BGR Energy Systems Ltd Management Discussions

PERFORMANCE HIGHLIGHTS OF FY 2023-24

During the year 2023-24 the companys revenue is stagnant. The progress was hampered due to material and labour cost increase. Companys inability to get additional working capital limits from its lenders/ banks and Banks classifying our loan as Non performing asset disrupted the Companys progress. Due to these developments, some of our contracts were either pre closed or terminated.

Project progress of Engineering and Construction Business

Power Projects Division (PPD) - During the year 2023-24, the company in North Chennai Thermal power project had achieved significant progress and was synchronized with the Grid in March 2024.

The 1 x 800 MW thermal power project at Vijayawada started Commercial Operation in December 2023 and the plant is in operation. The 1 x 800 MW North Chennai Thermal Power Project was synchronized with the Grid in March 2024.

Civil Projects Division (CPD) - One work order for Tata Steel Limited in Kalinganagar, Odisha was completed during last year. Two orders got rescinded later.

Environmental Engineering Division (EED) - 10 MLD (Million Litres per Day) Tertiary treatment ultrafiltration (TTUF) plant in Nesapakkam was commissioned and subsequently, the contract has been terminated.

The First of the Three Induced Draft Cooling Towers @ Ghatampur 3x660w Project was Commissioned In August 2023. Also, the 765kv Gas Insulated Switchgear Was Energized in November 2023 and the First the Three 660 Mw Units Synchronized In November 2023 and the works related to the other units are progressing well. The 4^Th unit Of Kakarapar Atomic Power Plant was Commissioned in Feb 24 and since then the Plant is in Operation. All works related to the 7^Th unit Of Rawatbhatta atomic

Power Plant was completed and completion certificate received. Work related to the 8^th unit is in full swing.

Electrical Project Division - For JUSNL Projects work is under progress.

Manufacturing Business (Product Business Division)

The capital goods segment, which manufacturers equipment for power, oil, gas and infrastructure industries, the Company made the highest ever turnover of Rs. 207 Crores during 2023-24.

During this year Factory assembly testing of Tallest (13 meters) and Heaviest (400 MT) equipment completed for Cameron, UK customer.

27 Inconel tube bundles were completed during the last financial year which is a record for the Division with a total turnover of Rs. 113 crores.

INDUSTRY ANALYSIS & PROSPECTS IN DOMESTIC AND INTERNATIONAL MARKETS

The demand for power is increasing substantially. Despite the increase in renewable energy capacities, and despite the Renewable Purchase Obligation (RPO) set at 21%, thermal power has contributed more than 80% of the overall power consumption. The unprecedented power demand and the relative low contribution of renewable and nuclear power generation have brought to fore the urgent need to add significant capacity by way of new super critical & ultra- super critical thermal power projects with much lower heat rates. As per CEA, the annual Electrical Energy requirement will be 3,175,400 MU by FY 2037 while the current generation is only covering 35% of the requirement. This demand cannot be met alone with renewable sector. With state-run genco NTPC announcing addition of 4.8 Gigawatts power projects in next three years, there is huge growth forecasted in thermal power sector which augurs well for the companys growth.

There is also huge scope in renovation & modernization of existing power plants, including replacement of old units with new power plants. In order to comply with the new emission standards, installation of Flue Gas Desulfurization units in existing power plants presents a new market segment to capitalize for the company.

The global energy crisis arising due to Russias invasion of Ukraine, has also forced countries worldwide to relook at coal based power plants. Denmark asked its biggest energy firm Rested to restart operations at three fossil fuel facilities to ensure energy security.

The Pradhan Mantri Gatishakti Bharat Master Plan for integrated infrastructure growth will offer robust growth potential in various sectors in the years to come. The National Infrastructure Pipeline, aimed at easier interconnectivity between road, rail, air and waterways to reduce travel time and improve industrial productivity, announced previously and re-emphasized again are envisaged to create multiplier effects on the economy. The flagship Jal Jeevan mission of GoI will see huge development under the rural and urban water supply infrastructure development in next couple of years. With our Civil Projects Division and Environmental Engineering Division, the company is in prime position to tap into this huge market.

The company is also exploring various business opportunities in Extra High Voltage (EHV) underground cabling projects, Traction Substation projects from Railways, Electrification packages for upcoming private projects, etc.

