Management Discussion Indian Economic Overview
The Economic Survey Report of the Government of India for the year 2010-11 hadpredicted that India would bounce back to 8.5% growth in the fiscal year 2010-11 and ahigh 9% in 2011-12 on the way to becoming world's fastest growing economy in four years.The Survey said: It is entirely possible for India to move into the rarefied domainof double digit growth and even attempt to don the mantle of the fastest growing economyin the world within the next four years. It, however, expressed concern over risingprices, saying that a major concern during 2009-10 was the emergence of high double digitfood inflation.
Power Transmission and Distribution scenario in India
Power is an essential requirement for all facets of our life and has been recognised asa basic human need. It is one of those critical infrastructures on which the socioeconomicdevelopment of a country depends. The growth of the economy and its global competitivenesshinge on the availability of reliable and quality power at competitive rates. This callsfor India’s incremental power demand will be second only to China. Since the price ofresources that generate power is expected to keep increasing as resources become scarce,creation of a stable power infrastructure has become a key thrust area, particularly foremerging economies. New investments are attracted to regions that can guarantee a stableand high-quality supply of electricity. Indian companies are working to ensure that highquality power is generated and transmitted across the length and Power sector is likely torequire US$ 600 billion investment by 2017.
India is the world's sixth largest energy consumer accounting for significant portionof the world's total annual energy consumption. However, India has an electrification rateof only 44% (source: World Coal Institute). As a result, there is asignificant section of the country, which is still not connected to the grid or suffersfrom frequent load-shedding. Global consultants McKinsey and Company have in their recentreport Powering India: The Road to 2017 projected that if India grows at anaverage rate of 8% up to 2017, the country's demand for power will soar upto over 300 GWfrom the current approximate 200 GW in 2009.
The report also notes that there will be four factors that will drive this growth:-
• India's manufacturing sector;
• Growth in residential consumption;
• the connection of over 125,000 villages to the grid;
• Realisation of demand suppressed due to load shedding.
This demand for additional power is expected to be an opportunity worth US$ 600billion. Transmission is a key component of this growth with investments anticipated to beto the tune of US$ 110 billion. There are a number of initiatives that are alreadyunderway – among the most ambitious is the government's effort to have 'Power forAll' by 2012. The Ministry of Power is the main authority for the overall development ofelectrical energy in the country. This is a successor of the earlier reforms programmewhich the government launched under the 'Electricity Act, 2003’. The Act was aimedtowards:
• Consolidating the laws related to power generation, transmission, distribution,trading and use of electricity;
• Promoting competition in the power sector; and
• Supplying electricity to all areas.
A part of the agenda was to rationalise electricity tariffs, promote efficient andenvironmentally benign policies, provide stringent penalties in case of theft ofelectricity, which is a growing menace in India. The Indian Government has earmarked fundsof about US$ 200 billion for this sector over the Eleventh Five Year Plan for achievingits objectives. The identified thrust areas in the power industry include electricitygeneration, T&D networks and rural electrification. Many proactive steps have beenunder taken like SEB Unbundling, Distribution Franchise Model, Accelerated PowerDevelopment
Reform Programme, Ultra Mega Power Projects, Open Access and Power Trading, amongothers, to give the much needed momentum to this industry.
The possibilities in the Power sector are immense and have opened up business avenuesfor all entrepreneurs. However, Transmission still remains an area where the governmentprefers to own the networks themselves. This has resulted into a broadening gap betweenthe quantum of generated power and the amount of power that can be evacuated by thecurrent transmission networks. Recognising this disparity, the government has announcedthat it may allow private participation in the Transmission Sector by any of threemechanisms. Either in a JV with PowerGrid to build transmission lines, setting up ofIndependent Power Transmission Companies to bid for national projects, or constructing andoperating dedicated transmission lines for generation companies from power plants to loadcentres.
Future Prospect of the Power Sector in India
The prospects for the power industry appear to be good. There is currently ademand-supply gap in the power sector and the next five to six years would see newcapacities being built to meet the economy's growing needs. According to Integrated EnergyPolicy, the country needs to add 8 lakh MW by 2032 to sustain the GDP growth rate at 9%plus. (source: Crisil Research Report)
Several states including Maharashtra, Gujarat, Madhya Pradesh, Tamil Nadu, AndhraPradesh, have been advertising and inviting expressions of interest from potential powerplant developers. Your Company thus sees huge potential in this.
As the second largest growing economy, India is still far below global standards inelectricity capacity. China, for instance, adds 100,000 MW of capacity every year to fuelits economy. It is expected that the contribution from the emerging economies wouldcontinue to be the key driver for the growth of this industry. The Government renewedthrust for the growth in infrastructure in India is expected to lead to growth in thepower segments. All in all, the power industry are all set to be the backbone of theemerging economies.
