MANAGEMENT DISCUSSION AND ANALYSIS GLOBAL ECONOMY The global économie scénario continued to remain challenging in 2015. Despite support from central banks around the globe, coupled with favorable commodity prices, as per IMF estimates, the global economy grew by ~3.1% in 2015, less than ~3.4% growth witnessed in 2014. Overall, advanced economies grew by ~1.9% in 2015. Euro zone economies registered ~1.6% growth in 2015. A slowdown in the Chinese economy and other commodity export-dependent economies, including Russia and Brazil, added to the global economic distress. Emerging economies grew by ~4% in 2015 vis-à-vis ~4.6% in 2014. INDIAN ECONOMY Despite concerns of a slowdown in industrial activities and two consecutive years of poor monsoon which adversely affected its rural economy, the Indian economy, as per Government of India (GoI) estimates, grew by ~7.6% in FY 2015-16. IMF forecasts that the Indian economy will continue to be the fastest growing large economy for the next few years. The longer term future of India looks promising due to the investment-centric policies such as 'Make in India', 'Smart Cities', EODB specific initiatives etc. and base-of-the-pyramid targeted initiatives such as universal access to banking, expanding the ambit of direct benefit transfer (DBT) etc. launched by the GoI. GoI has also taken up investment in infrastructure creation, such as those of highways, railways, etc. on a large scale. These steps, along with stable Indian rupee have helped Reserve Bank of India to ease monetary policy. Large domestic markets provide Indian economy cushion from the impact of declining exports. Also, global factors such as low prices of petroleum and major commodities along with its inherent advantages such as cheaper workforce, a stable political system with a business conscious Government is likely to help the Indian economy attract domestic and international investments and grow. INDUSTRY OVERVIEW FY 2015-16 proved to be another difficult year for conventional power generation equipment manufacturers. The market has remained low for the last few years due to multiple reasons. There was a slowdown in industrial demand and the financial health of DISCOMs worsened. The continued distress of IPPs and the banking sector added to the delay in ordering for new projects as well as delaying major investment decisions such as R&M. Thus, the power generation equipment market continues to witness an over-capacity situation, which has led to fierce price competition with brssure on margins. While GoI's policies to promote power generation from renewable energy sources has led to large volume of new orders from domestic and foreign investors, ordering for conventional energy projects remained low. The impact of tough market conditions was also felt by thermal and large hydroelectric power plant developers as they witnessed significant consolidation in the market, in private as well as public utility spaces. Fuel availability for operating power plants improved during the year. While domestic coal production witnessed record growth, international coal prices too stayed at historical low levels. For gas-based power plants, GoI came up with a scheme to ensure a higher availability of gas at subsidized prices so that these plants could operate, even though at lower utilization levels. Indian market witnessed commissioning of significant power generation capacities in FY 2015-16 as well. As per CEA, ~17GW of thermal power generation capacity was added during FY 2015-16 along with ~1.5GW hydro power generation capacity. As per an MNRE, 3.3GW of generation capacity was added in wind energy and ~3GW capacity in the solar energy and ~0.6GW jointly in biomass and small hydro energy projects. With these capacity additions, the installed base in India increased to ~293GW, with renewables (without large hydro) constituting ~15% of the installed base. Though India has one of the largest installed base of hydro, the share of hydro-based power generation capacity in the total installed base is declining. FY 2015-16 witnessed less than 1GW orders of large hydroelectricity projects. Most of the large projects in India, as well as in the entire Himalayan region, remain stranded due to environmental concerns as well as rehabilitation and resettlement (R&R) issues. BUSINESS PERFORMANCE DURING FY 2015-16 The weak state of the economy and poor business sentiments were reflected in Company's business performance for FY 2015-16. Sales declined by ~19% during the year, mostly due to delays in achieving project milestones as a result of issues related to customers or other partners. OUTLOOK Despite current weakness, the long term potential of the Indian power sector still remains intact. Despite large capacity additions over the year, the reserve margin remains negative and the demand-supply gap could increase further once industrial activities pick up. Consumers continue to face shortage of quality power. The demand for power is expected to increase substantially as indicated by all major drivers such as high GDP growth, low per capita power consumption and policy support from the GoI. Steps like rural electrification, feeder separation, financial support to ailing DISCOMs under the UDAY scheme, better availability of domestic coal, initiatives like 'Smart Cities', 'Make in India' etc. would help India move in this direction. While, renewable energy sources, i.e. Solar and Wind, are expected to grow faster in the immediate future due