GE Power India Ltd Management Discussions

The global economy has demonstrated unexpected resilience, with many developed nations that were anticipated to slip into recession last year instead experiencing modest growth. Factors such as decreasing inflation, increased consumer spending, and a favorable supply-demand balancehave bolstered numerous large and emerging economies, averting the possibility of a severe downturn.

Nevertheless, due to elevated central bank interest rates and the reduction of fiscal support in the face of high debt levels, the forecast for 2024-25 falls below the historical average of 3.8%. The World Economic Outlook released in April 2024 projects global growth at 3.2% for 2024 and 2025¹.

Other major international organizations such as the Organisation for Economic Co-operation and Development (OECD) and the World Bank have also weighed in on the outlook for global growth over the next two years. They point to factors such as subdued trade, tight monetary policies, and lingering geopolitical tensions as potential culprits for the projected moderate growth.

The OECDs forecast stands at 2.9% growth in 2024 and a slightly improved 3% in 2025². Meanwhile, the World Bank has offered a more conservative estimate, predicting growth rates of 2.4% for 2024 and 2.7% for 2025³. Interestingly, despite major economies weathering the storm of the fastest rise in interest rates in four decades without significant setbacks, global growth performance has been lackluster, marking the weakest performance in half a decade since the 1990s.

Over the past two years, India has stood out in terms of development due to significant investments in capacity building, robust consumer spending, and expanding exports. This is evident from the third-quarter GDP growth of 8.4% in FY23-24, surpassing the RBIs projected 6.6% by a large margin.

Declining inflation has also provided an opportunity to the central bank to consider easing monetary policy, further supporting Indias growth. Looking ahead, the momentum is expected to continue over the next two years, with international organizations recognizing Indias investment- focused development as a catalyst for growth in South Asia.

The most recent World Economic Outlook from the International Monetary Fund (IMF) projects Indias growth to soar to 6.8% in 2024 and 6.5% in 2025, marking 30 basis points increase for current year from their January 2024 estimates⁴. Similarly, the Asian Development Bank (ADB) anticipates Indias growth to hit 7% in 2024 and further climb to 7.2% in 2025⁵, driven by robust domestic demand. As per the World Bank, although theres a slight deceleration expected in investment growth, it will remain sturdy due to heightened public investment and improved corporate financial conditions, particularly within the banking sector. On the flip side, private consumption growth is set to ease as the post-pandemic pent-up demand fades, and ongoing high food prices may limit spending, especially among lower- income households.

For the country, 2024 will be a critical year from political standpoint as well with the Indian population going to vote for new government. The political stability over last decade has been one of the major reasons behind strong foreign flows into the country driving the investor optimism as is evident from the records that benchmark indices are hitting and the entry of domestic retail investors into the equity market, particularly post-Covid.

The current global energy landscape reveals a unique dichotomy, characterized by dual and contrasting forces that influence the trajectory of the industry. This dichotomy is evident across various fronts, including the division between conventional and renewable energy sources, as well as the differences in energy access and consumption patterns between developed and developing regions. Understanding and navigating these dualities is crucial as we delve into the intricacies and challenges of the global energy sector.

COP 28

In November-December 2023, Dubai hosted the UN Climate Change Conference of the Parties (COP 28) in the United Arab Emirates (UAE). COP 28 was significant for two key reasons: it signified the completion of the initial global stocktake assessing worldwide actions on climate change as per the Paris Agreement⁶, and it set a record as the largest COP gathering in history with over 100,000 delegates, highlighting the pressing need and extensive efforts needed to tackle this crucial challenge. The global assessment uncovered some alarming truths. After highlighting the slow pace of progress in all aspects of climate action, from cutting greenhouse gas emissions to fortifying resilience against climate change and offering financial and technological assistance to vulnerable nations, countries have come together to devise a plan to accelerate action in these realms by 2030. This plan emphasizes urging governments to expedite the shift from fossil fuels towards renewable energy sources like wind and solar power in their upcoming climate commitments.

Energy & Electricity

During COP 28, the emphasis shifted towards moving away from fossil fuels, coinciding with a period marked by increased industrial

output and greater electrification in residential and transportation sectors. Global electricity demand saw a moderate rise of 2.2% in 2023, slightly lower than the 2.4% growth seen the previous year⁷. Nonetheless, this growth rate is expected to accelerate as global economies recover from a period of slow growth, especially fueled by emerging and developing economies.

