Orient Green Power Company Ltd Management Discussions.

Company Overview

Orient Green Power Company Limited (OGPL) is amongst Indias largest listed renewable energy-based Independent power producing company focused on developing, owning and operating a diversified portfolio of renewable energy power plants.

The Companys portfolio currently stands at 521 MW comprising of 425 MW of Wind energy and 96 MW of Biomass projects.

Headquartered in Chennai, Tamil Nadu, OGPLs assets are spread across Tamil Nadu, Andhra Pradesh, Telangana, Rajasthan, Gujarat, Maharashtra and Karnataka. Further, it also owns and operates a 10.5 MW wind power plant in Croatia. The Company has also grown its assets inorganically by acquiring operating renewable energy assets from third parties.

OGPL has diversified off-take agreements and supplies the power generated to SEBs, Group Captive Customers, Merchant Power as well as open access.

In addition to the majority shareholding held by the Shriram Group, Orient Green Power is backed by global private equity funds Bessemer Venture Partners, an affiliate of Olympus Capital. OGPL is part of the Shriram Group which has interests in financing, engineering & construction, software and technology services and wind turbine manufacturing.

Economic Overview

2016-17 was another challenging year for the global economy, characterized by subdued demand and tepid growth. The inability to revive economic growth and improve employment meaningfully has led to sharpening intensity of anti-globalization sentiment in the developed world. When coupled with a rise in geopolitical tensions and increase in trade barriers, the impediments to free trade and smoother globalization are rising. As a result, global growth in 2016 is estimated at a post-crisis low of 2.3% and is projected to rise to 2.7% in 2017.

The performance of developed economies remained below long-term averages despite significant efforts to revive economic growth. However, the cumulative impact of these efforts is beginning to result in pockets of growth in these regions.While the U.S. economy did report soft exports, a continued drawdown in inventories and ongoing softness in private investment, there have been several signs of stabilization which has instilled confidence about a progressive unwinding of fiscal stimulus. Growth in the Euro Area slowed from 2.0% in 2015 to 1.6% in 2016, as both domestic demand and exports lost momentum. Confidence in the Euro Area though has remained resilient, despite the UKs decision to exit the European Union. The Japanese economy, despite witnessing weak investment and exports, did see pick up in private consumption, after two years of contraction. Going ahead, manufacturing activities in US are expected to rebound, contributing to a modest pickup in growth from 1.6% in 2016 to an average of 2.2% in 2017-18. Euro region and Japan should also see some pick up in activities on the back of supportive monetary policies. However, uncertainties associated with policies of the new administration in the United States and execution of the Brexit and implications on neighboring countries and the Euro region will undoubtedly influence the growth trajectory of advanced economies.

Growth in Emerging Markets and Developing Economies (EMDEs) also slowed down during the year and reached an estimated 3.4% in 2016, well below its long-term average of 4.4%.The impact of lower global trade was, to some extent, offset by a pickup in domestic demand and relatively stable financing conditions. Further, Stability in crude prices and supportive actions undertaken by the authorities are expected to revive economies. Brazil and Russia which together account for about two-fifths of commodity exporting EMDE output, are showing signs of improvement despite witnessing a second consecutive year of recession in 2016.

Chinas economy though despite clocking its slowest growth since 1990, expanded at a respectable 6.7%. The performance needs to be analyzed against the backdrop of the country trying to transition itself from manufacturing led to services and from investment focused to consumption. Going forward though, the economy is expected to deliver steady growth on the back of supportive macros and Government policy.

Amidst the challenges, India continues to remain steady, benefiting from tailwinds in the form of low oil prices and supportive structural reforms. While the unexpected ‘demonetization initiative by the Government caused some short-term disruption while contributing to significantly to long-term benefits; ongoing reforms like the passage of Bankruptcy and Insolvency code, Goods & Services Tax (GST) as well as regulation in sectors such as banking, telecom, insurance, real estate, etc. have been welcomed. When combined with increased spending on infrastructure, focus on ease of doing business as well as efforts to improve farm incomes, there is momentum building up to embark on the next growth phase for the country.

