Adani Transmission Ltd Management Discussions.

1. Economic Outlook

Global Economy

According to the International Monetary Fund (IMF), the global economy grew by 3.6% in 2018. The growth rate was weighed down by multiple factors including weaker sentiments in financial markets, heightened trade tensions between the US and China, macroeconomic issues in Argentina and Turkey and volatility in crude prices. United States though was an outlier among advanced economies as its gross domestic product (GDP) grew 2.9%, an increase of 70 basis points over the 2.2% growth registered in 2017. A strengthening US Dollar, neutral unemployment and minimal inflation were the primary catalysts behind this growth. Eurozone registered a GDP growth of 1.8% in the year, down from 2.4% in 2017, largely due to sluggish demand in the domestic market. At 6.6%, Chinas economic growth was lower than the 6.9% level recorded in 2017.


The global economy is projected to expand by 3.5% in 2019. The International Monetary Fund (IMF) has downward revised global growth estimates due to the negative effects of the US and China increasing trade tariffs, as well as weaker momentum witnessed in Europe during the second-half of 2018. Additionally, major economies such as Germany and Japan may also be indirectly affected by trade tensions.

Global growth (%)

Particulars Actual


2018 2019 2020
World Output 3.6 3.3 3.6
Advanced Economies 2.2 1.8 1.7
US 2.9 2.3 1.9
Eurozone 1.8 1.3 1.5
Japan 0.8 1.0 0.5
UK 1.4 1.2 1.4
Other Advanced Economies 2.6 2.2 2.5
Emerging Markets and Developing Economies 4.5 4.4 4.8
China 6.6 6.3 6.1

Source: International Monetary Fund (IMF)

Indian Economy

India emerged as the fastest growing major economy in the world during FY19 with a GDP of 6.8%, even as the Central Statistics Office (CSO) projected 7% in the second advance estimates. It is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its core strengths and partnerships1.

During FY19, India retained its position as the third largest startup base in the world with over 4,750 technology startups. Besides, its labour force is likely to touch 160-170 million by 2020 (based on the rate of population growth). These factors coupled with an increased participation of the labour force and higher education enrolment, among others are consolidating Indias economic powers (Source: A study by ASSOCHAM and Thought Arbitrage Research Institute). Over the years, India has also stabilised its foreign exchange reserve, which was $405.64 billion in the week up to March 15, 2019 (Source: Reserve Bank of India (RBI))2.

Indias gross domestic product (GDP) is expected to reach $6 trillionbyFY27andachieveupper-middleincomestatusinthe wake of digitisation, globalisation, favourable demographics and positive policy framework. Indias revenue receipts are estimated to touch र 28-30 trillion ($385-412 billion) by 2019, owing to Government of Indias (GoI) measures to strengthen infrastructure and deliver structural reforms like demonetisation and Goods and Services Tax (GST)3.

Annual GDP growth rate (%)

FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19
8.2 7.1 6.7 6.8

Source: Central Statistics Office (CSO)

Additionally, India is expected to be the third largest consumer economy as its consumption is likely to triple to $4 trillion by 2025, due to shifting consumer behaviour and expenditure pattern (Source: A report by Boston Consulting Group (BCG)). It is estimated to surpass USA to become the second largest economy in terms of purchasing power parity (PPP) by 2040 (Source: A report by Pricewaterhouse Coopers)4.

In May 2019, Honourable Prime Minister Narendra Modis government received a strong mandate for a second term in Indias general elections. The government is expected to maintain its strong focus on the power sector and ensuring electricity for all citizens.

On a path towards sustainable development, India is also focussing on developing renewable energy. It plans to acquire 40% of its energy from non-fossil sources by 2030—wherein, it currently derives 30%—and increase its renewable energy capacity to 175 GW by 20225.

2. Power Industry Review

Indian power sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continues to drive electricity demand in India. The Government of Indias focus on attaining ‘Power for all has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing at both the market and supply sides. Supply side in India is one of the most diversified in the world. Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to renewable sources such as wind, solar, and biomass.

Power Generation Sector

Indias total installed power capacity is 356 GWs, as on 31st March, 2019. Power generation across the country is primarily dependent on coal, which contributes to more than 50% (194 GW) of the total installed capacity whereas hydro and renewable power generation capacity stand at 45 GW and 78 GW, respectively. The total installed capacity is expected to grow from 356 GW to 1,000 GW by 2032.