LOOKING INTO FUTURE AND STRATEGIC BUSINESS SHIFT

In the backdrop of challenges in thermal power sector in India and global markets as well, your Company initiated number of strategic initiatives. The Company identified critical need for shift from current business segments and identified some sectors as key drivers for growth in the medium term and diversify into adjacent business sectors to in which public and private investments. The companys proven and successful track record and competencies could be leveraged for growth in these emerging industrial, core and infrastructure sectors. These segments include: (i) Water and water treatment solutions (ii) Electricity Transmission & Distribution (iii) Transport infrastructure viz.,Metro, Railways and Highways (iv) Civil construction; (v) Project exports and (vi) Oil & Gas and manufacture of equipment and systems for Indian industry and international markets. The Company would continueas a significant market player in thermal generation sector, being selective in order booking and would leverage its competencies in focusing and seeking orders from Nuclear power projects and power transmission activities. In capital goods / manufacturing businesses, the Company has taken measures to expand the geographical market reach in international markets by identifying key opportunities for expanding the product portfolio.

Financial Performance (standalone)

Financial Performance (Standalone)

SIGNIFICANT CHANGES IN FINANCIAL PERFORMANCE METRICS

The Operating margin for the year 2023-24 was negative due to lower turnover and higher cost of operations.

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE PREVIOUS FINANCIAL YEAR

During the year Return on Net worth further decreased to Negative 217.4% from the previous year figure of Negative 118% in 2022-23. The reduction in return on net worth is due to loss of 677 crores due to reduction in turnover, increase in cost, cancellation of orders due to classification of our accounts as Non Performing Assets by Banks.

STRENGTH AND OPPORTUNITIES

The company has after review of the current macro level developments and competition landscape planned foray into the Infrastructure, Highways Construction, Transmission. The experienced and competent manpower, proven project delivery of the Company is a rare strength. These rich credentials will enable qualification and successful breakthrough in all business segments. The strategic teams of experienced personnel formed recently are working on bids for these strategic segments.

INTERNAL CONTROL SYSTEMS AND AUDIT

As part of the audit system, the company has an in-house system with a works auditor.

Experienced external firm of auditors carries out internal audit. The detailed audit plan is well documented and audit scope is reviewed every year to include key processes that need improvements and address new compliance requirements. The detailed audit plan approved by the Audit Committee is rolled out at the beginning of each year. In addition, all payments to vendors are subjected to pre-audit by an external audit team.The statutory auditors carry out the required audit and compliance checks and review the control systems. The Chairman of Audit committee, key project personnel and the finance team review the audit reports of the internal auditors, pre auditors and in-house auditors i n detail every quarter and a time bound action plan is initiated to address the key audit issues that need improvement and resolution. A summary of key audit observations, actiontaken to fix the gaps and the status is reviewed by the Audit Committee members in the quarterly audit committee meeting. The present internal control and audit systems are adequate.

RISK MANAGEMENT

The business of the Company encompasses design at office, manufacturing at factories and project sites, civil and mechanical construction, erection, and commissioning of equipments / packages. The company has a well-documented Standard Operating Systems and Procedures (SOSP). The SOSP mandates concerned officers of the company to review, identify and take timely steps to manage these risks on an ongoing basis. Delegation of Authority is reviewed each year to ensure that adequate controls are in place and required flexibility is available for effective operations at work site and that the commitments made to customers and vendors are met on time. Periodic review of procedural checks and balances are undertaken with a view to improve operational controls and productivity matrix. An experienced team of contract specialists in the Company review all contractual documents with the customers and the vendors in detail to ensure that all risks associated with the terms of contract are fully understood, documented, and reviewed for ensuring effective implementation of the contracts.

HUMAN RESOURCE DEVELOPMENT

With the Pandemic threat fading away during the year 2023 - 24, there was a strong need to retain the critical manpower resources in the Company and rewarding them suitably. Accordingly, the Company carried out an exercise to identify the critical manpower across the Company and such critical employees were rewarded suitably.

During the year 2023 - 24 there were 11 employees who had completed more than 20 years service in our Organization. These employees were honored with long service awards during the Founders Day celebrations.

ENVIRONMENT. HEALTH AND SAFETY (EHS)

The Company treats EHS as its core need to carry on and grow the business on a sustained basis. The Company has adopted a structured approach towards implementation of EHS policy and plans to integrate EHS with critical operating processes to continually improve the environment in which the Company operates as well as the safety and health of all employees, workmen, general public and the society. The Company established EHS structure for developing, implementing, and improving EHS Management Systems. These systems are designed to imbibe and enhance safety culture and to mitigate high potential risks among the employees and contractors through appropriate intervention and guidance.

The Company took up many EHS initiatives viz., monitoring and control of air, noise and water pollution, fitness of all employees premedical screening, regular health awareness camps, blood donation, safety orientation to all new employees and contractors men before engaging at work, hazard identification and risk assessment for all critical activities, safety evaluation of contractors and adoption of EHS code of Practices by contractor, enhancement of behavior based safety programs, on spot motivation to safety conscious workers and recognition ofcreditable EHS performance. The EHS team strived to keep up good health of employees at offices, works and sites by strictly following the Standard Operating Procedures and guidelines issued by various Government and health authorities.