The Prospect of the Transmission and Distribution (T&D) sector has beenparticularly promising. India's largest T&D player-Power Grid Corporation of India
Ltd (PGCIL) has plans to spend Rs.1,00,000 crore over the next seven years doubling itsnetwork to 1,57,000 km as compared to 77,000 km currently. Hence, your Company can expectnew orders from PGCIL. India has an ambitious plan to build 62,000 MW of new powergeneration capacity by 2012 and another 1,00,000 MW by 2017, which would requireinvestments of atleast Rs.8,00,000 crore.
Although there are excellent opportunities in the T&D sector but at the same timechallenges cannot be overlooked. The sector is experiencing challenges on various frontssuch as capacity addition, competition, execution, talent pool, availability of manpoweretc which is resulting in margin pressure, delays, cost overrun and penalty. A hugecapacity addition has been seen in manufacturing specially in power transformers. TheIndustry is also facing shortage of skilled manpower in transmission stringing. All thesechallenges are impacting Industry's performance and this phenomenon is likely to continuetill some corrective steps are taken.
Your Company's primary focus within the power sector is in the Transmission &Distribution segment. Our strategy is to be an end-to-end solution provider in the T&Dsegment. With this objective, your Company has diversified from being a product Company tobeing a solution provider and thus offering complete concept-to- commissioning solution tocustomers in the T & D
Segment. Your Company is also Green conscious. Growth will not be at thecost of the environment. Your Company believes that Eco friendly companies will have abetter market than others, as corporates all over the world, but specially in the powersectors are becoming focused on the impact of their businesses on the environment.
Your Company is structured along the following Divisions:-
Transformer Division
The Transformer Division is the prime division of the Company. Your Company is one ofthe largest manufacturer of transformers in India and a leading player in 220kV and 400 kVtransformer segment. Transformers up to 400 kV are manufactured at Thane; at Jalgaon wherethe Company has two separate plants at different locations, 132 kV power transformers anddistribution transformers are manufactured. The total installed capacity of all thesethree Plants is 20,000 MVA per annum. The Division manufactures a wide range oftransformers used in the power industry around the globe. It manufactures large GenerationTransformers (GTs) and Interconnected Transformers (ICTs) of 400 kV Class and alsoDistribution Transformers and is leader in Furnace
Transformers and Rectifier Transformers. During the year, the division has receivednumber of orders for 400 kV class transformers from prestigious customers like DTL,MPPTCL, MSETCL etc.
EMCO is the first transformer manufacturer in the world to have successfully tested a315MVA 230kV Generator Transformer for Dynamic Short Circuit Test
Project Division
1. Substation SBU
Your Company undertakes turnkey EPC Projects in T&D Sector up to 765kV fromdesigning to commissioning, in Sub-stations including GIS, Industrial Switchyards andPower Distribution Systems Your Company also undertakes upgradation and revamping ofexisting distribution systems and power evacuation system for power projects. Your Companyis executing n u m b e r o f 4 0 0 / 2 2 0 / 1 3 2 k V Switchyards for various utilitiesacross India. Your Company also has strategic tie-ups with international suppliers for Gasinsulated sub-stations (GIS) and underground cables (UG Cables).
EMCO projects division is executing 5 prestigious orders worth Rs. 550 crores fromPower Grid (PGCIL) for 637kms of 765kV transmission lines
This SBU focuses on turnkey sub-station projects up to 400kV. This SBU has successfullyexecuted various substation projects in various parts of the country.
2. Transmission Line SBU
Your Company has completed modernization, up gradation and expansion of productioncapacity of it’s Tower Plant at Vadodara to 45000 MT p.a. Last year, we made a bigbreak-through by bagging orders of Rs.550 Crore for construction of 5 Transmission LinesProjects of 765 kV from PGCIL. The Company has already started execution of these projectsand these lines are to be constructed in around 2 years. Your Company has alsocommissioned the prestigious 220kV Double Circuit Single Strung (DCSS) Transmission LineProject atBikaner for V.S. Lignite Power Pvt. Ltd., Hyderabad. The Company has completedthe turnkey project involving construction of a 16.5 km., 110 kV Double CircuitTransmission Line for Lavasa Power Corporation Ltd. Your Company has successfully executedtransmission lines of more than 10,000 CKMs. This SBU of your Company has a huge growthpotential in India and International markets.
3. Balance of Plant
With a strong background as an EPC contractor in the power sector, your Company hascreated separate SBU for providing turnkey services in the Balance of Plant (BOP) area ofpower generation. Your Company has entered into strategic working arrangements with fewwell-known companies in the civil and mechanical domain which, coupled with the in-houseexpertise in electrical project management and execution of EPC projects, provides aone-stop solution for the entire BOP island of thermal power stations.