In the last decade (FY10 onwards), electricity generation in India has grown at a CAGR of 5.5%. During FY19, India witnessed electricity generation of 1,249 BU, which increased by 3.56% over FY18.

Indias power supply scenario has remarkably improved as a result of increased availability of electricity that has surpassed the growth in its requirement. During FY19, the energy deficit and peak deficit has been reduced to 0.6% and 0.8%, respectively.

The peak demand is expected to grow at 5.6% and likely to cross 370 GW while the energy requirement is expected to increase at 5.2% and likely to exceed 2,500 BUs by 2032, respectively.

The peak demand which is expected to grow at 5.6% likely to double to 370 GW by 2032.

Power Transmission Sector

The power transmission networks constitute the vital arteries of the entire power value chain of a country. It goes without saying that the growth of power sector is contingent to the development of a robust and a non-collapsible transmission network.

India has total transformation capacity and transmission line length of 9 Lakh MVA and 4.13 Lakh Ckt KM, respectively, as on 31st March, 2019. The following table provides a detailed breakup with respect to the share of central, state and private transmission networks:

India has seen the robust capacity addition in generation in the last decade as a result of the thrust on capacity addition; however, investments in transmission & distribution have not kept pace with the growth in generation capacity addition. The last few years have been quite eventful as far as transmission business is concerned, wherein capacity addition (in terms of CAGR) has outstripped the generation.

Private sector players in India enjoy the ownership of ~7.5% total transmission network, while the public sector has a 92.5% share (as on 31st March, 2019), however at the same time private players in generation constitute ~46% of market share in terms of installed capacity This low share of private sector participation in the industry keeps Indias transmission sector underinvested. However, recently GoI has been encouraging investments in transmission with projects worth ~र 20,000 Crore in pipeline.

Key drivers of Indias transmission sector
Rising electricity demand • All-India peak demand for electricity is expected to grow from 173 GW to 370 GW by FY 2032 at CAGR of ~5.6%, leading to higher investment in transmission and distribution space.
Focus on renewable energy addition • GoI has planned to ramp up renewable energy addition from ~75 GW in FY19 to 175 GW by 2022 Due to its infirm nature and to provide stability to grid there is a requirement of dedicated corridors for renewable energy evacuation, which would lead to the requirement of new transmission projects
Increased inter- regional demand- supply gap • Widening gap between demand and supply across regions as load centres are situated away from conventional generation centres
Upgradation of existing lines • Currently inter-state transmission runs at 400/765 kv level; higher voltage would lead to less ROW requirements and more transfer of power with reduced technical losses
Government initiatives such as Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), Integrated Power Development Scheme (IPDS), 24X7 power supply and others • GoI programmes are propelling demand, thereby creating the requirement of upgradation of up- stream network


Indias electricity demand has increased rapidly and is expected to rise further in the years to come. Electrification is increasing with the support of the GoI schemes. The government has also delicensed the electrical machinery industry and allowed 100% foreign direct investment (FDI) in the sector.

Indias power sector is expected to attract investments worth र 11.56 trillion between 2017 and 2022 in thermal, hydro, nuclear and renewable segments, which in turn, will drive investments in power transmission.

iv Investments pending in thenext

India remains underinvested in the transmission sector; however, the future looks very promising, when one looks at the government plans. After evaluating the central and state governments planning documents, the total market size of transmission projects is estimated to be र 4.5 Lakh Crore (market size) over the next six years.7

Indias power sector is expected to attract investments worth र 11.56 trillion between 2017 and 2022 in thermal, hydro, nuclear and renewable segments, which in turn, will drive investments in power transmission8.

3. Electricity Distribution Sector

Access to reliable and affordable electricity supply is an important factor for a countrys socio-economic development. Distribution is the most important link in the entire power sector value chain for providing non-stop, quality and reliable power supply. The distribution companies in India have been confronting various challenges such as controlling aggregate technical and commercial (AT&C) losses, improving operational efficiencies, providing round-the-clock electricity access to all households, thereby jeopardising the commercial viabilities of the distribution company (DISCOMS). Further, the distribution network primarily in rural and semi-urban areas in most of the discoms in dilapidated condition, which causes the frequent outages.