The combination of gradual progress in developed economies coupled with a revival of growth in developing economies has set the platform for expectations of improved growth rates.

Power Sector Overview

India, the worlds fifth largest producer of electricity, has witnessed a major transformational change in the sector with growth centric reforms as well as supportive policy interventions. As of March 2017, the countrys installed capacity stood at 326 GW, of which Thermal constituted ~67%, Renewables accounted for ~18% while Hydro and Nuclear amounted to ~13% and ~2% respectively. (Source: CEA)

Rapid economic growth has led to a multifold surge in the countrys demand for energy / electricity. India has been responsible for almost 10% of the increase in global energy demand since 2000. Indias primary energy consumption rose by 5.4% in 2016 as it remained the third largest energy consumer in the world. (Source) However, despite the impressive headline numbers, Indias per capita electricity consumption is well below the global average. While power generation capacity has expanded impressively, the progress in transmission and distribution infrastructure has not kept up. Further, plant utilization levels remain sub-optimal and the focus needs to be centred on matching centres of high demand with adequate supply in the most efficient manner.

Economically unviable tariffs, inefficiencies, inadequate Transmission & Distribution (T&D) infrastructure coupled with poor financial position of State Electricity Boards (SEB), the largest purchasers of electricity, continues to inhibit the growth of the sector. Taking cognizance of the above factors, policy-makers have made strenuous efforts to clear hurdles and increase investment in energy supply, while moving ahead with complementary policies on efficiency and energy pricing to incentivize supply while aligning it with demand. Some of the key initiatives undertaken by the Government and policy makers include – the National Tariff Policy(Source) to focus on renewable energy & private investment through competitive bidding, Electricity Act (2003), Developments of Ultra Mega Power Projects - through tariff-based competitive bidding, ease of land possession, provision of fuel, water & necessary clearances along with steps to ensure stable availability of fuels.

Indias power demand is expected to grow at a CAGR of 7% to 1,894.7 TWh over FY07–22,given that the country is in the midst of a profound transformation, moving to the center stage in many areas of global interaction. Meeting this demand would require a five to ten fold increase in the pace of capacity addition.

Renewable Energy Sector

The Countrys Renewable Energy sector has made significant progress over the years growing from 3.3% (in 2002) of the total generation capacity to present level of 17.5%. It now ranks second only to Thermal energy in terms of size after surpassing hydro energy earlier during the year.

Given that more than three-fourths of Indias electricity production depends on coal and natural gas, based on the fact that the country faces the risk of eventually running out of those reserves, Renewable Energy is seen as an important part of the countrys plan to complement and increase its energy security while addressing environmental concerns. Renewable Energy can also help enhance access in remote (rural) areas, diversify fuel sources, and provide local and global environmental benefits.

As of March 2017, Indias total installed renewable energy capacity stood at 57 GW, comprising of Wind 32.2 GW; Solar 12.3 GW; Bio 8.2 GW; Small Hydro 4.4 GW and waste to power 0.13 GW.

Snap Shot

• Renewable Energy segment saw capacity addition of 11.2 Gw during FY 2016-17

• India has a robust, time tested manufacturing capacity of 9,500 MW, which can be ramped upto 15,000 MW

• Estimated window energy potential in the country is 302 GW at 100 meters hub height.

• Several leading Original Equipment Manufacturers have undertaken Research and Development to develop technology to harness wind energy at 120 meters hub height.

• Wind Energy has an export potential of USD 2 Billion per annum - which is currently estimated 5 million per annum.

