K.P. Energy Ltd Management Discussions.

Indian Economy Review

The Indian economy has been registering a continuous decline in GDP growth rate for the last eight quarters, in 2018-19 and 2019-20. GDP growth rate has plunged from 7.9% in Q4FY18 to meager 3.1% in Q1FY20. One core reason for the slipping GDP growth rate has been a deceleration in investment growth. Recent measures devised to reignite GDP growth, such as a reduction in Corporate Tax Rate and reducing repo rates are yet to show positive impacts on the economic environment. The Indian economy has also been facing heat from the poor health of assets in the financial sector.

Indian Energy Landscape

Being a prevalent power manufacturer and consumer, India stands as number three in energy consumption, after China and the United States of America. Despite being the third-largest globally, India is still a power-scarce country with one of the lowest per-capita power consumption ranks. Indias per-capita power consumption is well below the worlds average and is one of the lowest amongst BRIC nations.

The total installed electricity capacity of India stood at 370 GW as of May 2020, while electricity production reached 1,252.61 billion units (BU) in FY20. Out of the total installed electricity capacity, renewable sources (RES) are accounted for ~34%, within which the large Hydro

Indian Wind Energy


According to the CEA, the wind is the most prominent renewable energy source apart from Large Hydro (>25 MW). As of March 2020, wind energy accounts for 43% of the total RES capacity in India. Between FY14 to FY20, wind energy capacity grew at a CAGR of ~10%. It reached a cumulative capacity of ~38 GW in FY20.

Hopes for a good FY2020-21 were crushed in March 2020 with the onset of COVID-19 in India, followed by a first of its kind nation lockdown imposed by the Ministry of Home Affairs from 24th March 2020. Various government authorities imposed a series of lockdowns and restrictions in movements to contain the spread of the virus, which escalated a health-care disaster into an economic crisis. The International Monetary Fund has cut its projections for Indias economic growth to 1.9% for current FY2020-21, the lowest in the last three decades.

To combat the effects of COVID-19, the Government of India and Reserve Bank of India announced a comprehensive financial and stimulus package. The RBI resorted to measures such as a reduction in repo rates, Cash Reserve Ratio (CRR), allowing banks to borrow from their investment of Statutory Liquidity Ratio (SLR). Besides, RBI announced a moratorium on repayment of installments for term loans and deferral on interest payments for working capital facilities.


Tamil Nadu and Gujarat boast close to half of the cumulative installed capacity of Wind Energy assets as of March 2020. In the last two years, Gujarat has consolidated its position, rising from an 18% share of installed capacity in FY18 to 20% in FY20. Out of the 2.2 GW capacity installed in FY2020, Gujarat holds approximately a 70% share.

The states of Gujarat and Tamil Nadu have the best onshore and offshore wind power potential in the country. This makes these two states extremely attractive locations for wind power developers. At present, Gujarat has the 2nd highest installed wind capacity in India after Tamil Nadu and enjoys the highest potential wind generation capacity in the country. According to MNRE, the following is the wind potential of Indian states.


Regulatory Bodies

The Ministry of New and Renewable Energy (MNRE) is the nodal Ministry of the Government of India. It takes care of all the matters concerning new and renewable energy. Developing and installing new and renewable energy sources is the broader objective of MNRE. MNRE facilitates the elevation of energy requirements in the country. The MNRE contains the National Institute of Solar Energy and the National Institute of Wind Energy, undertaking activities related to R&D, testing, certification, standardisation, skill development, resource assessment and awareness.

Under the administrative control of MNRE, the Government successfully pioneered the ‘Solar Energy Corporation of India Limited (SECI) in September 2011. SECI intended to expedite the implementation of Jawaharlal Nehru National Solar Mission (JNNSM). The scope of SECI was increased thereafter, and now covers the entire renewable energy sector in India.