to policy support, it is expected that coal, which is the cheapest source of electricity for India, would continue having the dominant share in electricity generation mix. Hence, market for new thermal power plants would revive soon. Availability of domestic coal is likely to remain comfortable with Coal India Limited's plans to further increase its production. International coal prices too are at historically low levels. Indian Railways plans to operationalize new routes to ease the coal transportation. Hence, coal is likely to be the most brferred source of electricity for the Indian economy in the foreseeable future. Other technical requirements, such as continuous availability for base-load demand, grid stability, peak-hour demand management etc. too would help revival of thermal power market. Substantial volume of retrofit and upgrade opportunities, i.e. replacement of old, low capacity-low efficiency equipment with new equipment, for thermal as well as renewable power plants. With increasing need to generate higher returns from existing investment, higher competition between operating assets to get into dispatch merit order, adherence with environment norms etc., it is expected that the Indian power sector would witness a surge in demand for digital solutions for a range of services. These could include variety of services like efficiency improvement, optimal asset utilization, brdictive maintenance, operations planning etc. It may emerge as the most promising segment in near future. OPPORTUNITIES, RISKS AND THREATS OPPORTUNITIES With GoI's support and economic growth, large opportunities are likely to come up in diverse areas ranging from generation to transmission and distribution, digitization of commercial operations, safety and security of networks etc. Revision of environmental control norms for thermal power plants and the new tariff policy, are likely to open good opportunities for OEMs. As per the new policy there will be substantial demand for advanced De-SOx and De-NOx solutions for thermal power plants (both green field projects as well as operating plants). There would also be opportunities for retrofits. With increased availability of cheaper power from newly built units coupled with poor demand, existing elder thermal units are forced to reduce variable cost-to-be considered for merit order dispatches. As the Country continues to grapple with meeting demand more efficiently, there will be increased focus on getting more out of the installed base. Your Company is currently executing such R&M projects on 2X210MW LMZ design units in the Country. The requirement of similar projects is likely to pick up with industry getting more confidence and realizing its benefits demonstrated in coming years. As renewables capacity is added to the grid, there is also increased need for more flexible operations of coal powered plants and Generating Companies are focused on improving the flexibility of their assets and in driving efficiency improvements over a range of operations (vs base load only). In the case of large hydro projects, there have been encouraging developments, including proposals such as an extension of the concession period for hydro projects in the new tariff policy, inclusion of large hydro into the renewable energy segment to extend available policy benefits etc. Power sector experts also see a larger role for hydro PSP projects as a possible solution to manage peak-hour energy requirements and grid stability, where issues may arise due to the increasing share of intermittent renewable sources. More hydro projects are expected to come in view of these developments. Your Company, now a General Electric ('GE') entity, is well placed to reap upcoming opportunities in the Indian power sector. GE (including the Power portfolio acquired from ALSTOM) has a long history and a very diverse business footprint in India. More importantly, the GE footprint is supported by multiple manufacturing units (20+) and five (5) Engineering and technology centers in India with over 5,000 engineers. GE has the resources and the commitment to be a strong energy partner and contribute significantly to the growing energy segment in India. RISKS AND THREATS The most important threat for the Indian power sector is slow recovery of the Indian economy. The lack of demand from the largest consumer segment i.e. industries, is emerging as a major concern and resulting in delays in new projects, as well as in placement of orders for projects in which brferred suppliers are already identified. This will have an adverse impact on the financial health of players across the power industry. Another major threat is the poor health of power distribution companies or DISCOMs, which have emerged as the weakest link and are affecting the overall performance of the Indian power sector. Due to their poor health, DISCOMs often opt for load-shedding over supply of power from PPA or spot market sources. No or low off-take apart, this would also hamper future reforms in the Indian power sector. Poor health coupled with significant investment requirement for meeting new environment norms, may force weaker DISCOMs into early retirement of some of their older units, which otherwise would have come out as R&M opportunities. It has also delayed decisions on R&M for already identified units. Non-adherence or delay in the implementation of the new environmental norms for power plants is also a concern. A new set of norms has already been proposed with a strict timeline for adherence. Given that the implementation timelines may be missed, there is a possibility that utilities and IPPs may choose to order for new control equipment to meet the norm requirements at a leisurely pace. This would result in smaller than anticipated markets for ECS equipment. