gvk power & infrastructure ltd share price Management discussions


1. About the Company

GVK Power & Infrastructure Limited (the Company) is a listed entity and an ultimate holding company of "GVK" which operates in diversified business operations under different verticals. The Company earlier used to operate predominantly in Energy, Airports, Transportation and has presence in other businesses like Urban infrastructures etc. However, as informed during 2021, your Company had exited from the Airport business completely from 13-07-2021. As of now, it is operating only under

Energy and Transportation sectors albeit with its inherent problems which are beyond the control of your management. With the completion of the officialterm of the only revenue generating asset under the Transportation sector (Jaipur-Kishangarh

Expressway), there is no possibility of reviving any project in this sector. With the closure of business under Airport sector, bleak future in Energy and Transportation sectors coupled with practically no possibility of raising funds from the Lenders/

Institutions, your management is unable to diversify into any other area of business.

2. The Economy and Sectoral growth

Indias GDP Growth Accelerates to 6.1% in Q4 of 2022-23, propelling the Economy to $3.3 Trillion pushing up the annual growth rate to 7.2 percent as against a 9.1 percent growth in 2021-22. Growth in the January-March period was higher than the 4.5 percent expansion in the previous October-December quarter of 2022-23. According to a Survey, Indias economic growth in

FY23 has been principally led by private consumption and capital formation and they have helped generate employment as seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund.

Moreover, Worlds second-largest vaccination drive involving more than 2 billion doses also served to lift consumer sentiments that may prolong the rebound in consumption. Still, private capex soon needs to take up the leadership role to put job creation on a fast track. The Survey says, the credit growth to the Micro, Small, and Medium Enterprises (MSME) sector has been remarkably high, over 30.6 percent, on average during Jan-Nov 2022, supported by the extended Emergency Credit Linked Guarantee Scheme (ECLGS) of the Union government. It adds that the recovery of MSMEs is proceeding apace, as is evident in the amounts of Goods and Services Tax (GST) they pay, while the Emergency Credit Linked Guarantee Scheme (ECGLS) is easing their debt servicing concerns.

A) POWER

The generation during 2022-23 was 1624.158 Billion Unit (BU) as compared to 1491.859 BU generated during 2021-22, representing a growth of about 8.87%. The electricity generation target (Including RE) for the year 2023-24 has been fixed as 1750 BU. i.e., growth of around 7.2% over an actual generation of 1624.158 BU for the previous year (2022-23). The generation during 2022-23 was 1624.158 BU as compared to 1491.859 BU generated during 2021-22, representing a growth of about 8.87%. The ever-expanding industrialization and urbanization will primarily drive the energy demand that is forecasted to reach 405 Gigawatts of renewable energy capacity by 2030, The centre has earmarked incentives worth Rs

1,43,332 crore as a financial incentive to 12 states for boosting power sector reforms for the year 2023-24.

An amount of Rs 66,413 crore has been granted as additional borrowing for reforms undertaken in 2021-22 and 2022-23 in the power sector. Under this initiative, an additional borrowing space of up to 0.5 percent of the Gross State Domestic Product (GSDP) is available to the States annually for a four-year period from 2021-22 to 2024-25. This additional financial window is dependent on the implementation of specific reforms in the power sector by the States. Further, the government has mandated a set of reforms for states to be eligible for the said incentives including Transparency in the reporting of financial affairs of power sector. The states are also required to comply with assuming responsibility for losses of DISCOMs.

The Department of Expenditure, Ministry of Finance, has given a boost to reforms by the States in the power sector by providing financial incentives in the form of additional borrowing permissions. This move aims to encourage the States in undertaking reforms to enhance the efficiency and performance of the power sector.

The initiative was announced by the Union Finance Minister in Union Budget 2021-22. Under this initiative, an additional borrowing space of up to 0.5 percent of the Gross State Domestic Product (GSDP) is available to the States annually for a four-year period from 2021-22 to 2024-25. This additional financial window is dependent on implementation of specific reforms in the power sector by the States.