By 2022, India plans to add 175 Gigawatt of incremental renewable energy generation capacity, which will include 100 GW of solar power, 60GW of Wind power, 10 GW of Biomass and 5GW small hydropower.This implies a capacity CAGR of 27% over FY16-22 (vs 18% over FY10-16). In FY 2016-17, renewable power projects output rose by 26%, which resulted in Indias renewable energy sector emerging as the fastest growing in the world. Further, India is also expected to emerge as the third largest market for solar power by 2018 behind China and the USA.

Since inception, Wind Energy has been the largest component of RE generation capacity in India. As of March, 2017, India had an installed capacity base of 32.2 GW from Wind Energy, constituting ~63% of the total all India RE capacity. Further, FY17 saw record capacity addition of 5.4 GW, well above the annual target of 4 GW. The target set by the government of achieving 60 GW of wind capacity by FY 22 implies a CAGR of 14.3% over FY17-22, which is slower than a CAGR of 15% achieved during FY10-16 and half of growth achieved over FY 04- 10 of 29%.

In terms of potential, The National Institute of Wind Energy (NIWE) has pegged Indias onshore wind energy potential at 302GW, roughly equal to Indias current installed power generation capacity and more than 11 times the current installed wind capacity. The estimates are determined at a ‘hub height of 100 m at different sites (based on wind intensity) and for an assumed utilization factor of 20%. Despite delivering strong performance in the past and possessing immense potential, the Wind sector is infiicted by problems varying from inordinate delays in signing of power purchase agreements, absence of timely payments, poor offtake from Electricity distribution firms and inefficiencies in allocation of wind sites with high potential. However, the Government is undertaking necessary measures towards addressing the hurdles. Some of the initiatives include a focused effort in improving and strengthening Transmission & Distribution infrastructure along with emphasis on the UDAY scheme which is targeted towards improving the financial health of SEBs. Under the scheme, the states are to repay 75% of outstanding debt by issuing bonds while for the remaining 25%, discoms are required to raise funds through issuance of securities. States participating in the UDAY scheme are being rewarded with lower cost of funds, reduction in AT&C and transmission losses, interventions in energy efficiency, etc.

Solar power represents a strategic long-term solution for Indias energy problems and presently constitutes 18% of the countrys total renewable capacity. Capacity addition in solar power has grown at a CAGR of 41.42% over FY13-17 period. There is a huge potential for solar energy applications in grid-interactive solar power generation plants, solar thermal industrial applications, rural electrification, roof top–based applications and mobile towersin off-grid areas, and domestic water heating. The Government has also been undertaking necessary measures to harness the potential of solar power has been encouraging growth through fiscal and other incentives such as tax holiday on the earnings for 10 years for solar projects, generation-based incentives, accelerated depreciation, viability gap funding (VGF), financing solar rooftop systems as part of home loan, concessional excise and custom duties, preferential tariff for power generation from renewables, and foreign investment up to 100 per cent under the automatic route. In addition, there have been initiatives to strengthen the landscape through a guaranteed market for solar power purchase obligation for states and reduced wheeling charges as compared to those for conventional energy. (Source) However despite the impressive past performance and promising future, Renewable Energy segment continues to face problems primarily in areas pertaining to:

Intermittent source of energy: Wind being an intermittent source of energy poses challenges in balancing demand & supply on a minute to minute basis. However, it is, also a base-load supply that is best utilized when the wind resource is significant. This can also put a lot of pressure on the transmission system which is designed for transparent base-load scheduling and negligible excess transmission capacity.

Failure to enforce RPOs: The success of the REC mechanism hinges on demand from obligated entities, who demonstrate higher compliance when faced with substantial penalties. However, enforcement of the REC mechanism has been poor leading to sub-optimal execution of concept.

As a result, prices of the certificates have largely traded at the floor price of the specified range and volumes have been well below desired levels. This means that power generation entities have built up a large inventory of RECs and are unable to monetize it. As such, the REC mechanism has failed to meet its desired objective. The subdued performance of this mechanism has impacted the IRR of several projects. Further, the recent CERCs decision to reduce process at which REC can be traded has been challenged by various association at the Supreme Court. As a result, there is a temporary halt in trading, which is expected to receive with renewed vigour in the months to come.