In order to improve the health of distribution companies, Since FY 2000 onwards, Govt. of India has been continually launching various system strengthening schemes such as Accelerated Power Development Reforms Programme (APDRP)/Restructured Accelerated Power Development and Reforms Programme (RAPDRP), Integrated Power Development Scheme (IPDS), Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), Deendayal Upadhyaya Gram Jyoti Yojana (DDUGVY). Apart from this, GoI has been pushing the state governments to undertake reforms through National Electricity Fund (NEF) wherein, the DISCOMS are eligible to get loans on softer rate based on the series of power reforms adopted by the state. A brief snippet of the schemes are provided below:

Integrated Power Development Scheme (IPDS)

GoI approved the scheme in November 2014 with a total outlay of र 32,612 Crore with the following objectives:

• IT enablement of DISCOMS

• Strengthening of sub-transmission and distribution networks in urban areas

• Metering of distribution transformers/feeders/ consumers in urban area

The component of IT enablement and strengthening of distribution network approved in June 2013 in the form of RAPDRP for 12th and 13th Plans got subsumed in this scheme and approved the scheme outlay of र 44,011 Crore under the new IPDS scheme.

Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY)

GoI approved the DDUGJY scheme in November 2014 with a total outlay of र 44,033 Crore with the following objectives:

• Separation of agriculture and non-agriculture feeders

• Strengthening of sub-transmission and distribution networks in rural areas

• Metering of distribution transformers/feeders/ consumers in rural area

• Rural electrification

The component of rural electrification approved in the form of RGGVY for 12th and 13th Plans got subsumed in this scheme.

National Electricity Fund

GoI established the National Electricity Fund (Interest Subsidy Scheme) in March 2012 to provide interest subsidy on loans disbursed to both public and private sector DISCOMS. This is likely to promote investment in the distribution sector and improve the distribution network for areas not covered by RGGVY and R-APDRP project areas. The preconditions for eligibility are linked to certain reform measures undertaken by the states governments and the amount of interest subsidy is linked to the progress achieved in reform-linked parameters.

Ujwal DISCOM Assurance Yojana (UDAY)

The financial health of DISCOMS has always been a key factor for providing continuous, quality, reliable and affordable power supply to end consumers. The gap between average cost of supply and average revenue realized risen to ~र 0.59 per unit in FY 16. The Ministry of Power launched UDAY in November 2015 to strengthen the DISCOMS. Under this scheme, the states have taken over 75% of the DISCOM debt. In lieu of that, the states issued bonds with maturity period of 10-15 years. So far, 32 States /UTs have signed the Memorandum of Understanding (MoU) and bond worth ~ र 2.32 Lakh Crore have been issued against a target of ~ र 2.69 Lakh Crore. Apart from this, in FY18, post signing of the UDAY scheme, AT&C loss level and the gap between ACS & ARR has reduced by ~2% and ~42 paisa, respectively from

FY16 level. The scheme envisaged the following

• Financial turnaround through elimination of ACS-ARR gap

• Operational improvement through reduction in AT&C losses enabled by metering at all levels

• Reduction of power generation cost, enabled by increased domestic coal supply, allocation of coal linkages at notified prices, coal linkage rationalisation, allowing coal swaps, supply of washed and crushed coal and others

• Development of renewable energy

• Energy efficiency and conservation

UDAY Scheme has yielded some short-term benefits in terms of reduction in interest burden.

Further, the government intends to promote the retail competition and therefore it has drafted the Electricity Bill 2018, which proposes separation of carriage and content. Furthermore, few states have also come up with electricity distribution franchisee to bring in operational terms of reduction on AT&C losses. Moreover, smart metering at consumer level is also being implemented by Energy Efficiency Services Limited (EESL), which is expected to reduce the AT&C losses and enable taking other measures to improve the operational efficiencies of DISCOMS.

The government foresees private sector interventions as a dependable way to deliver reliable and quality power supply. The Public Private Partnership (PPP) model similar to the Delhi privatisation scheme could be the key for providing constant, reliable, quality and affordable power supply in urban areas for sustainable economic growth.

4. Company Overview

ATL, the largest private sector power transmission company of India, operates and maintains 11,348 ckt kms of transmission lines ranging from 132 KV to 765 KV, with a total transformation capacity around 18,330 MVA. It has 14 fully operational transmission architectures that primarily serve the Northern and Western regions of India.

