mechanisms reduce the number of defaults and ultimately contribute in gaining the faith of all the stakeholders. Segment-wise or product-wise performance Company's main business is to provide financial assistance to the power sector and Company does not have any separate reportable segment. Financial and Operational performance The company continued to accomplish a healthy growth during the FY 2014-15. The total revenue grew by 17% from Rs.21,338 crore to Rs.24,907 crore in FY 2014-15. Profit before Tax (PBT) grew by 11% from Rs. Rs.,558 crore to Rs.8,378 crore in FY 2014-15. Profit after Tax (PAT) grew by 10% from Rs.5,418 crore to 75,959 crore in FY 2014-15. Further, Net Worth (share capital plus free reserves) of the company grew by 17% in FY 2014-15 to Rs.29,245 crore as compared to Rs.25,098 crore in FY 2013-14 and the loan assets as at March 31, 2015 grew by 15% to Rs.2,17,042 crore from Rs.1,88,753 crore as at March 31, 2014. The gross Non Performing Assets (NPAs) increased to Rs.2,364 crore in FY 2014-15 as compared to Rs.1,228 crore in FY 2013-14. Renewable and Clean Development Mechanism (RE&CDM) India is fast becoming one of the world's most attractive markets for Renewable energy (RE) investments. India's rise has been due to the effective policy and regulatory support for investment in renewable energy technologies. The future scenario of power from renewable sources is bright due to ever-increasing high cost of hydrocarbon. The increasing dependence on renewable sources of energy, given the global movement to reduce greenhouse gases and shift to non-fossil fuel sources, has created a lot of business opportunities in power sector. Your company is also providing financial support to Renewable Energy Generation projects like wind farms, small hydro projects, bio-mass projects and solar projects and also energy saving projects in the form of higher exposure and special rate of interest in State and Private sectors. During the FY 2014-15, loans amounting to Rs.1,065 crore with total capacity of 346 MW were sanctioned for State and Private sectors. Your company has also disbursed around Rs.607 crore during the financial year. In addition, a loan of Rs.24.40 crore has also been sanctioned to APSPDCL under energy saving project for setting up of 3000 solar pumps in AP. As on March 31, 2015, your company has cumulatively supported a total generation capacity of 1672 MW, extending financial assistance of Rs.5,265 crore and disbursed Rs.3,681 crore to all kinds of renewable energy projects with an aggregate project cost of Rs.11,065 crore. Foreign Exchange Earnings and Outgo During the FY 2014-15, the Foreign exchange outgo aggregating Rs.326.17 crore was made on account of debt servicing, financial & other charges and training expenses. The Foreign exchange earnings for the FY 2014-15 were nil. Human Resources Your Company considers its employees as most valuable assets and aims to align human resource practices with business goals. Your Company takes pride of its highly motivated and committed team of employees. The employees performed to their full potential and contributed to the growth and development of the Company. The Company is committed to building the competencies of its employees and improving their performance through training and development. The Company focus is on identifying gaps in its employees' competencies and brparing employees for changes in competitive environments, as well as to meet organizational challenges. Towards this direction, the Company has an annual training plan system to assess the various training needs. Requisite skills are also imparted across all level of employees through customized training intervention. The Company has very cordial and harmonious relationship with its employees. There were no man-days lost during the period under review. The Company had 450 employees on its rolls as on March 31, 2015. Cautionary Note Certain statements in the "Management Discussion and Analysis" section may be forward looking and are stated as required by applicable laws and regulations. Many factors may affect the actual results, which could be different from what the Management envisages in terms of future performance and outlook. Annexure H |