The Ministry of Power (MoP) governs the electricity sector in India, including renewables for power generation. The Minister of Power also has oversight of the MNRE and is in charge of renewable energy

Recent Scenario, Trends and Developments

Indian Renewable Energy Space has experienced regulatory disruptions over the last few years. In the year 2017, there was a shift from feed-in-tariff to reverse auction-based price discovery. It is considered to be one of the most revolutionary changes in the Indian renewable space. Feed-in-tariff used to cater to wind power generators with a guaranteed price per unit, and thus an assured return on their investments. On the contrary, in the case of reverse bidding, the entity quoting the lowest prices wins the bid. The initial bids were well participated, resulting in dramatically lower renewable energy tariffs due to the competitive price discovery. Thus there was a substantial fall of around 40% in price per unit.

SECI-I was Indias first-ever wind power auction held in February 2017, witnessed a record-low wind power tariff of INR 2.76/ kWh (Unit). It was 40% lower than the feed-in-tariff rates. The total volume auctioned in SECI-I was 1,050 MW. India has auctioned a cumulative capacity of XX GW between February 2017 to its 12th auction 2019.

There was a massive decline in tariff rates, reaching an all-time low of INR 2.43/ kWh (Unit) during the GUVNL auction in December 2017. More recently, solar and wind power auctions have been less-attended due to the impact of government policy. Roughly 6.7 GW of auctioned capacity between March-December 2019 did not receive any response from developers. The principal reason behind this slowdown in the developers interest is the increased perception of risk. These include but are not limited to, a lack of clarity in rule & regulation changes, payment delays from DISCOMS, and delays in grid-connectivity and land acquisition. These issues have increased risks on the part of developers, which has raised their return on investment (ROI) expectations. This has led to increased tariffs at auctions, therefore creating a mismatch between the DISCOMs offered tariffs (tariff upper-caps) and the developers desired tariffs.

On the bright side, Indian renewable energy space continues to attract foreign capital investments indicating faith in the long-term prospects of this space. Meanwhile, Indias renewable generation between April-December 2019 was up 7.0% y-o-y, compared to a drop in thermal energy generation.

Company Overview

KP Energy Limited is a balance of plant (BoP) solution provider for the Wind Energy industry. The company engages throughout the development process of wind farms, right from conceptualization until the commissioning of the project. KP Energys end-to-end solution for wind farm development includes services like site identification, site preparation, construction & erection, power evacuation, and operations & maintenance for the BoP portion of the project. KP Energy endures a vital link in synergizing a gamut of activities concerning utility-scale wind farm development.

Business Model

KP Energys business model is well-balanced integration of three business segments, namely, EPCC, O&M, and IPP.

All verticals revolve around the companys core value proposition - being a vital link in synergizing the entire gamut of services concerning utility-scale wind farm development. However, each vertical has a different purpose in establishing the company as a critical player in the Indian wind energy landscape.


EPCC is the founding business vertical of the company. It contributed 84% of the Revenue from Operations in FY20 as compared to 93% in FY19. Our EPCC segment revolves around a unique value proposition that is designed to comprehensively address all the needs of Wind Turbine Generator (WTG) manufacturers, Independent Power Producer (IPP), and Captive Power Consumers (CPP) in setting-up of a wind farm. The company provides end-to-end services, from conceptualization to commissioning of a wind energy project.

Site Identification

• Our key competence lies in identifying sustainable wind energy sites and acquiring land parcels suitable for project development.

• We use critical resources & technologies such as satellite data, physical evaluation, meso-mapping, wind data study, LIDAR, etcetera to evaluate and select the sites.

• KP Energy has an excellent portfolio of windy sites in Gujarat, which has the highest wind potential in the country.

Site Preparation and Logistics

• The company has a respected track record of site preparation and execution in all types of terrains. These include coastal plains, rocky ridges, low lying water prone flats, inundated mountains tops, marshy plateau, muddy soil, and many more.


