Lanco Infratech Ltd Management Discussions

ECONOMIC REVIEW

Global: Global business environment continued to remain challenging during fiscal 2016 led by weak global growth, slowdown in China, significant decline in commodity prices, divergent monetary policies and volatile currencies.

Due to the uncertainties and weaker growth, international agencies like IMF have slashed the growth outlook. World GDP projections for 2016 and 2017 witnessed broad-based reduction to 3.2% and 3.5% respectively. In 2015, World GDP grew by 3.1% as against the projection of 3.5%.

While the growth in advanced economies will continue to shrink, emerging markets and developing economies are expected to drive growth. Growth in the Emerging Market and Developing Economies is expected to be at 4.1% in 2016 as against 4% in 2015. In Advanced Economies, growth is expected to be in line at 1.9% in 2016. Details are as under:

GDP Growth Rates (%)

Country	2017 (E)	2016 (E)	2015
USA	2.5	2.4	2.4
Euro Area	1.6	1.5	1.6
China	6.2	6.5	6.9
Japan	(0.1)	0.5	0.5
India	7.5	7.5	7.3
World	3.5	3.2	3.1

(Source: World Economic Outlook, IMF April 2016)

India: While India’s GDP grew to 7.6% in fiscal 2016, business environment continued to remain challenging with sluggish uptick in the industrial activities. Liquidity situation continued to remain challenging due to weak business environment and slowdown in credit growth.

Index of Industrial Production (IIP) growth for fiscal 2016 declined to 2.4% from 2.8% last year on account of lower growth in electricity (+5.6% in FY16 v/s +8.4% in FY15) and manufacturing sector (+2% in FY16 v/s +2.3% in FY15).

INDUSTRY REVIEW Rs. DEVELOPMENTS AND OUTLOOK

POWER

The total installed generation capacity in India as at end of FY16 stood at 298.06 GW. Out of the total installed generating capacity, 62.1% was coal based, 14.4% was hydro and 8.2% was gas based.

All India Installed Generation Capacity (As on March 31, 2016)

		Thermal			Nuclear	Hydro	RES*	Grand Total
	Coal	Gas	Diesel	Total
MW	1,85,173	24,509	994	210,675	5,780	42,783	38,822	2,98,060
Percentage	62.1	8.2	0.4	70.7	1.9	14.4	13.0	100.0

(Source: CEA)

* Renewable Energy Sources, including SHP, BP, Urban & Industrial waste, Solar and wind energy

The total electricity generation in India during FY16 was at 1,107.39 Billion Units (BUs) compared to1,048.67 BUs in FY15, an increase of 5.60% YoY. Details are as under:

Electricity Generation during FY16 and FY15 (BUs) (excluding RES)

Type	FY16	FY15	Change
Thermal	944	879	7.4%
Hydro	121	129	-6.1%
Nuclear	37	36	3.6%
Bhutan Import	5	5	4.8%
All India	1,107	1,049	5.6%

(Source: CEA)

Generation Capacity Addition during FY16 and FY15 (MW)

Type	FY16	FY15	Change
Thermal	22,461	20,830	-8%
Hydro	1,516	736	106%
Nuclear	-	1,000	NA
RES	7,072	4,085	73%
All India	31,049	26,651	17%

(Source: CEA)

All India Installed Generation Capacity (MW) – Region Wise (As on March 31, 2016)

Region		Thermal			Nuclear	Hydro	RES*	Grand Total
	Coal	Gas	Diesel	Total
Northern	45,644	5,332	-	50,976	1,620	18,246	8,630	79,472
Western	72,153	10,815	-	82,968	1,840	7,448	15,315	107,571
Southern	36,443	6,474	918	43,834	2,320	11,558	18,154	75,866
Eastern	30,623	190	-	30,813	-	4,289	475	35,577
North-East	310	1,698	36	2,044	-	1,242	263	3,549
Islands	-	-	40	40	-	-	11	51
All India	185,173	24,509	994	210,675	5,780	42,783	42,849	302,086

(Source: CEA)

* Renewable Energy Sources, including SHP, BP, Urban & Industrial waste, Solar and wind energy

The western region has the highest installed capacity with 36% of the nation’s total installed capacity followed by the northern region and southern region at 27% and 25% respectively.

