EMCO Ltd Management Discussions.

Power Sector in India

The Government of India has released its roadmap to achieve 175 GW Capacity in Renewable Energy by 2022, which includes 100 GW of Solar Power and 60 GW of Wind Power.

Coal-based power generation capacity in India, which has currently reached a level of 192 GW is expected to expand to

330-441 GW by the year 2040.

The immediate goal of the Government is to generate two trillion units (kilowatt hours) of energy by the year 2019. This will propel the current production capacity to almost double to provide 24x7 electricity for residential, industrial, commercial and agricultural use.

Power transmission sector in India plays a pivotal role in supplying electricity to the end consumers. It is imperative to note that the growth of the power sector is dependent on the development of a robust transmission infrastructure.

Developing dedicated green energy corridors and further enhancement of transformation capacity of existing substations, along with setting up of new sub-stations will primarily drive the opportunity in the power sector in near future.

However, margin pressure due to build-up of overcapacity will continue to drag down profitability.

Further, the Government plans to invest USD 2.15 Billion till December 2018 for supplying electricity to approximately 4

Crore of the rural households under "Saubhagya Scheme". This might demand more inter-regional power transmission transactions and capacity enhancement of intra-regional power evacuation infrastructure. Indias peak load demand of power is only 164 GW of the achieved installed capacity and aggravating this situation further, some of Indias power surplus regions do not have adequate power evacuation infrastructure which could alleviate the recurring supply shortages in other parts of the nation. The Government of India has an ambitious plan of 100% electrification of the rail network by 2020. Currently, only 42% of the total rail-track network is electrified. The pace of electrification has been increased from the present average of 1700 route kilometer per annum to 4000 route kilometers in 2017-18.

Transformer Business

The Transformer business in India are continue to witness huge margin pressure due to low demand and excess capacity in the Industry which remains under utilised. A low rate of industrial growth, a poor financial status of the utilities along with general economic slowdown has contributed to the transformer demand remaining subdued in the country. Your company has proactively aligned its strategy according to the prevailing market conditions and it will continue to focus on exports, few large central utilities and selective state utilities, which have access to capital. Your company has successfully commissioned 15 numbers of 500 MVA, 400 kV class transformers for PGCIL. All the transformers are functioning smoothly at installed locations in the Northern and Southern part of India. Your company has also contributed positively and helped to add power generation capacity of

1320 MW to our Nation by supplying 260 MVA, 420 kV, Single

Phase Generator Transformers to NTPC for its Solapur & Mouda power generation projects.

Your company has a Healthy Order Book position and visibility of revenue improvement for the FY 2018-19. Even the Export Orders with better margins and cash flow are almost 40% of the current Order Book position. Your companys plants & facilities are regularly audited & approved by internationally renowned technical consultants/customers and their regular feedback that we are at par with the best manufacturers in the world gives us a lot of pride and it motivates us to keep working harder to create more satisfied customers.

Project Business

Your company has successfully commissioned a section of

765KV Double Circuit Orai - Aligarh Transmission Line, in addition to successfully commissioning a section of 765 KV

Double Circuit Hyderabad - Wardha Transmission Line for

PGCIL. Your company is currently executing a prestigious order received from PGCIL for 800KVHVDC Raigarh-Pugalur Transmission Line.

Your company has also successfully undertaken a number of 400 kV sub-station up-gradation work as a part of strengthening the Northern and the Southern Regional Grid System. The company management is also pleased to inform that your company has commenced execution of first open-air GIS substation at Phusauli (Bihar) for Indian Railways under a PGCIL contract.

Construction of three Greenfield sub-stations in Africa, which have been funded by the World Bank is under full-fledge implementation and these sub-stations are expected to be commissioned shortly. The Safety and Environment Conservation practices followed at a site by the company have been very well recognised and acknowledged by the World Bank.

International Business

International Business offers single point access to all its customers worldwide supplying Products and Solutions that meet various International Standards like IEC and ANSI.