Meter Division
Your Company is developing SMART metering technology. Its static energymeters and metering solutions incorporate the latest technology to enable powerdistribution companies operate with greater efficiency. Your Company's SMARTMeters use various communication technologies like LPR, PLC, GSM and GPRS.
EMCO is the only manufacturer in India to be approved with SEC (Saudi Electric Company)for supply of transformers in Saudi Arabia
As part of addressing ever growing and ever changing requirements of energy metering,your Company has setup an extensive Research and Development centre. This R&D Centremaintains your Company's place in the electricity metering market by focusing ondeployment of latest technologies and customized offering to various customers. It has ateam of dedicated technologist in the area of electronic hardware, real-time embeddedsystem, communication systems, application software and reliability engineers. YourCompany has developed unique solutions in the area of tamper detection, load management,revenue protection, energy accounting and communication in this R&D Center for variouscustomers.
International Division
International division offers single point access to all global customers for itsproducts and solutions, resulting in success of your Company in international market.
Consistently meeting international quality standards, your Company exports its productsand solutions to more than 40 countries including USA, Europe, Middle-East, Africa,South-East Asia and the Indian subcontinent. It has an impressive international clientelethat ranges from power utilities, oil & gas sector, mining, EPC contractors andindustries.
With its associates and partners spread across the globe, your Company has garnered theexpertise of supplying transformers that meet various international standards like IEC,ANSI, DIN, SANS.
The Division has supplied a 150MVA, 330/132/33kV, 3-Phase, 50Hz Auto Transformer toPHCN, Nigeria. This is by far the highest voltage class transformer exported by yourCompany outside India.
Coalmine-Indonesia
Your Company has invested (37.35% stake) in a Coal mine in Indonesia having anestimated thermal coal reserves of 105 million metric tons through its wholly-ownedSingapore based subsidiary. The mine is under development and infrastructure is beingdeveloped. The Company expects to generate reasonable revenue and start dispatching coalduring the financial year 2010-11.
Accolades for EMCO
• Received Appreciation Certificate from Hon'ble Union Minister for State forPower for the Product- 'Eco-friendly Dielectric Fluid for Transformer' for the BestProduct Contest at ELECRAMA-2010.
• Only Indian Company selected to present a technical paper at CIGRE in Paris,France.
• Received Best Export Performance Award from Thane Manufacturers Association.
• First transformer manufacturer in the world to have successfully tested a315MVA, 230 kV Generator Transformer for Dynamic Short Circuit Test at the world-renownedKEMA High Power Test Lab, Netherlands.
• Awarded ISO:27001 Certificate for Information Security Management System (ISMS)by Bureau Veritas Certification (BVC)
• Under the auspices of the Ministry of Power, Govt. of India, EMCO Limited hasbeen empanelled as IT Implementation Agency in the Role of 'Meter Data AcquisitionSolution Provider (MDASP)' by the Power Finance Corporation.
• Transmission Line SBU at Vadodara obtains ISO:9001-2000 Certification.
Human Resource
Your Company is on a path towards its vision of building a World-class Company. Thehighlights of the HR performance during the FY 2009-10 are as follows:-• CIICommendation Certificate for strong commitment to HR.
• Improvement in recruitment by rate and reduction in attrition rate of the staffacross the organization
• Higher retention at shop floor through implementation of projectDrona towards skill and functional competency improvement
• Enhanced employee productivity across various business
• Deployment of wealth sharing initiatives
• Revision of the behavioral competency framework
• Software implementation- HR Helpdesk, OD Online, Attendance viewing
• Effective implementation of suggestions
• Implementation of employee welfare initiatives on the basis of feedback receivedfrom Employee Engagement Survey
• Institutionalisation of the Eklavya Program: distance mentoring and familarisingEklavya with identified specific business process through pre-joining study project.
• Institutionalization of stringent selection and training process for contractEMCOites similar to regular EMCOites.
At all levels, your Company continues to focus as part of the vision to make EMCO aGreat Place to Work, so that your Company become the preferred choicefor potential employees.
Initiatives towards Corporate Social Responsibility:
EMCO Foundation, the extended arm of EMCO Ltd, in line with its vision focused onEducation, Environment and Healthcare.
Education projects, named Akshar were carried out through threeinitiatives:
Through, Yashasvi a combination of Academic Merit Awards & EducationalScholarship, we felicitated top 10 SSC students and additional ten girl children passingfrom Thane and Jalgaon Municipal schools and a trust run school in Jalgaon with cashawards.
Parivartan, a Personality Development Program designed, with an objectiveto give input in self- development to students from under privileged section of society,was implemented in association with Dr. P N Singh Foundation. Studentsunderwent training in 14 different topics spread across 40 sessions. The training intendsto transform their personality, to instill confidence and to help them communicateeffectively. They were taught to learn to dream and work towards realising their dreamsand be a useful and good citizen. This year we covered 1400 children of Thane &Jalgaon Municipal schools and a trust run school in Jalgaon.