All India Installed Generation Capacity (MW) – Sector Wise (As on March 31, 2016)

Sector		Thermal			Nuclear	Hydro	RES*	Grand Total
	Coal	Gas	Diesel	Total
Central	51,390	7,555	-	58,945	5,780	11,571	-	76,296
State	64,321	6,975	439	71,734	-	28,092	1,964	101,790
Private	69,462	9,978	555	79,995	-	3,120	40,885	124,000
All India	185,173	24,509	994	210,675	5,780	42,783	42,849	302,086

(Source: CEA)

* Renewable Energy Sources including SHP, BP, Urban & Industrial waste, Solar and wind energy

The share of the private sector in the total installed capacity is the highest at 40% followed by the states at 34%.

Capacity Addition Targets in the 12^th Plan (FY2012-17)

				MW
Type/Sector	Central	State	Private	Total
Thermal	14,878	13,922	43,540	72,340
Hydro	6,004	1,608	3,285	10,897
Nuclear	5,300	-	-	5,300
Total	26,182	15,530	46,825	88,537

(Source: CEA)

The 12^th plan targets a capacity addition of 88,537 MW with 53% of the capacity being added by the private sector.

Achievements up to March 2016 during the 12^th Plan (FY2012-17)

				MW
Type/Sector	Central	State	Private	Total
Thermal	12,638	18,579	48,963	80,180
Hydro	2,504	712	595	3,811
Nuclear	1,000	-	-	1,000
Total	16,142	19,291	49,558	84,991
Achievement %	61.7	124.2	105.84	96.0

(Source: CEA)

All India Yearly Coal Consumption for Power Generation (Utilities)

Year	Coal Consumption MT
2015-16	546*
2014-15	530
2013-14	489
2012-13	455
2011-12	418
2010-11	387
2009-10	367

(Source: CEA)

* provisional

All India Annual per Capita Consumption of Electricity

Year	Per Capita Consumption (kwh)#
2015-16	1,075*
2014-15	1,010
2013-14	957
2012-13	914
2011-12	884
2010-11	819
2009-10	779
2008-09	734

(Source: CEA)

# (Gross Generation + Net Import)/Mid-year population

* Provisional

Transmission Lines added during FY16 and FY15 (ckms)

Voltage Level	FY16	FY15
+/- 500 KV HVDC	-	-
+/- 800 KV HVDC	3,506	-
765 KV	5,601	7,548
400 KV	11,181	9,992
220 KV	7,826	4,561

(Source: CEA)

All India Transformation Capacity Addition during FY16 and FY15 (MVA)

Voltage Level	FY16	FY15
+/- 500 KV HVDC	-	-
+/- 800 KV HVDC	1,500	-
765 KV	19,500	38,500
400 KV	17,045	14,970
220 KV	24,804	12,084
All India	62,849	65,554

(Source: CEA)

OUTLOOK

India jumped to third largest producer of electricity in the world (behind US and China) with total power generation of 1,107 BUs in FY16. As per CEA, 88,537 MW is to be added by the end of 12^th plan in FY17 while as at FY16, 84,991 MW is already added, resulting in achievement of 96%. Capacity addition is led by higher-than-targeted additions by private and state sector.

In recent years, the government has announced several structural reforms to the power sector and coal mining which will improve power generation. In FY16, peak deficit further narrowed to lowest-level ever of 3.2% and total deficit at 2.1%. In addition, transmission lines addition was 28,114 ckms, exceeding the programme by 18.6%.