KP energy undertakes operations and maintenance support for the BOP portion of WTG throughout its lifetime. Initial few years of O&M services are provided on an inclusive basis with the EPCC offering; however, the same becomes chargeable after the preliminary time period. This segment contributed 3% of Revenue from Operations in FY20 as compared to 1% of revenue in FY19. At present, the company has an O&M portfolio of ~200 MW i.e., 100% of the cumulative capacity energized by the company.


IPP contributed to 13% of Revenue from Operations in FY20 as compared to 6% in FY19.

• KP Energy owns wind energy generation assets with a total capacity of 8.4 MW, at each of its wind farm sites.

• The company has built roads, bridges, embankments and also done various engineering assignments to carry wind turbine parts (particularly blades and nacelle) as well as erection cranes across challenging terrains in order to execute its projects.

Construction & Erection

The company undertakes -

• Civil work related to the WTG foundation and completion of the crane platform

• Connecting such WTGs through 33kv Switchyard (USS), 33kv HV lines across windfarm

• Loading, unloading, inter-carting of WTG parts, their installation & erection, and charging of the wind farm.

Power Evacuation, Permits & Approvals

• The company undertakes the responsibility of constructing 33/66kv or 33/220kv power evacuation infrastructure and associated EHV lines.

• The company also works on obtaining all the requisite permits & approvals for setting up & operating a wind farm project from numerous authorities (local, state & central) depending on the location and WTG parameters.

Power Purchase Agreement

The company offers complete support and assistance in Power Purchase Agreements with DISCOMS and other entities

• The company undertakes operations & maintenance support for the BOP portion of WTG.

• O&M includes managing wind farm, pooling substation (24x7), maintaining HV & EHV network, repairs of access roads, managing power commercials, and site-related RoWs.

• O&M provision suffices the need to continually add value to our core offerings and promising clients of the uninterrupted services with a view of creating an annuity-based revenue stream for the company.

• This initiative provides the company with an annuity-based income, completely unrelated to the performance of capacity additions in the industry and thus its EPCC business.

• Additionally, it also showcases the quality of wind farms, O&M efficiency, and availability developed by the company.

KP Energys Operations & Maintenance Portfolio and Track Record

Sr. No. Site Name & PSS Detials Capacity in MW Scope of Work Start Year of O&M Overall Availability
1 Matalpur Site : 33.6 MW Entire BoP OMS from x,mer to metering point at PSS Since Jun12 99.62%
Shevdivadar 66/33kv SS
2 Ratdi Site: Baradiya 33.6 MW Entire BoP OMS from x,mer to metering point at PSS Since Apr14 99.55%
66/33kV SS
3 Kuchhdi Site: Degam 70 MW Entire BoP OMS from x,mer to metering point at PSS Since Nov16 99.52%
66/33kv SS
4 Mahuva-1 Site: 70 MW Entire BoP OMS from x,mer to metering point at PSS Since Mar17 99.65%
Vaghnagar 66/33kv ss
Total 207.2 MW

Performance Discussion FY20

The financial year 2019-20 proved to be a tough year for the company, Revenue from Operations for FY20 stood at 74.9 Crores compared to 158.4 Crores in FY19, registering a 52.7% decline on a y-o-y basis. EBITDA for FY20 stood at 10.8 Crores compared to 32.9 Crores in the previous year, registering a 67.1% decline on a y-o-y basis. The PAT for FY20 stood at 1.1 Crores and 19.43 Crores, registering a 94.3% decline on a y-o-y basis.

The overall financial performance for the year was severely impacted due to a convergence of many adverse external factors. First, sectoral constraints and a down-cycle in the wind energy industry impacted our core EPC business. Additionally, delay in project executions under the EPC segment due to a variety of factors led to incomplete project milestones and deferment of revenue from the financial year under review, eventually getting rolled over now with higher tariffs and larger timelines. A 53% drop in our revenue from operations coupled with a fixed-cost structure has completely decimated our bottom line.