The energy sector is facing a double challenge due to conflicting needs. On one hand, theres a pressing need to ramp up renewable energy capacity and phase out existing coal power plants. On the other hand, the increasing demand for electricity in emerging and developing economies has led governments to expand their coal power capabilities and even consider building new coal plants. This is influenced by factors like slower-than-expected growth in renewable energy capacity and inefficiencies in the power grid affecting supply.

During FY24, countrys overall power generation grew 7.02% YoY during the 2023-24 to 1,738.10 Billion Units (BU). Over 76% of the total power generation came from thermal power plants, up from 74.3% last year. A recent report by CEEW Centre for Energy Finance (CEEW-CEF) mentions that solar energy, including both grid-scale and rooftop installations, continued to dominate Indias RE capacity addition, constituting approximately 81% (15 GW) of the total RE addition in FY24⁸.

Coal

Globally, 69.5 GW of new coal power capacity was commissioned; while 21.1 GW of capacity was retired in 2023, resulting in net addition of 48.4 GW taking the total coal capacity to 2,130 GW, highest net increase since 2016.⁹ Despite the emergence of new retirement plans and phaseout commitments, the amount of coal capacity retired in 2023 was the lowest in over a decade. For the past four decades, the carbon intensity of the global primary energy mix has remained relatively constant, experiencing a slight decrease from 2010 to the present day.¹⁰ China and India are the main drivers of new coal capacity. China accounted for 47.4 GW of new coal capacity, which is about two-thirds of the global additions. India added 5.5 GW according to the "Global Coal Plant Tracker" by Global Energy Monitor. India is experiencing a surge in new proposals and the revival of previously stalled projects to meet the strong energy demand. The country introduced 11.4 GW of entirely new coal proposals, involving both public and private sector entities, marking the highest since 2016. Additionally, several long-stalled projects in India have also been revived.

China and India, the worlds leading consumers of coal, continue to heavily influence the global coal scenario, accounting for a combined 82% of total pre-construction capacity worldwide. While pre-construction capacity outside these two countries has reached its lowest point since data

I Delivering the electricity that is vital to health, safety, security, and improved quality of life

collection began, the growth in China and India contributed to a 6% increase in global pre-construction capacity in 2023.¹¹

India has seen a substantial rise in coal production to meet its electricity needs. Over the last four years, coal production has increased at an 8.1% Compound Annual Growth Rate (CAGR), with a significant 11.65% output growth recorded in FY24 as reported by the Ministry of Coal. According to the Ministry, the coal production stood tad shy of 1 billion tons at 997.2 million metric tons, compared to 893.2 million metric tons last year. Alongside this, coal imports have also seen an uptick, with the countrys coal imports growing by 7.2% to reach 244.27 million metric tons (MT) in the April-February period of FY24, up from 227.93 MT in the corresponding period of the previous year.

Coal power is teetering on the brink, encountering resistance from both political and civil fronts while grappling with economic challenges that render it less competitive. The COP26 summit articulated the objective of relegating coal to the annals of history through its plea to gradually reduce unabated coal power. Building upon this momentum, COP28 not only reiterated this commitment but also emphasized the need to triple renewable energy capacity by 2030. These developments underscore a global shift away from coal and toward cleaner energy sources. While the governments

focus on renewable energy capacity addition worldwide is of top-priority, the demand for conventional fossil fuels is likely to remain elevated at least for the next two decades as emerging economies hunger for growth continues.

According to International Energy Agencys (IEA) Electricity 2024 Outlook¹², global electricity demand is expected to increase at a quicker pace, growing by an average of 3.4% annually until 2026. This growth will be fueled by an improving economic outlook, leading to a faster rise in electricity demand across both advanced and emerging economies. Specifically, advanced economies and China will see heightened electricity demand due to ongoing electrification in residential and transportation sectors, as well as a significant expansion in the data center industry. The percentage of electricity in final energy consumption is estimated to have risen to 20% in 2023, up from 18% in 2015. Although this indicates progress, there is an urgent need for accelerated electrification to meet global decarbonization targets. As per the IEAs Net Zero Emissions by 2050 Scenario, which aligns with limiting global warming to 1.5?C, electricitys share in final energy consumption is projected to approach 30% by 2030.

In the Indian context, electricity demand rose by 7%, slightly lower than the previous years 8.6% increase. This growth was driven by economic expansion and strong cooling demand. After two years of growth, Indias electricity use surpassed Japan and Korea combined by the end of 2023. With a fast-growing economy and increased electrification, Indias electricity demand is expected to grow by 6.5% annually from 2024 to 2026. Although China leads in demand volume, India is set to have the fastest growth rate among major economies. This will add demand equivalent to the United Kingdoms over the next three years.