SOLAR

The government is providing additional thrust to the development of renewable energy in the country and India is currently running the largest renewable capacity expansion program in the world. The government plans to increase the overall renewable capacity target by more than 5 times from 32 GW to 175 GW by 2022, led by solar energy. By 2022, the government aims to have solar based capacity of 100 GW, 60 GW from wind and rest from bio-power and small hydro plants.

In FY16, solar power capacity in India grew by 85% YoY to 4,879 MW. The government has also planned to develop at least 25 solar parks each with a capacity of 500 MW and above with a target of over 20,000 MW of solar installed power capacity in a span of 5 years from FY15 to FY19.

RESOURCES

Coal production in India continued to improve with Coal India producing 98% of the targeted 550 million tonnes and SCCL achieving 108% of the targeted 56 million tonnes in FY16. Coal-based power plants continue to remain the largest consumer of Coal India and SCCL with dispatch of 385 million tonnes and 39 million tonnes respectively to the power sector. Total geological coal reserves of 301.56 billion tonnes have been estimated in India with proven reserve of 125.91 billion tonnes.

Cumulative Geological Resources of Coal*

	Proved	Indicated	Inferred	Total
	(MT)	(MT)	(MT)	(MT)
All India	125,909	142,506	33,149	301,564

(Source: Government of India, Ministry of Coal) * As at April 1, 2014

INFRASTRUCTURE

During FY16, the construction of highways reached an all-time high of 6,029 kms and award of over 10,000 kms. In the last 2 years, the government awarded project worth Rs. 2 lakh Crores (Cr) largely through EPC route. It has also proposed to spend around Rs. 7 lakh Crores to develop National Highways of around 50,000 kms in the next 5 years. For Sagarmala Port development and Port modernisation, the government has budgeted project cost of Rs. 73,375 Cr and Rs. 9,891 Cr respectively. On the Port projects, the government has awarded projects worth Rs. 15,334 Cr in FY16.

COMPANY REVIEW

Lanco Infratech Limited (Lanco) is amongst the leading private independent power producers in the country with an installed generating capacity of 3,465 MW with a diversified portfolio of assets. The company possesses decades of experience in the fields of Engineering, Procurement and Construction (EPC), Power, Solar, Natural Resources and Infrastructure.

The infrastructure sector in the country has witnessed a continued slowdown and Lanco being amongst the country’s biggest players in the infrastructure sector, too got affected by the declining level of activity in the sector. During the year 2013-14, Lanco Infratech Limited had initiated the process of Corporate Debt Restructuring (CDR) for the Standalone Company. In line with the company’s commitment of reducing consolidated debt and reviving the EPC activity, Lanco has concluded, in April 2015, one of the biggest power sector transactions by divesting 100% stake in its 1200 MW Udupi Thermal Power Project. In addition, the company also sold its 70 MW Budhil Project during FY15. The sale proceeds enabled in reducing company’s consolidated debt position and infusing required equity for the company’s under construction projects.

The implementation of the CDR Package was delayed due to delay in getting the approval from the Lenders. Due to delay most of the Priority Loan sanctioned under CDR Package was used to address the interest dues of the Lenders thereby the revival of EPC Operations was partial. To bring the EPC operation to full scale, Company approached the Lenders with a proposal for Long Term Working Capital Loan (LTWCL) of Rs. 1,500 Cr for Financial Year 2015-16 which was approved at the Joint Lenders Forum of the Company.

The LTWCL sanction and release by the Lenders again got delayed and the restoration of the EPC Operations could not be fully achieved. Company is in discussions with Lenders to work out a suitable scheme to address the debt servicing and completion of the under construction projects.

The company has successfully secured lender’s approval of cost overrun proposals of it’s under construction projects. With this, the company is confident of installing additional coal fired generation capacity of 3,960 MW in near future. With improving macroeconomic environment and Power sector in specific, the company is expected to have a consolidated operating power capacity of more than 8,000 MW by FY19. Details of capacity as on March 31, 2016 is as under

Installed Power Capacity	Power Capacities under Construction	Power Capacities under Development
3,465 MW*	4,636 MW	5,580 MW

*As at March 31, 2016

Keeping in view the Government of India’s huge impetus for renewable energy and particularly solar power in the country, Lanco’s continued presence in solar sector especially in the EPC domain has good growth potential. The company is actively participating in the Solar EPC bids across the country. Lanco is currently, one of the largest solar EPC players in the country.