Currently, the Company is developing five additional projects comprising ~2,214 ckt kms transmission lines in the states of Rajasthan, Chhattisgarh, Uttar Pradesh and Jharkhand, which it received through tariff-based competitive bidding process. ATL has successfully executed many EHV Sub Stations (HVDC. 765 kV & 400 kV sub stations) projects, along with several transmission lines in India.

ATL is among Indias most technologically sophisticated power transmission companies. It is the first private-sector company to execute 765 KV transmission lines and substations in Maharashtra. Over the years, it has created a niche for itself in the countrys power transmission sector with the following feats:

i. Established Indias only private HVDC transmission system (more than 1,000 km) for efficient transmission of power from Gujarat to Haryana with maximum evacuation capacity of 2,500 MW

ii. Obtained approval for the transmission line methodology under Clean Development Mechanism (CDM) from United Nations Framework Convention on Climate Change (UNFCCC).

iii. Won the bid to establish transmission system for Ghatamapur Transmission Project (Line length 895 ckt kms) and Obra-C Project (623 ckt kms).

iv. Acquired GTD assets from Reliance Infra comprising 500 MW power generation, 540 ckt kms transmission line and more than 3 million retail consumers

v. Completed acquisition of Bikaner Sikar Transmission Line (~343 ckt kms) from KEC International Ltd.

vi. We managed to execute PPP09, PPP10 and Sipat Transmission well before the time and within budget

vii. Commissioned 6 transmission systems of ~1650 ckt kms

viii. Chhattisgarh WR Transmission System Ltd., 7th transmission system is on advance stage of commissioning wherein 6 out of 7 elements have been commissioned (~304 ckt. Kms transmission line commissioned out of 434 ckt. kms)

Adani Electricity Mumbai Limited (AEML)

ATL acquired Reliance Infrastructures Mumbai power generation, transmission and retail electricity distribution business in August 2018, and renamed it Adani Electricity Mumbai Limited (AEML). With an integrated business, it serves over three million consumers spread across 400 sq kms in Mumbai and its suburbs. It offers 99.99% reliability, which is among the highest in the country. AEML meets ~2,000 MW of power demand in Mumbai, Indias largest commercial hub, and is recognised as the best performing utility company by the Central Board of Irrigation and Power (CBIP) Awards 2019.

As an organisation, Adani Electricity believes in the motto - The Power of Service. It is born of the will to make a difference and change things for the better, so that everyone can power their dreams and live stress-free life.

Adani Electricity continues the quest of providing the best quality service to the customers entrusted with the brand motto of the Power of Service. The enterprise is committed to creating new and innovative approaches in operations and services that contribute to the development of the customers.

Since acquisition, AEML has achieved a 100% billing and collection efficiency. The enterprise witnesses the lowest-ever Distribution Loss in FY19 at 7.85% down from 8.12% in FY18. The organisation is developing various in-house mobile-based productivity applications for enhanced efficiency in the domains of meter reading, bill distribution, new connection, vigilance activities that will create better and newer experiences for its customers.

The organisation provides world-class customer care services with the help of advanced technologies. AEML plans to expand its presence in newer geographies in pursuit of Indias vision of ‘Power for All.

5. Financial Review

The Financial statements of Adani Transmission Limited and its subsidiaries (collectively referred to as ATL or the Company) are prepared in compliance with the Companies Act, 2013 and Indian Accounting Standards, Rules 2015 (IND AS) Highlight of the companys consolidated performance of the years are as under:

(र in Crore)
Particulars FY ended 31.03.19 FY ended 31.03.18
Transmission Tariff 2,212 2,093
Sale of Power 4,270 -
Incentive 48 37
Income from Operations 6,530 2,130
Employee and Other Expense 1,382 186
Power & Fuel Exp. 2,291
EBIDTA from Operation 2,857 1,944
EBIDTA Margin Transmission (Operations) 91% 91%
EBIDTA Margin Distribution (Operations) 19% -
Sale of Traded Goods/EPC 842 816
Construction income 19 110
Carrying Cost Income 4 17
Other Income 255 111
Regulatory Income/(Expense) 96 -
Less: Purchase of Traded material/EPC 839 816
Less : CSR Exp 18 8
Less: Construction cost 14 102


Particulars FY ended 31.03.19 FY ended 31.03.18
Less: Business development Exp. 7
EBIDTA 3,203 2,064
Less: Finance Cost 1,391 886
Less: Depreciation 882 579
PBT (before one time effect) 930 599
Arrear Income/(Revenue Reversal as per True Up Order) (90) 873
PBT 840 1,472
Less : Tax (MAT @21.55%) 192 329
Less: Deferred Tax 89
PAT 559 1,143

Note: In FY19 pursuant to acquisition of Adani Electricity Mumbai Ltd (Distribution) previous year figures are not comparable.