B. TRANSPORTATION

The construction of National Highways (NH) in 2022-23 was 10,331 kilometres, falling 21 per cent short of the governments target of 12,500 km, according to the Ministry of Road Transport and Highways (MoRTH) latest data. The ministry awarded

NH projects of 12,376 km length in the last financial year. The National Highways Authority of India (NHAI) and National Highways and Infrastructure Development Corporation Limited (NHIDCL) are primarily responsible for the construction of highways and expressways in India. The ministry said it had constructed 10,237 km in 2019-20, 13,327 km in 2020-21 and 10,457 km in 2021-22. with the help of the Central Governments initiatives and under the able guidance of the Transportation Ministry, Indias national road network is surpassing the Chinas national road network and would be the worlds second road work next only to the USA.

Capital expenditure for 2023-24 is estimated at Rs 2,58,606 crore, while revenue expenditure is estimated at Rs 11,829 crore.

3. Assets under Operation i) Energy

Gas-based pproject i.e. 464 MW GVK Gautami Power Limited, one Hydel power project i.e. 330 MW Alaknanda Hydro Power Company Limited and one coal based project M/s GVK Power (Goindwal Sahib) Limited have recorded revenue of Rs. 1,673 Crore for the year ended March 31, 2023 as against Rs.2,173 Crore for the previous year.

Your Company now has only two revenue generating assets during the year 2022-23 i.e. 330 MW Alaknanda Hydro Power Company Limited and one coal based project 540 MW GVK Power (Goindwal Sahib) Limited (partially upto 10.10.2022 the date from which CIRP process has commenced) which have generated a revenue of Rs. 1,134.40 Crore (Goindwal) for the year ended March 31, 2023. Based on the orders of the National Company Law Tribunal, Hyderabad Bench, GVK Power (Goindwal Sahib) Limited has been taken over by the Resolution Professional from 10th October, 2022. Hence, the revenue is not comparable with the previous years numbers.

Alaknanda Hydro Power Company Limited

The 330MW Shrinagar Hydro Electric Project achieved Annual Plant Availability Factor of 59.16% for the FY 2022-23 with a Plant Load Factor of 52.673 %. During the monsoon season, the Project operated all four units at their full capacity. During other seasons, based on the water flows, the plant was operated with at least one turbine, either on part or full load. During the year under review, the company has generated revenues of Rs. 879 Crore with a profit of Rs. 382 Crore.

GVK Industries Limited (in liquidation)

As per the orders issued by the National Company Law Tribunal, Hyderabad Bench, this Company is now taken over by the Resolution Professional on 21.04.2022 under the provisions of the Insolvency and Bankruptcy Code, 2016. Since, no possible solution is visible to revive this project, the NCLT, has initiated the process of liquidation of this company.

GVK Gautami Power Limited

Currently, the plant is under shutdown and kept under preservation mode and the plant is drawing power from the grid approximately @ 500 Kw which is needed for plant preservation activities. During the year GVK Gautami Power Ltd reported a loss of Rs.357.83 Crore for the financial year 2022-23 (Previous Year loss of Rs. 374.39 Crore).

GVK Power (Goindwal Sahib) Limited (with RP under NCLT)

NCLT has appointed Mr. Ravi Sethia as Resolution professional for this project who has taken charge of this project with effect from 10th October, 2022. The 2X270 MW Coal based Power plant situated at Goindwal Sahib, Tarn Taran District in the State of Punjab is operating the plant utilizing the coal supplies under SHAKTI Scheme. The Fuel Supply Agreements under SHAKTI scheme were signed in February, 2018. Currently, this project is not under the control of your management.

ii) Transportation

GVK Jaipur Expressway Limited

During the year, toll collections was Rs. 447.03 Crore (PY Rs. 354.78 Crore) registering an increase of 26.00 %. The Company reported a profit after tax of Rs. 138.58 Crore for the financial year (PY Rs. 70.49 Crore). During the year under review, the company calculatd the excess Fees to be shared with NHAI as Rs. 14.28 Crore as their revenue share (PY Rs. 11.38 Crore) since the toll revenues are beyond the threshold limit as specified under the Concession Agreement. The average tollable traffic was 34,068 vehicles per day during the current financial year. The average toll collection per day is Rs.122.48 Lakhs during the year.