The Company successfully commissioned its Kondapalli gas fired project phase III (742 MW) during this financial year. Phase III A was commissioned on August 11, 2015 followed by commissioning of Phase III B on January 9, 2016.

As of March 31, 2016, Lanco Infratech’ s EPC order book including Solar EPC stood at a healthy Rs. 27,079 Cr. With cost overrun approvals in place and expediting project execution schedules, the company is confident of executing most of the order book over the next three years. This will significantly help in increasing the company’s standalone EPC and construction revenues. The company is also making continued efforts to secure new EPC orders from various external clients.

Company Review: Operations

Key Developments in 2015-16

1. The Phase III (742 MW) gas based unit of Lanco Kondapalli was commissioned during the year. Phase III A declared COD on August 11, 2015 and Phase III B declared COD on January 9, 2016

2. Restart of Amarkantak Unit II (300 MW) on December 5, 2015

3. Tariff revision for supply of power to UP from Anpara (1100 MW)

4. Tax reimbursement along with interest totalling to Rs. 310 Cr of Lanco Kondapalli power as per Honourable Supreme Court order

5. Approval of Long Term Working Capital Loan of Rs. 1,500 Cr to the Company by the Lenders JLF

6. Commissioning of Hindustan Power plant (2 x 600 MW) by the Company as EPC contractor

BUSINESS REVIEW

EPC*

				Rs. Cr
Order Book as on end of		Revenues		EBIDTA
March 2016	March 2015	FY16	FY15	FY16	FY15
27,079	28,063	2,875	1,316	611	10

* Including Solar EPC

Lanco offers Engineering, Procurement and Construction services in the infrastructure business segments of power projects, transmission, transportation, industry and large scale building projects. The total EPC order book (including Power and Solar Projects) as at end FY16 stood at Rs. 271 billion. The solar EPC order book was Rs. 3,668 Cr. Internal projects constitute 76% of the company’s order book.

For the year 2015-16, revenue for the EPC division was Rs. 2,875 Cr and EBITDA was Rs. 611 Cr. The revenue for the year increased by 118% YoY primarily due to increased activities in various internal projects. Higher revenue also led to higher EBITDA margins.

Major EPC Projects Under Execution

External

• EPC of 2x600 MW Annupur Thermal Power Project for Hindustan Power

• BOP of 3x660 MW Koradi Thermal Power Project for MAHAGENCO

• EPC 1X660 MW Supercritical Ennore Thermal Power Station Expansion Project from TANGEDCO

Internal

• 2x660 MW Amarkantak Thermal Power Project

• 2x660 MW Babandh Thermal Power Project

• 2x660 MW Vidarbha Thermal Power Project

• 500 MW of Teesta Hydro Power Project

• 76 MW Mandakini Hydro Power Project

POWER

Lanco Infratech is one of the leading independent private producers in the country with an installed capacity 3,465 MW and the capacity under construction of 4,636 MW. Lanco has concluded in April 2015 one of the biggest power sector transactions by divesting 100% stake in its 1200 MW Udupi Thermal Power Project.