Biomass fuel costs and supply: Timely availability of raw material is a key component for running a biomass power plant profitably. However, given its seasonal availability, sourcing and storability of raw material becomes challenging. Further, the quality of raw material is also vitally important as higher moisture content reduces available heating value & inhibits proper combustion. Lastly, one also needs to keep in check the transportation cost. All the above factors demand prudent working capital management and demands running a plant at high utilization level. It is essential that tariffs are structured to address these challenges.

Over the years, with fuel prices increasing disproportionately to the tariffs, biomass units across the country faced severe challenges in operating their units. But now with tariffs being attractive in most states, biomass plants have become viable. The key to operating these plants at profitable PLFs, is subject to availability of adequate working capital during the agricultural season.

Inadequate T&D: Insufficient evacuation infrastructure and grid integration is amongst the biggest problems affecting the development of RE projects, particularly for wind projects located at hinterland with limited or no evacuation infrastructure. Further, factors like relatively small size of RE projects coupled with seasonality of generation add another dimension to the problem as the size of the project does not adequately justify the economic viability for extending transmission lines for such projects.Governments are the primary investors in this space, more so because private investors are put off by long and frequent government delays, and the consequent costs. However, with improvement in distribution infrastructure and transmission technologies, there is a transformation underway.

Strained financials of Discoms: Financial and liquidity position of the biggest buyer of electricity, the Power distribution companies, though improving, remains suboptimal. Thus in the past, these entities were attracted towards less expensive (on a per unit basis) thermal power and were unable to consider long term implications. The situation though is gradually improving on the back of the UDAY scheme. Of the 27 states which have opted for the scheme, around 16 States had issued Rs.2.32 lakh crore worth of bonds; 85.39% of the planned issuances of Rs.2.72 lakh crore. The AT&C losses have come down to an average of 22.59%,while the gap between the average cost of supply and revenue realised has been reduced by 12 paise to 50 paise per kwh through cost realisation programmes, and tariff hikes.

Business Overview Wind Energy Business

Orient Green Power, part of the well diversified Shriram Group is one of the countrys largest pure play renewable energy generating companies. A leading wind generating company, OGPLs wind assets presently stands at 425 MW, representing ~ 82% of its overall portfolio.

The Company has steadily increased its capacities through organic and inorganic means, resulting in~2.6x increase in its size over the past 7 years. The consistent scaling up of capacities in the segment has correspondingly resulted in revenue growth from the business by ~3.5 times over the same period.

Apart from the consistent capacity addition, one of the other key reasons which have contributed to the higher revenue run-rate for the Company is the fact that most of its wind assets are placed across some of the best wind sites of the country. The Companys wind strategy is backed by strong site data to enable capacity optimization and selection of best technology.

Wind Portfolio

In addition to being geographically diversified, the Companys wind portfolio also enjoys a variety of off-take arrangements.

Potential owing to whole host of factors, largely external in nature–shortfall in grid infrastructure resulting in frequent grid back-downas well as variation in wind availability. Further, revenue generation under REC mode has also remained modest owing to sub-optimal functioningof the overall mechanism.

However, the Company has recently implemented a number of measures to address the challenges and also benefited from improvements in the landscape.One of the key factor which has contributed positively to the improved performance is the significant improvement in grid connectivity. Grid back-down was a major issue that had been impacting the performance over the last few years. However, there has been a marked improvement in that regard in recent times. The Company along with the wind association has been actively working with the state utility and the Centre to initiate measures to reduce incidences of grid back down. The efforts have started yielding dividends as the incidences of grid back down has sharply lowered over the years – from 40% three years ago it presently stands at under 10%.