Your Company has exported its products and solutions to more than 50 countries in the Middle East, Africa, Latin America and the Asia Pacific region due to consistently achieving International Quality Standards. Among impressive international clientele are Power Utilities, Oil and Gas companies, Mining companies and EPC companies. This has enabled your company to underline truly global presence.

Maintaining a healthy order book position and cashing on excellent references across the globe, your company is confident of increasing the share of international business to about 40% from the current level in the next few years. This itself will drive the growth substantially. A healthy mix of regions and developing customers across all product segments without excessive dependence on any specific product or market will generate balanced growth of companys business.

Coal Mine-Indonesia

During the year under review, your companys Coal Mine in Indonesia sold close to 2.30 Million tons of coal and now the company is taking steps for targeting a sale of 3 million tons of coal in the next financial year. Market intelligence reports reveal that there is a good demand for your companys coal. Our Indonesian counterpart has already initiated steps for enhancement of the coal mine output further in the next few years.

Renewable Energy

The performance of power generation from 5 MW Solar PV

Plant was satisfactory during the current year and the trend of improvement is expected to continue during the next financial year also. This initiative of your company in a small way reduces carbon emissions thereby contributing to the ‘Green Cause.

Opportunities and Threats

Your company foresees a market full of opportunity for its businesses in the forthcoming years. Your company has strategically poised to take advantage of the opportunity of growth anticipated in the Indian Railways business. With supplies to more than 50 countries, your company is also exploring opportunities to escalate its projects business internationally.

Open and Transparent process of selecting/empaneling the Contractors for carrying out EPC works related to Tariff Based Competitive Bidding by Central Utility (PGCIL) in the Transmission Line business within India and opening doors for Indian companies to do work under the line of Credits provided by the Exim Bank to foreign countries are the major factors which are helping your company to increase its presence in the domestic and overseas market.

Internal Control System

Yourcompanyhasinplaceeffectivesystemsforinternalcontrol, compliance procedures and guidelines for ensuring accurate, reliable and speedy compilation of financial information, safeguarding the assets and interests of the company and ensuring compliance with laws and regulations, an exhaustive budgetary control system and management reviews for actual performance along with well-defined organizational structure, clear authority levels and detailed internal guidelines for the business transactions.

The CEO/CFO Certification is provided in the report to discuss the adequacy of our Internal Control Systems and Procedures. In accordance with provisions of Companies Act, 2013 and

Securities Exchanges and Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations, 2015) the Audit Committee has evaluated the

Internal Financial Controls of the Company. The Management of your Company has determined that the Companys internal financial control as of 31st March, 2018 were efficient and effective.

The Company has successfully implemented a novel mechanism to inform Members of Board of Directors of the

Company, about identification, assessment, control and mitigation of risk in the businesses of the Company at periodic intervals. The Company has an independent Internal Auditor for auditing the transactions of the Company to ensure that recording and reporting is meeting statutory compliance. The Internal Auditors evaluates the adequacy of internal control to ensure that internal controls, check and balances in the system are adequate, proper and up-to date as per prevailing standards. Remedial measures are suggested by them to mitigate the risks identified during the auditing procedures and rectification plans ensure implementation of strategy to mitigate such risks.

Risk and Concerns

The Company is thoughtfully concerned about overcapacity in the transformer industry and liquidity issues caused due to cash flow getting affected by overdue receivables. The other risks your company faces is increase in project cost due to delay in customers getting Right of Way (ROW) permission while executing transmission line projects. Other risks such as safety of Emcoites and contractors working at heights during construction work of transmission lines, risk of commodity prices fluctuation, foreign currency fluctuation etc.

The Risk Management Committee reviews various risks faced by your company periodically and it has put in place robust check and balance mechanism to mitigate these risks.

Outlook

Considering the campaign of ‘Make in India and other initiatives of the Government of India like focusing on generating power from renewable energy, which might boost up growth in power sector and industrial activity in general, the prospects for your companys products and services look very positive. In addition to the domestic market, your Company has taken a number of steps to increase its global reach which will further bring in more business opportunities for your company. While we remain very optimistic about the overall business environment, we are also internally adjusting our costs to a new world of continuous pricing pressure.