Installed Power Capacity as on end of		Revenues		EBIDTA
March	March	FY 16	FY15	FY 16	FY15
2016	2015
3,465	3,918	Rs. 6,197	Rs. 7,525	Rs. 2,256	Rs. 2,442
MW*	MW**	Cr	Cr	Cr	Cr

* Including 5 MW Solar power plant purchased during this period and 742 MW of Kondapalli Phase III

** Includes 1200 MW of Udupi Power and excludes 742 MW of Kondapalli Phase III.

Performance of the Projects Under Operation

Kondapalli Phase-I – 368 MW

The gas based power station located in Kondapalli, Andhra Pradesh with an installed capacity of 368 MW has a long term Power Purchase Agreement (PPA) with Andhra Pradesh DISCOMS. Fixed charges are recoverable based on alternative fuel based availability under the PPA. The unit has tied up fuel supply arrangements with GAIL. Performance of the plant during the year is as follows:

Gross Generation (MUs)		Plant Load Factor (PLF %)
FY16	FY15	FY16	FY15
488	577	15	18

Kondapalli Phase-II – 366 MW

The phase II gas based power plant has an installed capacity of 366 MW and has tied up fuel supply with RIL (KG-D6). The generation for the year ended March 2016 was 972 MU based on E-bid RLNG procured under gas pooling mechanism of GOI.

Kondapalli Phase-III - 742 MW

The Phase III gas based unit was commissioned during the year. Phase III A declared COD on August 11, 2015 and Phase III B declared COD on January 9, 2016.

Generation for the year ended March 2016 was 587 MU based on E-Bid RLNG procured under Gas pooling mechanism of GOI.

Kondapalli also entered into FSA with GAIL on March 30, 2016 for supplying 285 Mn SCM Gas at 9800 Kcal/SCM. This FSA is valid up to September 30, 2016.

Tanjore- 120 MW

Gas based power station located in Karuppur village, Tanjore district, Tamil Nadu with an installed capacity of 120 MW. The plant has a long term PPA with Tamil Nadu with fuel supply arrangement with GAIL. Performance of the plant during the year is as follows-

Gross Generation	(MUs)	Plant Load Factor (PLF %)
FY16	FY15	FY16	FY15
654	593	62	57

Amarkantak Unit-I- 300 MW

Domestic coal based power unit located in Pathadi village of Korba district of Chhattisgarh with an installed capacity of 300 MW. The unit supplies power under a long term PPA to Madhya Pradesh. The plant maintained an availability factor of 94% during the year. Performance of the plant during the year is as follows:

Gross Generation	(MUs)	Plant Load Factor (PLF %)
FY16	FY15	FY16	FY15
2,228	2,257	85	86

Amarkantak Unit-II- 300 MW

Domestic coal based power unit located in Pathadi village of Korba district of Chhattisgarh with an installed capacity of 300 MW. The unit supplies 95% of power to Haryana and 5% power to Chhattisgarh as directed by Honourable Supreme Court Plant maintained an availability factor of 95% during the year. Performance of the plant after restart on December 5, 2015 is as follows:

Gross Generation	(MUs)	Plant Load Factor (PLF %)
FY16	FY15	FY16	FY15
762	0	90	0

Anpara- 1200 MW

Located in Uttar Pradesh with an installed capacity of 1200 MW, the unit has a long term PPA with Uttar Pradesh DISCOMS for 1100 MW and short term PPA with Tamil Nadu DISCOMS for 100 MW. Performance of the plant during the year is as follows:

Gross Generation	(MUs)	Plant Load Factor (PLF %)
FY16	FY15	FY16	FY15
8,637	8,341	82	79

The plant maintained an availability factor of 82% during the year on account of improvement of coal supply and coal handling infrastructure.

Details of the Projects Under Construction (as at end of March 2016)

Project Name	Percentage Completion	Expected Commissioning
	(%)	Date
Amarkantak 3&4 (1320 MW)	77	FY18
Vidarbha (1320 MW)	45	FY19
Babandh (1320 MW)	62	FY18
Teesta (500 MW)	52	FY20
Phata Byung (76 MW)	63	FY18