Incidences of grid back down declined from ~40% around 3 years back to present level of under 10%

Some of the key measures which helped lower the incidences include completion of the 2,000 MW Green energy corridor from Kayathar to Sholinganallur, scheduled shutdown of Thermal power plants for maintenance during wind season, increasing the frequency bandwidth from 150 MW to 250 MW for renewables coupled with introduction of scheduling and forecasting mechanism to ensure improved uptime of the grid. Another key factor has been the sale of excess

• Completion of Green Energy corridor

• Shutting down of Thermal Power plant during wind season

• Higher frequency bandwidth for renewables

• Introduction of scheduling & forecasting

• Sale of excess power to other states power to outside states. Further, the Central Authorities have augmented the grid infrastructure ensuring better integration of Tamil Nadu into the National Grid. This means that the states capacity has been enhanced for sale of power to other states. Thus, Tamil Nadu will no longer be dependent on local requirements for power and can freely supply all excess wind power generated to meet requirements of other states. This is structurally positive for the business as the demand being catered to increases manifold and enhances the case for the State Government to encourage wind power generation.

Secondly, the Company is also working to enhance its growing by further addition of capacities in the wind business. The Company will be adding 43.5 MW in AP in wind season 2018, which is the second phase of a project where it has already set up 50.4 MW. This expansion makes economic sense as other infrastructure at the site including land, grid connectivity, layout, etc., is already in place and the Company can rapidly start generating power from fresh capacity which will deliver higher incremental profitability due to operating leverage. The equity portion for the project has been tied up and the Company is in an advanced stage of tying up the debt portion of the investment. The completion of the projects should result in further consolidation of our position as being one of the leading players in the segment.

Biomass Business

OGPL is the countrys largest biomass energy producer with a portfolio of projects aggregating 96 MW. Biomass constitutes ~18% of the Companys overall portfolio. The Companys biomass assets are spread across the country with primary presence in the state of Tamil Nadu, Rajasthan and Maharashtra. It also has plants in the state of Andhra Pradesh/Telangana and Madhya Pradesh.

Further, the Company also has diverse off-take agreement for its projects, spread across Group Captive, Merchant and PPA.

Despite, having reasonable scale, geographic diversification and concrete off-take agreements the performance of the business has been volatile over the years. The inability to raise adequate working capital has hampered the ability to operate plants at sufficiently high utilization, which in turn dragged the overall profitability of the business. This meant that cash generated from the business was adequate to meet debt obligations but not enough to reinvest for business growth. As a result, the low utilization rates created a spiraling effect which made it difficult to enhance the performance of the business.

The Company has already sold its biomass plant at Hanumangarh in Rajasthan in the prior financial year. In FY17, the Company has initiated discussion to sell its 20MW co-generation plant located in Kolhapur. After finding a buyer in the form of a fund called Sindicatum, the Company proceeded to complete the necessary processes and formalities including securing Board and shareholder approval and then moving the asset from OGPL to a separate entity called OGPL Maharashtra. This also necessitated a reassigning of the PPA in the name of the new entity which was achieved fairly rapidly. Upon completion of some of these processes, the host sugar mill for the co-gen plant which is Padmashri Dr. DY Patil Sahakari Sakhar Karkhana exercised their option under the agreement for the right of first refusal. They assented to acquire the asset at the same price at which it was contracted to be sold to Sindicatum. Subsequently, the MoU has been inked with the host sugar mill and the transaction is expected to be completed by Q2 of FY 18. This indicates that demand for good quality assets is fairly healthy across the landscape.

Save for these two plants, which are being sold to third parties, the Board has approved the transfer of the Biomass operations to its wholly owned subsidiary - Biobijlee Green Power Company Limited. This is a precursor to the sale of the biomass operations to the Promoter Company and its subsidiaries.

OGPL had made an application in May 2016 to the Madras High Court for demerger of the biomass business into a separate listed entity. In view of the accumulated losses and the reduced size of the operations, it was felt that demerger of biomass operations into a listed entity with limited growth potential would not create optimum value for shareholders.