Pursuant to amendment made in Schedule V to the SEBI Listing Regulations, details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios and any changes in Return on

Net Worth of the Company (on standalone & consolidated basis) including note therefore are given below:

Details of Significant Changes in the Key Financial Ratios & Return on Net Worth:

No. Particulars FY ended 31.03.19 FY ended 31.03.18 FY ended 31.03.19 FY ended 31.03.18



1 Debtors Turnover (In days) 27 26 - -
2 Inventory Turnover - - - -
3 Interest Coverage Ratio 2.64 4.59 1.42 1.32
4 Current Ratio 1.68 1.33 1.52 1.50
5 Debt Equity Ratio 2.39 1.61 1.33 1.89
6 Operational EBIDTA %:
Transmission 91% 91% - -
Distribution 19% - - -
Consolidated 44% - - -
7 Net Profit Margin (%) 8.65% 36.53% 5.09% -2.95%
8 Return on Net worth (%) (Without Unsecured Perpetual Equity Instrument) 3.16% 7.99% 2.26% -1.19%
Return on Net worth (%) (With Unsecured Perpetual Equity Instrument) 1.98% 6.35% 1.42% -0.82%

Note: Revenue from operations in FY19 includes past years revenue reversal of र 89.57 Crore and in FY18 previous years arrears of र 872.53 Crore as per MERC & CERC Orders respectively, therefore pursuant to Orders & Acquisition of AEML during the FY19, Ratios are not comparable.

6. Internal Control System

The Company has put in place robust internal control systems and best-in-class processes, commensurate with its size and scale of operations. There is a well-established system of multidisciplinary Management Audit & Assurance Services (MA&AS) that comprises professionally qualified accountants, engineers and SAP experienced executives. The team conducts extensive audit throughout the year across all functional areas and submits its reports to the Management and Audit Committee about the compliance with internal controls and efficiency, along with effectiveness of operations and key processes risks.

Some key features of the Companys internal controls system are: delegation of - Adequate documentation of Policies & Guidelines

- Preparation & monitoring of Annual Budgets through monthly review for all operating service functions

- MA&AS department prepares Risk Based Internal Audit scope with the frequency of audit being decided by risk ratings of areas / functions. Risk based scope is discussed amongst MA& AS team, functional heads / process owners / CEO & CFO. The audit plan is formally reviewed and approved by Audit Committee of the Board

- The entire internal audit processes are web enabled and managed on-line by Audit Management System

- The Company has a strong compliance management system which runs on an online monitoring system power - The Company has a well-defined with authority limits for approving revenue and capex expenditure which is reviewed and suitably amended on an annual basis

- The Company uses ERP system (SAP) to record data for accounting, consolidation and management information purposes and connects to different locations for efficient exchange of information

- Apart from having all policies, procedures and internal audit mechanism in place, Company periodically engages outside experts to carry out an independent review of the effectiveness of various business processes and invites suggestions for process improvement

- Internal Audit is carried out in accordance with auditing standards to review design effectiveness of internal control system & procedures to manage risks, operation of monitoring control, compliance with relevant policies & procedure and recommend improvement in processes and procedure

The Audit Committee of the Board of Directors regularly reviews execution of Audit Plan, the adequacy & effectiveness of internal audit systems, and monitors implementation of internal audit recommendations including those relating to strengthening of companys risk management policies and systems.

7. Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations and others may constitute "forward-looking statements" within the meaning of applicable of securities laws and regulations. Actual results may defer from those expected or implied. Several factors that could significantly impact the Companys operations include economic conditions affecting demand, supply and price conditions in the markets, changes in technology, changes in the government regulations, tax laws and other statutes, climatic conditions and such incidental factors over which the Company does not have any direct control. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.