In terms of the Concession agreement signed with the National Highways Authority of India (NHAI) by GVK Jaipur Expressway

Limited, the last day of the 20-year concession period concluded on 16th March, 2023.

However, NHAI extended the last day up to 9th April, 2023 to recover the losses incurred by the Company during the country wide lockdown period in 2020 to prevent the Covid-19 pandemic. From 10th April, 2023 the operations of this road project were taken over by the NHAI from the Concessionaire.

4. Risks & Concerns

Energy

The energy crisis is the concern that the worlds demands on the limited natural resources that are used to power industrial society are diminishing as the demand rises. These natural resources are in limited supply. While they do occur naturally, it can take hundreds of thousands of years to replenish the stores. The world faces two energy problems: most of our energy production still produces greenhouse gas emissions, and hundreds of millions lack access to energy entirely.

Among the major categories of risk considered are those relating to industrial operations, to atmospheric pollution, to shortage of water supply, and to change in climate. For each of these, we have considered the risks posed by energy systems based on fossil fuels, nuclear fuels, and solar energy. Some of the issues leading to the power deficit situation in the country include (i) shortage of fuel, (ii) high AT&C losses, (iii) a differential tariff structure, and (iv) delays in tariff revisions.

Transportation

One of the most common transportation risks in distribution logistics is delays and disruptions. These can occur due to various factors such as traffic congestion, weather conditions, accidents, strikes, customs clearance, regulatory changes, or unexpected events. Few other instances of transportation risks are labor shortage delays, loss or theft of cargo, incorrect documentation, cargo damage and lack of proper insurance. To reduce these risks, businesses implement transportation risk management strategies and procedures.

6. GVK Power & Infrastructure Limited Financial Performance Review

Standalone Financials

Revenue

The total income of the company, which comprises of income in from operations, of power plant, Fees for technical services and other income is Rs.1,000 lakhs.

Expenditure

The Companys total expenditure, comprising of Cost of Operation, Employee Benefit Expenses and other administrative expenses, decreased to Rs.1,074 Lakhs for the year ended March 31, 2023 from Rs.3,519 lakhs for the year ended March 31,

2022.

Interest

Interest expenses stood at Rs.Nil (previous year figure was Rs. Nil)

Profit before tax (PBT)

Profitbefore tax for the year stood at Rs. 701 lakhs for the current year as compared to profit of Rs.5,687 lakhs in the previous year

Profit a er tax

Profitafter tax is Rs.646 lakhs for the year ended March 31, 2023 as compared to profit of Rs.5,587 lakhs in the previous year.

Earnings Per Share (EPS)

The earnings per share at a standalone level for the current year stands at Rs. 0.04 as compared to Rs. 0.35 per equity share of Re.1/- each in the previous year.

Consolidated Financials

The current year results include the results of the companies including subsidiaries, step down subsidiaries, joint ventures and associates. The Consolidated Financial Statements have been drawn as per the Indian Accounting Standards (Ind AS) statements" and IND - AS 28 on "Investment in associate and joint venture" notified IND-AS110on"Consolidated financial under Section 133 of the Companies Act, 2013 and Companies (Indian Accounting Standards) Rules, 2015, as amended. These companies operate broadly in a) Power b) Road c) Airports and d) Other sectors.

Revenue

GVKPIL registered a consolidated total income from operations of Rs.212,026 Lakhs for the year ended March 31, 2023, as against Rs.85,826 Lakhs during the corresponding period of the previous year recording an increase of 147 %.

EBIDTA at a consolidated level for the year stood at Rs. 131,792 Lakhs as against Rs.29,209 Lakhs in the previous year.

EBIDTA margin at a consolidated level increased to 351% as compared to 113 % in the previous year.

Profit a er tax

Profitafter tax and non-controlling interest attributable to equity holder of GVKPIL for the current year is Rs.307,108 lakhs for 2022- 23 as compared to Rs. 263,593 lakhs in the previous year.