Thus, sale of the biomass operations is the most efficient method to unlock value for shareholders. As a result, the Board has approved transferring 9 projects comprising 68 MW of capacity through this transaction.

The valuation of the biomass business has been undertaken by Ernst & Young, a reputed valuer in an independent manner. The valuation has incorporated the future projections of performance including the expected upside from steps undertaken in recent quarters to revive the business. The total Enterprise Value at which the sale has been approved is Rs. 275 Crore.The transaction will be subject to the approval of shareholders, creditors and regulators.

The sale of the Biomass Operations will provide multiple benefits to OGPL. This will accelerate the process initiated over a year ago to streamline the operations. The Biomass operations have been a drag on the overall performance and have diluted the substantial improvements achieved by the Wind business. The biomass business has generated very low EBITDA over the past three years and has contributed to over 50% of the losses. In addition, sale of the biomass operations will result in reduction of outstanding debt by about 250 crore and will meaningfully support efforts of the OGPL management to deleverage the balance sheet. The reduced interest outgo will improve the operating performance while enhancing the positive cash flows of the wind operations. Further the sale of the biomass operations will result in an increased networth of over Rs. 250 crore in the consolidated balance sheet.

The erstwhile OGPL will get transformed into a pure wind business post the sale of Kolhapur unit and Rajasthan unit as well as transfer of remaining biomass operations from its subsidiary to the Promoter Company.

Merger with IL&FS Wind

On Jan 19^th, 2017 the Board of OGPL approved entering into an exclusivity period of 90 days for the evaluation of merger with the Wind business of IL&FS. On April 13th, 2017 the Board extended the confidentiality & exclusivity period for further evaluation.

The merger will bring together complementary operations of both entities into a larger entity which will have a truly pan India presence and greater diversity of location, equipment, offtake arrangements and customer profiles.

The combined capacity would be 1,200 MW consisting of 775 MW of IL&FS Capacity and 425 MW of OGPL Capacity. This merger will result in the creation of we would become a Pan India player in wind business because OGPL is prevalent in the states of Tamil Nadu, Andhra Pradesh and Gujarat whereas IL&FS has strong presence in other states including Maharashtra, Rajasthan, Madhya Pradesh and Karnataka with only small quantities ofassets in Tamil Nadu and Andhra Pradesh. Thus, the combined presence we would be much more diversified both in terms of location of turbines, type of turbines as well as in power offtake arrangements. Thus, it is envisaged that the combined entity would generate alot of operational synergies to improve the operating performance as well as benefit from scale to improve the balance sheet profile.

The MoU for the exclusivity period has been extended and the Board of Directors of both companies will decide the progress of the merger

REC Mechanism –

Renewable Energy Certificate (REC) is a market based instrument to promote renewable energy and facilitate compliance of renewable purchase obligations (RPO). The mechanism aims to enable obligated entities to meet their requirements of generating a percentage of power from renewable sources. Where entities are unable to set up projects themselves to generate the required proportion of renewable power, they can purchase RECs for the shortfall. One REC certificate is treated as equivalent to 1 MWh. REC certificates are bifurcated into solar RECs and non-solar RECs.RECs are sold by entities by eligible renewable energy projects only.

Although high in intent the mechanism is yet to meet its potential primarily owing to challenges in implementation due to the prevailing dynamics of the sector.

Revenue generation under the REC mechanism was relatively better compared to previous years on the back of stricter enforcement of law by the regulators. The Trading volumes on both power exchanges hit an all-time high, during the year.

FY17 was a good year for REC trading characterized by higher volumes and delivery for large part of the year. It started on a positive note with strong volumes during the first quarter, following the Honble Supreme Courts order on RPO compliance and UERCs order wherein they directed all obligated entities to strictly fulfil their RPO obligation of FY 2015-16, by July 2016.