Financial performance with respect to operational performance

The financial performance of your company vis a vis previous financial year has been poor on account of shortage of working capital, leading to lower capacity utilization in the transformer business thus, resulting in lower sales and contribution.

Further financial performance of your companys project business was also affected due to a shortage of working capital and delayed tendering of some large transmission line tenders from key customers which resulted in lower sales.

Human Resource

To live your companys vision of being a Great Place to Work, your companys management aspires to steadily develop, implement and support programs and processes that add value to your companys business and Emcoites at all levels of operations. The focus of HRM is not only to improve Emcoites welfare, empowerment, growth,and retention, while they stay committed to growing your company, but also improvement in productivity, skill sets and knowledge up-gradation. The management of your company promotes a work environment that is characterized by fair and equal treatment for all Emcoites; encourages open communications; understanding personal accountability; Inculcating trust and mutual respect.

Environment and Safety:

Your companys management is continuously ensuring to provide a safe place to work for Emcoites and it is also environmentally conscious to move towards taking Green Initiatives. It has taken a number of such initiates in the current year as well.

The company has received ISO 9001: 2015 / ISO 14001: 2015 and OHSAS 18001: 2007 Standard for a Quality, Safety, and Environment for its Project Business.

Your company celebrated 47th National Safety Week across all its location, which included Electrical safety awareness programmes, practical demos on fall arresters for work at height, safety competitions for motivating employees etc. Your company also organised health camps, PPE exhibitions;conducted mock-drills for making EMCOites aware about safety and also for promoting a safe environment at work.

Your company celebrated World Environment day at its various location on 5th June. The objective of this celebration is to educate and encourage Emcoites to participate in the initiative Go Green - planting trees/saplings. An environment awareness session, and an exhibition for the eco-friendly product for creating green strategy approach across the organisation was organised to demonstrate the companys commitment to protect the environment and to encourage the involvement of employees in such drives. Training on eco-friendly products entitled "Saffron Thinking and Green Living - A Way to sustainable development is also imparted to the workers and employees.

A training programme for Emcoites was conducted to explain their roles and responsibilities under various provisions of the Factories Act, 1948. Health camps have been regularly conducted by your company to educate Emcoites and contractors on health and safety issuesat all project sites.

CSR – Initiatives towards Corporate Social Responsibility:

Your Company has taken various initiatives towards the

Corporate Social Responsibility through its extended arm

EMCO Foundation. EMCO Foundation (EF) has been established to promote sustainability and welfare of humanity with a vision "To transform lives through sustainable development involving stakeholders." Since inception EF has transformed more than 88,723 human lives through resourceful initiatives in Education (Akshar), Environment (Ankur and Roshni) and Healthcare (Jeevan).

Best Corporate Foundation Award has been conferred upon your company for outstanding contribution to Social Causes and CSR Efforts at theWorld CSR Day 2017.

The joy of Giving (DaanUtsav):

Like every year this year too, your company organised a collection drive, where Emcoites donated Clothes, Books, Toys etc. Total donated items collected this year occupied 14 large bags and till now the generosity of Emcoites has reached to more than 22,000 needy people.

Forward-Looking Statements

Certain statements in the Discussion and Analysis Report of Management describing the companys objectives, projections, estimates, expectations or predictions may be forward-looking statements within the meaning of applicable Securities Laws and Regulations. Forward-looking statements in this report are based on certain assumptions and expectations about future events.

The company cannot guarantee that those assumptions and expectations will turn out to be accurate or will be realized practically. It is likely that actual results could deviate from those expressed or implied according to expectations of the management of your company. The company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent developments, information or events.

On behalf of the Board of Directors
For EMCO Limited
Sd/-
Rajesh S. Jain
Chairman
(DIN:00005829)