OPPORTUNITIES, RISKS AND THREATS

Opportunities

International Energy Agency (IEA) estimates Indias coal- fired power generation to rise by an average 2.5% annually in 2024-26 given rapid increase in demand for electricity. Simultaneously, renewable generation will accelerate, with an average annual growth rate of 13% over the period. With the shift towards clean energy generation globally, the emissions from power generation will be in a structural decline and their CO2 intensity predicted to significantly improve. The IEA forecast indicates an unprecedented average annual decline of 4% between 2024 and 2026, which is twice the observed rate of 2% from 2015 to 2019. After a 1% decrease in 2023, global CO2 intensity is expected to plummet by nearly 6% in 2024, driven by a recovery in hydropower generation in China. This will be followed by an average annual decline of 3.5% from 2025 to 2026 as the proportion of low-carbon sources (such as renewables and nuclear) as the total energy supply continues to grow. By 2026, global CO2 intensity is projected to decrease from 455 g CO2/kWh in 2023 to 400 g CO2/kWh.

With electricity demand rising faster than renewable capacity addition, coal-powered plants are expected to remain in operation for at least next two decades. However, to align with the energy efficiency goals, its crucial to utilize technologies that aid in reducing greenhouse gas emissions. A significant expansion of carbon removal technologies and measures to control sulfur emissions, such as direct air capture (DAC), bioenergy with carbon capture and storage (CCS), and flue gas desulfurization (FGD), will be necessary to progress on the road to achieve the net-zero emission targets set by different countries. According to a report by Triton[1], the global FGD business is likely to grow with a CAGR of 4.93% over the forecast period of 2023-30. The market was valued at $21.75 billion in 2022 and is expected to reach a revenue of $31.95 billion by 2030.

Your company operates in the FGD technology sector for thermal power plants and also provides services, including core servicing and upgrades. The estimated market size for FGD is valued at ? 6,00,000 million, with around 97 GW of FGD yet to be ordered, as per the current 2026 regulatory deadline. Moreover, the services portfolio is also witnessing robust growth as plants with old technology are revived to meet the growing electricity demand.

India is on the brink of a significant energy transition, with Pumped Hydro Storage Projects (PSPs) gaining substantial

attention. The Government has set an ambitious target to expand PSP capacity from the current 4.7 GW to 55 GW by 2031-32. In line with Indias commitments under the COP Paris Agreement, a proactive stance on hydropower development is being adopted to accelerate this progress.

Your Company will selectively participate in margin and cash accretive projects in this segment in partnership with other GE Vernova entities. Your Company offers project management and engineering capabilities and relies on GE Vernova for critical design, technology like turbine, generators, pumped storage plant equipment and complete electrical balance of the plant. With the accelerating pace of energy transition and increasing investments from both public and private sector companies, the preference of your Company would be to deal with private independent power producers (IPPs) owing to the risk and reward ratio.

Business performance

The summarized performance is as under :

	Year ended 31 March 2024	Year ended 31 March 2023
Orders received	13,185	16,350
>Sales	16,248	17,958
Orders in hand	33,090	36,153

Risks and Threats

India has made significant strides in increasing its renewable energy capacity. However, due to a faster growth in electricity demand, the country has not been able to reduce its coal capacity as initially planned. In fact, there are new plans to expand coal capacity to meet this rising demand. This situation calls for technologies that can enhance the efficiency of existing coal plants, increase their capacity, and incorporate measures to reduce greenhouse gas emissions.

The Ministry of Environment, Forest & Climate Change introduced norms for FGD technology implementation in December 2015, setting a roadmap for installing FGD systems by 2022. However, power utilities encountered several challenges during installation, leading the government to postpone FGD implementation twice, each time by two years. Given the minimum period of three and a half years from order to final commissioning of an FGD unit, the current deadline of 2026 appears insufficient for implementing this system across 97 GW of coal-powered plants.

Thermal power plants encounter various obstacles when considering the installation of FGD plants. A major concern is the substantial capital investment required to retrofit existing plants to integrate FGD systems into new facilities. Additionally, power plant operators express worries about the impact on power tariffs, plant efficiency, and operational complexities associated with incorporating FGD technology. These factors have led to a reluctance in adopting FGD systems across the industry.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

One of the key requirements of the Companies Act, 2013 is that companies should have adequate Internal Financial Controls (IFC) and that such controls should operate effectively.