The overall momentum though went missing for a brief period of time during the year with volumes and demand both lagging the annual average. However, it was a temporary blip, as volumes / trading remained high on a relative basis.

The one challenge which has emerged with respect to RECs is that the CERC has indicated a lower price range for REC for both solar and non-solar, given the falling tariff in sporadic cases of wind and solar installations.The Non-solar RECs which were to be trading at Rs. 1.50 -3.50 per unit is now as perCERC to be traded at Rs.1.00 -2.90 rupee range. This has been contested by existing players as being contrary to the intentions of the REC mechanism since those players who have complied are paying a higher price while non-compliant players will actually benefit with a lower forward price. As a result, this issue has warranted litigation and the multiple association of power producers have approached the Supreme Court to appeal this decision by the CERC. The Supreme Court has been pleased to stay the implementation of decision of CERC and it is in fact going to review it. The Company is hopefully that the review would provide a positive result specifically for the historic plants while the rules can be changed prospectively for new plants.

Given this development, the impact on the REC revenues cannot be discerned at this moment but there is no questioning the applicability and longevity of the REC mechanism which after the outcome of this development should actually get strengthened due to a sharper degree of regulatory oversight.

FY17 saw a major revival in the Companys financial performance as reflected by revenue and EBITDA growth of 13% and 37% for the year respectively. The improved performance is on the back of a number of strategic initiatives under taken by the Company in recent times to address some of its legacy issues and position itself to optimize opportunities in the environment.

Revenues for the year stood at Rs. 461 crore as against Rs. 410 crore reported during corresponding period last year, higher by 13%.

The Revenue growth was primarily driven by strong performance of wind business which delivered revenue growth of 25% on a Y-o-Y basis. Timely onset of wind season and better than normal wind availability contributed to the rapid growth. Further, higher PLFs following greater proportion of newer assets and improved grid connectivity contributed positively to the performance. Biomass business generated revenues worth Rs. 78 crore for the year as against Rs. 102 crore.

EBITDA for the year stood at Rs. 293 crore as against Rs. 214 crore generated during previous year; higher by 37%. Higher revenue coupled with better cost management and higher operating leverage resulted in driving the operating profitability of the business. EBITDA margins for the year stood at 64% as against margins of 52%, higher by 1,200 bps. Depreciation for the year stood at Rs. 169 crore as against expense of Rs. 206 crore registered during last year, lower by 18% due to sale of some of the capacities.

Interest expense for the year stood at Rs. 267 crore as against an outgo of Rs. 278 core during last year, lower by 4%. This is the second consecutive year of reduced finance cost. Over the years, despite reporting healthy operating performance though, higher interest expense used to soak up most of the profitability resulting in making business report losses. As such, in an attempt to resurrect the business and enhance the financial position, the Company has been working towards structuring a large chunk of its debt in the wind business under 5/25 scheme. It has also completed 5/25 for senior lenders to extend the tenure of loans amounting to Rs. 765 crore of debt under subsidiary Beta wind by 10 years from 2023 up to 2033. Further, the cash proceeds from monetizing some of the unviable Biomass units would also be partly deployed towards repaying debt to incorporate a longer tenure and reduce interest rates. Lastly, the Company is also working towards re-financing part of its debt at prevailing interest rates. The Company is confident that the combination of these initiatives will help transform its financial position. Further the pickup in REC trading will also help it improve its profits and cash flows.

Loss after tax for the year stood at Rs. 96 crore as against loss of Rs. 337 crore reported during last year. The Companys net worth net worth stood at Rs. 597 crore as against Rs. 746 crore during March 2016. Long term debt of the Company stood at Rs. 1,313 crore as against Rs. 1,679crore during last year. Debt – equity ratio as of March 2017 stood at 2.2 as against 2.3 during March 2016.