SOLAR

Lanco Solar provides solution across the entire Solar Power Value Chain. The company is setting up a fully-integrated manufacturing project for high-purity Polysilicon, silicon ingots/ wafers and modules in a SEZ facility at Chhattisgarh. The Company has knowledge and resources in managing the integrated solar project development. As of end March 2016, the solar EPC order book was Rs. 3,668 Cr with 60% of orders from external parties. The major solar plants under construction include Lanco’s 100 MW Solar Thermal Power plant at Askandra in Rajasthan and NTPC’s 100 MW Solar PV plant in Madhya Pradesh. The implementation of 100 MW Solar Thermal Power Plant at Askandra in Rajasthan is on hold, for the CERC order on the Project time extension and tariff correction. The order book also includes a 100 MW Solar Thermal Power plant being executed by Lanco for KVK Energy Ventures Private Limited also at Askandra in Rajasthan. Performance of all solar generating capacity of 46 MW during the year is as follows:

Gross Generation (MUs)		Plant Load Factor (PLF %)
FY16	FY15	FY16	FY15
73	64	18	18

RESOURCES

The Natural Resources business of the Lanco currently consists of the following assets:

1. Griffin Coal Mine

The Griffin Coal Mine is located in Collie, Western Australia and is the largest individual supplier of coal to Western Australia’s industrial coal market. Established in 1927, it is also Western Australia’s oldest coal company. Majority of the coal produced by Griffin is used as thermal coal, mostly in power stations. With coal resources of approximately 1.0 billion tonnes, coal from Griffin caters to the export markets as well. Production at the mine during the FY16 was 2.45 MT with sales of 2.44 MT. Production was less than optimal as the fall in international coal prices did not economically justify exporting a part of the production. Capacity enhancement program with capacity being raised from current to 15 MTPA is in the approval phase.

2. Tasra Open Cast Project

Tasra Opencast Coal Project (Tasra OCP) was awarded in a competitive bid to Lanco by Steel Authority of India Limited (SAIL) for Mine Development and Operations. The project includes setting up of 4 MTPA mine infrastructure, 3.5 MTPA Washery and a Captive Power Plant (CPP) of 300 MW capacity based on the secondary coal from the Washery. The project is located in well-established Jharia coal-fields region of District Dhandbad, Jharkhand and has coking coal reserves of 100 million tons. With this project, Lanco as MDO will develop and operate 4 MTPA coal production capacity, 3.5 MTPA washery capacity, and add around 300 MW of coal based power capacity to its existing business portfolio.

INFRASTRUCTURE

Roads

The road portfolio of the company currently consists of the following assets:

Project	Status
82 km Neelamangla Junction (Bangalore) – Devihalli (NH-48)	Operational; Collected Rs. 54 Cr in toll revenue during the year FY16
81 Km of Mulbagal – Hoskote – Bangalore (NH-4)	Operational; Collected Rs. 63 Cr in toll revenue during the year FY16

Real Estate

Lanco Hills is the group’s lone foray into property development. Located in the Cyberabad area of Hyderabad, the project comprises of residential space, Office space, IT SEZ, retail and hospitality space. Spread over a land parcel of 100 acres, it is one of the Country’s largest single place development projects. During the year 2015-16, revenue from operations was Rs. 156 Cr.

CONSOLIDATED FINANCIAL REVIEW

SEGMENT REVIEW

REVENUES

					(Rs. Cr)
Segment Revenue	FY16	Contribution to Total Revenues	FY15	Contribution to Total Revenues	YoY growth (%)
(a) EPC & Construction*	2,875	29%	1,316	14%	118%
(b) Power*	6,220	63%	7,525	78%	-17%
(c)Property Development	163	2%	79	1%	106%
(d) Infrastructure	117	1%	105	1%	11%
(e) Resources	493	5%	566	6%	-13%
(f) Unallocated	74	1%	47	0%	57%
Total	9,942	100%	9,639	100%	3%
Less: Inter Segment Revenue	1,772		171		936%
Net Sales/ Income from Operations	8,170		9,468		-14%

* Including Solar

The macro-economic challenges for the power and infrastructure sectors at the Country level affected the consolidated performance of the company for the FY16 also. Lanco Infratech’s total revenue (post elimination of inter-segment revenue) decreased by 14% during 2015 -16. This was primarily due to selling of 1200MW Udupi (Coal based power plant) in FY15 and higher elimination of Rs. 1,772 Cr compared to previous year of Rs. 171 Cr.