Internal Financial Controls means the policies and procedures adopted by the Company for ensuring orderly and efficient conduct of its business, including adherence to Companys policies, safeguarding of its assets, prevention and detection of

frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial information.

Your Company process of assessment ensures that not only does adequate control exist, but it can be evidenced by unambiguous documentation. The process involves scoping and planning to identify and map significant accounts and processes based on materiality. Thereafter risk is identified and their associated controls are mapped. These controls are tested to assess operating effectiveness.

The auditor performs independent testing of controls. The Auditors Report is required to comment on whether the Company has adequate IFC system in place and such controls are operating effectively.

Your Companys Internal Control System is robust and well established. It includes documented rules and guidelines for conducting business. The environment and controls are periodically monitored through procedures/processes set by the management, covering critical and important areas. These controls are periodically reviewed and updated to reflect the changes in the business and environment.

Management reviews actual performance of the business on a regular basis. In all about 96 key controls across the organisations units were identified to be tested in a systematic basis. Design gaps and weaknesses were identified to particular business and to specific process owners and followed through methodically for closure.

In line with the internal audit program, internal audit of six processes/areas was done. The implementation of audit recommendations was followed through on a monitored and time bound plan.

The audit committee met seven (7) times during the year. The committee reviewed the adequacy and results of the testing of Internal Financial Controls and Internal Audit actions.

KEY FINANCIAL RATIOS

S. No.	Particulars	2023-24	2022-23	Variance	Reason for variance
i	Debtors Turnover	0.9	0.8	7%	-
ii	Inventory Turnover (Raw Material)	14.3	16.7	(14%)	_
iii	Interest Coverage Ratio	(3.6)	(11.3)	00 CD	Primarily due to impact on profit in the current business scenario
iv	Current Ratio	1.0	1.0	(7%)	_
v	Debt Equity Ratio	1.8	1.3	40%	Reduction in borrowings
vi	Operating Profit Margin (%)	(15.5)	(15.2)	2%
vii	Net Profit Margin (%) (before tax)	(10.9)	(24.7)	(56%)	Primarily due to impact on profit in the current business scenario
viii	Return on net worth (%)	(25.2)	(196.8)	(87%)	Primarily due to impact on profit in the current business scenario

Industrial Relations

There were no adverse industrial relations issues observed in Durgapur manufacturing facility in FY 2023-24. The Durgapur unit ensured strict statutory labor compliance, and during a routine audit by the authority no instances of non-compliance were observed. Various employee and family engagement initiatives were conducted during the year including Republic Day, Independence Day, Holi, Vishwakarma Puja & Durga Puja, Health & Safety, recreation program, etc. in the factory & township.

In Durgapur manufacturing facility we are focusing on multitasking and multiskilling of our workforce to enable your Company to cater various multi product manufacturing & service job from our facility.

Capability Development

Capability development is a key focus area, aiming at growing

and developing our employees, as well as building and retaining

capabilities and skillsets required to deliver on our priorities.

With this objective, your Company has taken various actions,

such as :

• Post a workshop on your Companys guiding principle- Safety, Quality, Delivery and Cost (SQDC), your Company designed various interventions around SQDC including hiring and training.

• Introduced the Site Supervisor Trainings in order to equip the site supervisors with the standard operating rhythm, tools and processes, drive consistency in SQDC framework and leadership behaviors across all sites. Additionally, to support the supervisors with daily management of the sites.

• Relaunched initiative of New Employee Orientation program for all new joiners. To equip them with company policies, processes & practices.

• Employees are encouraged to undergo technical and non-technical trainings, bubble assignments and stretch assignments. Mentors/Coaches are identified to coach the employees and help them grow and develop for future growth opportunities. ^•

• Delivering extensive coaching and trainings through People Leader Standard Work (PLSW) to equip People Leaders in keeping their teams engaged and drive performance.

Culture

Your Companys HR efforts are focused in strengthening an

inclusive and performance driven culture:

• A strong People, Performance and Growth (PPG) cycle to identify high potential, high retention risk and high loss impact employees. Efforts are made to keep these employees engaged and motivated.

• The Inclusion & Diversity Council continued to organize activities to increase awareness and involvement of employees in the I&D initiatives of the company.