Outlook

The Company is well poised to deliver a consistent and healthy performance going forward on the back of its recent strategic initiatives and improving macros. A combination of measures should help it overcome its past growth impediments and put in on course forits next growth phase. The current years performance is reflective of the positive change. Improving infrastructure in terms of grid availability and transmission facility will help address the grid back down problem which had been one of the primary factors impacting the business. However, persistent efforts on the part of state and central government have resulted in addressing the grid unavailability problem to a considerable extent which should boost the Companys revenue generation rate in the future. Now that the grid backdown challenges are largely behind. The Company was postponing such expenses until the resolution of grid availability.

Further, the Companys plan to further add capacity to benefit from operating leverage will also help. Lastly, the efforts by regulators and improvements in the transmission and distribution landscape have steadily enhanced the operating environment for wind power leading to further buoyancy of outlook. The key to generate profit in biomass business is to run the units at competitive utilization levels but given that the Company consistently faced difficulties in securing steady supply of raw material at economically viable rates it had to operate at a sub-optimal levelresulting in maintaining of lower working capital levels; hampering the business performance. Tariff rates in the business though have always remained attractive, reflective of the business potential. The decision of monetizing its stake in unviable business units and using the proceeds towards meeting the working capital needs of profit accretive units as well as reducing overall debt will not only help in improving the profitability profile of the business but will also help in improving its cash flow position. Also, the measures undertaken towards lowering its finance cost should help translate much of the operating profitability to its bottom line. Post securing lenders nod for extending tenure on the existing loans, and shifting a large proportion of the debt drawn for wind business under 5/25 scheme should help align the cash flows movement and improve the overall liquidity position of the business.

Revenue accretion under REC mechanism although temporarily disbanded, is expected to emerge stronger with greater clarity on implementation given the increasing degree of regulatory action. Increasing contribution from REC mechanism would continue to support the the liquidity position of the business. Building on the momentum of recent quarters and against the supportive background, the Company is expected to continue to deliver strong growth in the future.

Human Resources

A motivated and dedicated work force helps shape and transforms the business goals into reality and as such your Company endeavors to take necessary steps and measures towards development and retention of quality labor force.

It also works towards identifying influencer groups within the organization, whose networks could be leveraged to spread ideas of innovation and collaboration.

The Company focuses on individual employee contribution and is home to some of the best employees in the country that are equipped to run and manage wind mills and biomass plants of varying complexities.

The Company has also established a transparent working environment as it believes that employees voice and feedback are extremely important.

Also, as part of regular performance and career development reviews all regular employees undergo a KRA setting exercise in the beginning of the year followed by mid-year and annual appraisal.

All of this has contributed to high employee engagement levels which have ensured a lower employee turnover ratio.

Internal Controls and adequacy

The Company has an appropriate system of internal control in place to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition, and that all transactions are authorized, recorded and reported correctly. It also has an effective audit committee in place which carefully scrutinizes audit reports submitted by the internal auditors.

It also has an effective audit committee in place which carefully scrutinizes audit reports submitted by the internal auditors. The committee is empowered to follow up and implement progressive measures to further elevate the standards of internal controls.

The internal control system is supplemented by an extensive program of internal audits, reviews by management, and documented policies, guidelines and procedures.

Managements Responsibility Statement

The management is responsible for making the Companys consolidated financial statements and related information mentioned in this annual report. It believes that these financial statements fairly reflect the form and substance of transactions, and reasonably represents the companys financial condition and results of operations in conformity with Indian Generally Accepted Accounting Principles/ Indian Accounting Standard.

Safe Harbour

Some of the statements in this Annual Report that are not historical facts are forward looking statements. These forward looking statements include our financial and growth projections as well as statements concerning our plans, strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. There are risks and uncertainties that could cause actual events to differ materially from these forward looking statements. These risks include, but are not limited to, the level of market demand for our services, the highly competitive market for the types of services that we offer, market conditions that could affect our services, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualified personnel, currency fluctuations and market fluctuations in India and elsewhere around the world, and other risks not specifically mentioned herein but those that are common to any industry.