The company has a healthy order book above 1 GW of wind energy projects to be executed until FY2021-22. Clear business visibility, coupled with increasing tariffs, improving WTG technologies, increasing efficiency due to larger rotors and higher hubs, should be the driving factors that will help us find our way back to higher earnings growth. On the asset front, we have invested in a transmission line infrastructure, which is under construction. Once monetized in the upcoming bid opportunities, this will prove to be a significant gain for the company.

Business Pipeline

Sr. No. Project Name Type Capacity (MW) Expected Completion
1 Mahuva-I Retail 15 December 2020
2 Mahuva-II Retail 30 June 2021
3 Mahuva-III Retail 50 June 2021
4 Mahuva-IV Retail
55 March 2022
5 Mahuva-V Retail
6 Vanki IPP 300 March 2022
7 Sidhpur-I IPP 300 December 2021
8 Sidhpur-II IPP 250.8 December 2021
Total 1000.8 By March 2022

Regulatory Changes

Our industry is a segment of the renewable energy industry. The renewable energy industry is eminently a regulated space, wherein any changes in Government and regulatory policies may impact our performance. Any adverse changes in the wind energy policy or amendments in policies related to power evacuation facilities can significantly impact the operations of the company. There was a shift from feed-in-tariff to auctions in the year 2017. This abrupt change led to the fall of the entire sectors performance in the last two years.

Wind Sector Performance

Our revenue streams are derived from capital expenditure in the wind energy space by either Independent Power Producer (IPP) or Captive Power Producers (CPP). Depending upon the capital expenditure scenario and cycle, a reduction

KP Energy Limited caused by either of them could adversely affect our revenues performance.

Project Development Risk

The project development process has several risks such as - building permits, land acquisitions, logistics & RoWs, which can lead to delay, cancellation, and write off of projects. This may have a severe impact on the profitability of our business. Project delays also lead to cost overruns, which may impact our profitability.

Internal Controls and Adequacy

The company has in place an adequate system of internal control commensurate with the size and nature of its business. These have been designed to provide reasonable assurance that all assets are safeguarded and protected against loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly and the business operations are conducted as per the prescribed policies and procedures of the company. The Audit Committee and the management have reviewed the adequacy of the internal control systems and suitable steps are taken to improve the same.

Human Resource Development and Industrial Relations

Your company firmly believes that its human resources are the key enablers for the growth of the company and important assets. Hence, the success of the company is closely aligned with the goals of the human resources of the company. Considering this, your company continues to invest in developing its human capital and establishing its brand on the market to attract and retain the best talent. Employee relations during the period under review continued to be healthy, cordial, and harmonious at all levels, and your company is committed to maintaining good relationships with the employees.

Forward Looking Statements

Statements in the Management Discussion and Analysis, describing the companys objective, projections, estimates, expectations, may be forward-looking statements. Actual results may differ materially from those expressed or implied due to various risks and uncertainties. Important factors that could make a difference to the companys operations include economic and political conditions in India and other countries in which the company operates, volatility in interest rates, changes in government regulations and policies, tax laws, statutes, and other incidental factors. The company does not undertake to update these statements.

Financial Ratio

Financial Ratio FY FY % Remarks
2019-20 2018-19 Change
Debtors Turnover 76.23 49.16 -55.06 Decline in ratio is due to decrease in sales in current financial year.
Inventory Turnover 288.23 1557.81 81.49 Decrease in inventory turnover ratio is due to lower cost of material consumed.
Interest Coverage Ratio 1.91 7.93 -75.91% Lower net profit compared to last financial year.
Current Ratio 1.7 1.16 48.28 % Due to an increase in inventory in the financial year.
Debt to Equity Ratio 2.53 1.81 -39.77%
Operating Profit Margin (%) 7.80 17.99 -56.64 Due to a reduction in top line operating margin is reduced.
Net Profit Margin (%) 1.47 12.27 -88.01 Due to a reduction in top line operating margin is reduced.