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Internal control system of the Company is robust, well established and constantly adapted to ever changing business environment. The management reviews actual performance of various businesses of the Company on a regular basis. It ensures documentation and evaluation of unit and entity level controls through existing policies and procedures primarily to identify any significant gaps and define key actions for improvement. Its effectiveness is assessed regularly through procedures/ processes set up by management, covering all critical and important areas. The monitoring includes an annual exercise assessing in totality, how the entire internal control system addresses risks and how individual controls interface with each other to create the entire internal control environment In line with internal audit program, the group internal audit team carried out internal audit of 4 units. The implementation of internal audit recommendations is followed through a monitored and time bound plan. The Audit Committee reviewed the results of self-assessment of internal controls and status of implementation of internal audit recommendations every quarter. The management actively implements the recommendations of such reviews. HUMAN RESOURCES MANAGEMENT The total employee strength of the Company stood at 3,506 as on 31 March 2016. Industrial Relations remained cordial at all locations and issues, if any, were amicably settled with the unions. Your Company firmly believes that employees are its biggest assets. It has put determined efforts in talent management, performance evaluation and management, learning and training initiatives to ensure that your Company nurtures its employees to achieve their personal as well as organizational goals. Learning & Development • Continued deployment of programs based on the structured Lean Learning approach • Focus on Learning Integration activities during FY 2015-16 • Continued deployment of offers until the end of December 2015 and specifically for EHS curriculum until end of March 2016 • Focus on delivery of need-based programs Key Achievements 1. TNA to Training Calendar: A Training Need Analysis (TNA) was performed for the third year succession, to consolidate the needs at the country level and map these with the internal Learning Offer 2. Training Deployment: There were 90 sessions deployed in FY 2015-16. While the deployment of all offers was planned until the 31 December 2015, only the EHS curriculum deployment continued till 31 March 2016 3. On-Site Training: There was a continued focus on on-site coverage with local solutions matching the training need analysis without compromising on quality 4. Internal Trainer: In FY 2015-16, the focus was on redemption of reward points by eligible internal trainers. 13 of the 20 eligible internal trainers were benefited from this exercise 5. Technical programmes: organized during FY 2015-16 are as follows: • 10 sessions held for around 250 employees • A 68-page handbook - 'Introduction to Thermal Power Plant (ITPP) Handbook, - was designed and developed by the TTI team. This was released by the Managing Director of the Company. • A new course - 'Introduction to Indian Boiler Regulation' - was developed and deployed • A five-day course on 'ASME B31.1 Power Piping Code' was conducted by ASME Fellow & Committee members, which was greatly apbrciated by participants. Summary It is expected that conventional power generation industry in India would recover, albeit at a rate lower than as envisaged earlier. The fundamentals of the market are intact. The Indian market offers attractive opportunities for long term growth. However, due to overcapacity in manufacturing and lower demand at brsent, brssure on prices and profitability is likely to continue in short term. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements, which may be identified by their use of words like 'plans', 'anticipate', 'believe', 'estimate', 'expect', 'intend', 'will', 'projects' or other words of similar exbrssions as they relate to the Company or its business are intended to identity such forward-looking statements. All statements that address expectations or projections about the future, including, but not limited to statements about the Company's strategy for growth, development, market position, expenditures, and financial results are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company undertakes no obligations to publicly update or revise forward-looking statements, whether as a result of new information, future event or otherwise. Actual results, performances or achievements could differ materially from those exbrssed or implied in such statements. Therefore as a matter of caution, undue reliance on the forward-looking statements should not be made as they speak only of their dates. The above discussion and analysis should be read in conjunction with the Company's financial statements included herein and the notes thereto. For and on behalf of the Board of Directors RATHINDRA NATH BASU Chairman & Non- Managing Director (DIN 07468130) ASHOK GANESAN Executive Director (DIN 01192973) Place: Noida Date: 14 June 2016 |