Lastly, as Community Education in association with Prathamcalled Shiksha' your Company provided special coaching to slum children from 6to 14 yrs to improve their reading, speaking and writing skills in English, utilizingcommunity residents as teachers by imparting teaching skills to them. About 1100 childrenwere covered in around 50 communities in Thane district comprising Thane city and othernearby pockets. Similar programme on learning and reading through basics for Marathilanguage and Arithmetic were conducted in 20 slum areas in Jalgaon city covering around400 children.
Through the various initiatives under Akshar your Company has so far covered around5100 under privileged children.
Through Environment programme Ankur your Company distributed 1000 seedpackets (Karanj) to visitors, customers, vendors and other associates to create awarenessand thus involve more people in the green movement.
Through our Healthcare project named Jeevan, Blood Donation Drives werecarried out in Thane and Jalgaon and 233 units of blood were collected. We have so farcollected 543 packets of blood.
Besides, your Company has also given donations towards education of 30 Tribal villagescovering about 600 children and also to organisations taking care of specific healthproblems.
For the coming year, we are expanding our activities in all the above initiativesreaching more people and will be taking up a new initiative called Amrut awatershed project along with holistic development of village Bilwadi in Jalgaon district.
Your Company believes in involvement of EMCOites and their families in all theactivities of the Foundation so that our initiatives are involved and sustainable. YourCompany sees the spirit of transforming lives, getting reflected in the commitment of ourvolunteers, who are convinced about their duty of giving back to the society, in returnfor what they are today and Inspired by Tomorrow.
Technology Focus
To stay ahead of time and match the pace of change, your Company makes every endeavourtowards inculcating a culture that encourages innovations and work on fresh technologyperspectives. The International Advisory Board on Technology (IABT) formed in 2008provides guidance on the on-going IABT projects and the futuristic technology projects.Technological innovations may impact quality of life and environment. Considering thepotentially adverse impact of the growing industrialization on climate change the worldover, the focus is gradually shifting towards transforming and developing technologiesthat are environmental-friendly with a view to strike an ecological balance. Your Companyhas a well-equipped Corporate R&D Centre staffed by a team of specialists andprofessionals working passionately on innovative development projects synergic to yourCompany’s business interests.
EMCO develops world’s first 3 phase HTS Transformer with a natural convectioncryogenic cooling system under JV with CPRI- Ministry of Power, Govt. of India
As a result of our dedicated and perseverant in-house R&D efforts, we havedeveloped some innovative products and technologies that are covered under ‘Annexureto Directors’ Report’. Some of the highlights include: filing of 2 patents fordeveloping new technologies; bestowed with ‘Best Innovative Product Award’ atElecrama-2010 for developing eco-friendly dielectric fluid for transformer; published 3technical papers at various international conferences, including a paper at CIGRE-2010Session, Paris. Your Company had successfully implemented newly developed transformer yokeshunt technology resulting in stray loss reduction, enhancing the product efficiency andmaking it more competitive.
Internal Control
The Company has in place effective systems for internal control ensuring accurate,reliable and speedy compilation of financial information, safeguarding the assets andinterests of the Company and ensuring compliance with laws and regulations. The Companyhas an exhaustive budgetary control system and the management regularly reviews the actualperformance. The Company has also put in place a well-defined organizational structure,clear authority levels and detailed internal guidelines for conducting businesstransactions.
The Company has adequate internal control procedures commensurate with its size andnature of business. The i n t e r n a l c o n t r o l s y s t e m s a r e supplemented byinternal audits that conduct regular audits to ensure adequacy of the control system,adherence to management instructions and legal compliance. The Audit Committee of Board ofDirectors periodically reviews the audit plans, observations and recommendations of theinternal and external auditors with reference to significant risk areas and adequacy ofinternal controls.
The exposure in foreign currency transactions of the Company both in terms of import,export and exposure in overseas investments in subsidiaries have increased over the years.To mitigate the risks associated with the fluctuations in the foreign exchange, theCompany is taking adequate measures, however, risk associated with mark to market conceptremains.
Forward Looking Statements
Certain statements in the Managements Discussion and Analysis describing the Company'sobjectives, projections, estimates, expectations or predictions may be forward lookingstatements within the meaning of applicable securities laws and regulations. Forwardlooking statements are based on certain assumptions and expectations of future events.
The Company cannot guarantee that those assumptions and expectations are accurate orwill be realized. Actual results could differ from those expressed or implied. The Companyassumes no responsibility to publicly amend, modify or revise any forward lookingstatements, on the basis of any subsequent developments, information or events.