SEGMENT PROFITS

			(Rs. Cr)
Segment Results (Profit(+) / Loss(-)before tax and interest from each segment)	FY16	FY15	YoY growth (%)
(a) EPC & Construction*	463	-227
(b) Power*	1,759	1,562	13%
(c) Property Development	4	12	-67%
(d) Infrastructure	26	22	18%
(e) Resources	-189	-692	-73%
(f) Unallocated	-25	-19	32%
Total	2,037	658	210%
Less: Inter Segment Profit on transactions with Subsidiaries	271	-19	-
Total	1,766	676	161%

* Including Solar

Consolidated segmental Profit before interest and taxes and before elimination of inter-segment Profit on transactions with subsidiaries increased by 161% in FY16 against FY15. EPC & Construction segment contributed Rs. 463 Cr Profit before tax and interest as against loss of Rs. 227 Cr in the previous year. Power segment Profit before tax and interest increased by 13% for the year. The total Profit before tax and interest increased by 161% during the year compared to previous year

FINANCIAL REVIEW

PRINCIPLES OF CONSOLIDATION

The financial statements of the Company and its subsidiaries have been consolidated on a line by line basis. This is done by adding together the book values of like items of assets, liabilities, income and expenses and after eliminating intra-group balances, transactions and the unrealized Profits/losses on intra-group transactions. Unrealised losses resulting from intragroup transactions are eliminated to the extent that cost can be recovered.

The consolidated financial statements are drawn up by using uniform accounting policies for like transactions and other events in similar circumstances and are presented to the extent possible in the same manner as the Company’s individual financial statements.

The financial statements of the subsidiaries are consolidated from the date on which effective control is transferred to the company, till the date such control exists. The difference between the cost of investments in subsidiaries over the book value of subsidiaries’ net assets on the date of acquisition is recognized as goodwill or capital reserve in the consolidated financial statements.

Equity method of accounting is followed for investments in Associates in accordance with Accounting Standard (AS) 23 – Accounting for Investments in Associates in Consolidated Financial Statements, wherein goodwill / capital reserve arising at the time of acquisition and share of Profit or losses after the date of acquisition are included in carrying amount of investment in associates.

Unrealized Profits and losses resulting from transactions between the company and associates are also eliminated to the extent of company’s interest in the associate. Unrealised losses resulting from transactions between the company and its associates are also eliminated, unless the cost cannot be recovered. Investments in associates, made for temporary purposes, are not considered for consolidation and are accounted for as investments.

In the case of consolidation of the subsidiary company, the elimination takes place for the entire amount of revenue or expenditure and Profit or loss between the subsidiaries and holding company. In the case of associate consolidation, the entire revenue is recognised. But the Profit or loss earned from the associate is eliminated proportionately to the holding in the associate. Essentially, it is an adjustment which does not impact the cash flow.