• Many health-related activities were carried on throughout the year to make employees aware of the importance of maintaining good health and how they can do it. Mental Health awareness sessions were conducted for all People Leaders

Internship programs at Durgapur factory

Talent Management

Talent has always been the focus of your Company. To keep

the employees engaged and fully motivated, your Company

has rolled out a few initiatives:

• Your Company always strives to hire and retain the best talents. There is a special emphasis on diverse hiring including specially abled candidates. There is a special Focus on female talent representation through development/promotions and hiring.

• Regular employee connects to understand the motivation level and engagement amidst the transition.

• Roundtable and 1-0-1 conversations with senior leadership team

• Inclusion of PB band employees under the Variable Incentive (VIC) plan

• HR team analyses each attrition (talent loss) and its causes. These findings, supports the team to prepare the mitigation plan to arrest attrition.

• Standard works for People Leaders and HRs continue to be reinforced to support continuity and strengthen the above initiatives.

• Talent showcasing was done with the senior leadership where critical talents were discussed and their career

Electrifying the world

Attrition

Your Company saw employee attrition of 11.69% as of March 2024. This year attrition rate has improved than last year, however, continued focus for your Company is necessary. We have put various measures in place to ensure higher employee retention, so that critical domain expertise could be retained within the business.

SUMMARY

The energy sector is currently in a balancing act, with climate change pushing for a faster adoption of renewable energy while increasing electricity demand prompts some countries to consider adding new coal capacity to ensure energy remains affordable and accessible. Over the past decade, there has been a notable shift in the global coal landscape. Initially, there was a decline in planned coal power plants, followed by a resurgence in recent years as countries like China, India, Kazakhstan, and Indonesia propose new coal projects to meet growing demand.

At COP28, global leaders agreed to triple renewable energy capacity to 11,000 GW by 2030. Achieving this ambitious target would require unprecedented growth across various technologies, particularly in wind and solar. To illustrate, reaching 11,000 GW by 2030 would mean adding an average of around 800 GW annually starting from 2022. This is compared to the total global wind and solar capacities in that year, which were 832 GW and 892 GW, respectively. This underscores the significance of coal-powered plants in the coming decade until the world transitions fully to renewable energy sources.

For your Company, the entire spectrum of the steam segment presents lucrative opportunities in the coming years. Beginning with the companys core offerings, the approaching deadline for the installation of FGD (Flue Gas Desulfurization) systems is essential for the country to achieve its net-zero emissions target by 2070 and to phase out coal power plants completely. Despite notable advancements in FGD installations in recent years, further regulatory actions, financial incentives, and technological improvements are needed to drive momentum towards the widespread adoption of FGD systems.

With rising power demand driven by extreme weather conditions, the government has deferred the phase-out of old coal power plants, which continue to provide around 75% of the nations electricity. In fact, the government has announced that

no coal power plants will be retired or repurposed until 2030, due to the projected increase in energy demand. This decision is a key driver behind the growth in the companys other core services and upgrade offerings, which aim to improve the efficiency of these plants.

Your Company has devised an ambitious strategy to enhance the utilization of the Durgapur plant. By leveraging this plant, there is significant potential to expand your market reach. Specifically, the plant can supply boiler pressure parts, piping mills, auxiliaries, and firing systems to selected countries outside India, tapping into new international markets. Moreover, within India, the Durgapur plant will be pivotal in providing noncoal pressure vessels and cryogenic vessels, catering to the growing domestic demand. This strategic approach not only aims to boost production efficiency but also to position your company as a key player in both the international and domestic markets. Over the next few years, this entire segment has opened up the opportunity worth ? 1,80,000 million for the Company.

FORWARD - LOOKING STATEMENTS

This report contains forward-looking statements, which may be identified by their use of words like plans, anticipate, believe, estimate, expect, intend, will, projects or other words of

similar expressions as they relate to the Company or its business are intended to identity such forward-looking statements. All statements that address expectations or projections about the future, including, but not limited to statements about the Companys strategy for growth, development, market position, expenditures, and financial results are forward looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company undertakes no obligations to publicly update or revise forward looking statements, whether as a result of new information, future event or otherwise. Actual results, performances or achievements could differ materially from those expressed or implied in such statements. Therefore, as a matter of caution, undue reliance on the forward-looking statements should not be made as they speak only of their dates. The above discussion and analysis should be read in conjunction with the Companys financial statements included herein and the notes thereto.

For and on behalf of the Board of Directors

Mahesh Shrikrishna Palashikar

Chairman & Non-Executive Director

(DIN: 02275903)