Earnings per Share (EPS)

The earnings per share at consolidated level for the current year stands at Rs.15.44 as compared to Rs.16.75 per equity share of Re.1/- each in the previous year.

Net Worth

The net worth as at the end of Financial Year 2022-23 stands at Rs. 45.301 lakhs as compared to Rs. Rs.(307,734) lakhs as at the end of the previous year.

During the period under review, therearenosignificantchanges (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios.

Details regarding Conservation of Energy and Technology Absorption:

Information on the conservation of Energy, Technology absorption and Research & Development, required to be disclosed under Section 134 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014 are provided hereunder:

(A) Conservation of Energy:

(i) the steps taken or impact on conservation of energy Nil
(ii) the steps taken by the company for utilizing alternate sources of energy Nil
(iii) the capital investment on energy conservation equipments Nil

(B) Technology absorption:

(i) the efforts made towards technology absorption The Company has not absorbed any technology from any source.
(ii) the benefits derived like product improvement, cost reduction, product development or import substitution Nil
(iii) in case of imported technology (imported during the last three years reckoned from the beginning of the financial year)- Nil
(a) the details of technology imported Nil
(b) the year of import; Nil
(c) whether the technology been fully absorbed Nil
(d) if not fully absorbed, areas where absorption has not taken place, and the reasons thereof Nil
(iv) The expenditure incurred on Research and Development Nil

7. Clean Development Mechanism

The Clean Development Mechanism (CDM) allows emission-reduction projects in developing countries to earncertified emission reduction (CER) credits, each equivalent to one tonne of Carbon-di-oxide (CO2). These CERs can be traded and sold, and used by industrialized countries to a meet a part of their emission reduction targets under the Kyoto Protocol.

The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction limitation targets. Three of the group companies i.e. GVK Industries Ltd (Phase II), GVK Gautami Power Ltd and Alaknanda Hydro Power Company Ltd were registered with UNFCCC and as such these projects are eligible for CER credits.

8. Internal Control System and Adequacy

The companys internal control systems are commensurate with the nature of its business and the size and complexity of its operations. These systems are designed to ensure that all the assets of the Company are safeguarded and protected against any loss and that all the transactions are properly authorized, recorded and reported. The Company has an internal audit function, which is empowered to examine the adequacy and compliance with policies, plans and statutory requirements.

The internal audit function team comprises of well-qualified, experienced professionals who conduct regular audits across the

Companys operations. The internal audit reports are placed before the Audit committee for consideration. The management duly considers and takes appropriate action on the recommendations made by the statutory auditors, internal auditors and the independent Audit Committee of the Board of Directors.

9. Material developments in Human Resources/Industrial Relations front, including number of people employed

The total number of employees of GVK at the corporate office and projects sites as on March 31, 2023 stands at 190 approximately

Y our company periodically reviews the requirement of these employees across various projects based on the need and necessity.

The optimal utilization of the human resources with multi-tasking is what is being emphasized across the group.

10. Future Outlook

As you may be aware, all infrastructure companies across India are facing challenging times due totheirfinancial exposure to Banks and Lending Institutions. Repayment of these loans have become a real task particularly when their revenue flows are which are either minimal or nothing due to delays or very long gestation periods. As a result, they are unable to make loan repayments and are branded as Non-Performing Assets (NPA) by their Lenders. The situation for some companies is very bad because even though their projects/plants are completed / ready for operations, they are unable to operate due to the non-availability of natural gas/coal etc. The majority of these factors are not under the control of the management. GVK is no exception to this.

11. Cautionary Statement

Statements in the Management Discussion and Analysis describing the companys objectives, projections, estimates and expectations may be ‘forward looking statements within the meaning applicable under the securities laws and regulations. As ‘forward-looking statements are based on certain assumptions and expectations of future events over which the company exercises no control, the company cannot guarantee their accuracy nor can it warrant that the same will be realized by the company. Actual results could differ materially from those expressed or implied. Significant factors that could make a difference to the companys operations include domestic and international economic conditions affecting demand, supply and price conditions in the electricity industry, changes in government regulations, tax regimes and other statutes.