ANALYSIS OF PROFIT AND LOSS ACCOUNT

			(Rs. Cr)
Particulars	FY16	FY15	YoY growth %
1 (a) Income from operations	9,482	9,094	4%
(b) Income from power trading	203	391	-48%
(c) Other operating income	78	57	37%
Total income from operations (Gross)	9,763	9,543	2%
Less: Elimination of intersegment operating income	1,772	171	936%
Total income from operations (Net)	7,991	9,372	-15%
2 Expenses
(a) Cost of materials consumed	4,265	5,051	-16%
(b) Purchase of traded goods	200	385	-48%
(c) Subcontract cost	265	261	2%
(d) Construction, transmission, site and mining expenses	721	1,026	-30%
(e) Change in inventories of finished goods and work in progress	-360	-140	157%
(f) Employee benefits expense	354	351	1%
(g) Depreciation & amortisation expenses	838	1,114	-25%
(h) Other expenses	241	263	-8%
Total expenses	6,523	8,312	-22%
3 Profit / (loss) from operations before other income, foreign exchange fluctuations, finance costs, prior period items & exceptional items (1-2)	1,468	1,060	38%
4 Other income	236	139	70%
5 Add: Eliminated Profit on transactions with subsidiaries	271	-19	NA
6 Profit / (loss) from ordinary activities before foreign exchange fluctuations, finance costs, prior period items & exceptional items plus elimination (3+4+5)	1,976	1,180	67%
7 (Gain) / loss on foreign exchange fluctuations (Net)	-119	480	-125%
8 Finance costs	2,514	3,060	-18%
9 Profit / (loss) from ordinary activities after finance costs but before prior period items & exceptional Items plus elimination (6-7-8)	-420	-2,360	-82%
10 Exceptional items	210	123	71%
11 Profit / (loss) from ordinary activities before tax, prior period items plus elimination (9+10)	-210	-2,237	-91%
12 Tax expense	-230	-117	97%
13 Net Profit / (loss) from ordinary activities after tax but before prior period items plus elimination (11-12)	20	-2,120	-101%
14 Extraordinary Item (net of tax expense)	0	0
15 Net Profit / (loss) for the period before prior period items plus elimination (13+14)	20	-2,120	NA
Less : Prior Period Items	-20	43	-147%
16 Net Profit / (loss) for the period plus elimination	40	-2,162	NA
Less : Minority interest	34	-100	NA
Add: Share of Profit / (loss) of associates	0	-3	NA
17 Net Profit / (loss) for the period plus elimination after Minority and share Profit / (loss) of associates	6	-2,065	NA
18 Less: elimination of Profit on transactions with subsidiaries and associates	272	-28	NA
19 Net Profit / (loss) after taxes, minority interest and share of Profits / (loss) of associates (17-18)	-266	-2,037	NA
20 Cash Profit (17 + 2(g) + deferred tax – MAT credit + forex loss- forex gain)	440	-506	NA
21 Profit (+) / Loss (-) from ordinary activities before tax (11 – 5)	-480	-2,218	-78%

• Gross Revenue before eliminations (including other income) increased by 2% YoY to Rs. 9,763 Cr in FY16 from Rs. 9,543 Cr in FY15

• Reported loss of Rs. 266 Cr in FY16 vs. loss of Rs. 2,037 Cr in FY15

• Forex gain of Rs. 119 Cr in FY16 vs. Forex loss of Rs. 480 Cr in FY15. On a consolidated basis the company incurred a loss of Rs. 266 Cr for the year, due to continued macro-economic challenges on the power and infrastructure sectors. The performance of the company in FY16 was doing much better than FY15 by reducing the losses from Rs. 2,037 Cr to Rs. 266 Cr. This reduction was possible on account of additional revenues in Kondapalli subsidiary, on account of Honourable Supreme Court order, additional revenue in Anpara subsidiary due to tariff order from UPERC and forex gain on resources subsidiary.

Other Income

Other income for FY16 increased by 70% over FY15 led primarily by an increase in interest income.

			(Rs. Cr)
Particulars	FY16	FY15	YoY Growth %
Interest Income	188	90	109%
Dividend Income	1	4	-75%
Net Gain on sale of investments	4	0	NA
Other Non-Operating Income	43	45	-4%
Total	236	139	70%

EXPENDITURE

There was a 21% decline in total expenditure for the year 2015-16.

					(Rs. Cr)
EXPENSES	FY16	% of Total FY16 Expenses	FY15	% of Total FY15 Expenses	YoY Growth %
Cost of Materials Consumed	4,265	75%	5,051	70%	-16%
Purchase of Traded Goods	200	4%	385	5%	-48%
Subcontract Cost	265	5%	261	4%	2%
Construction, Transmission, Site and Mining Expenses	721	13%	1,026	14%	-30%
(Increase) / Decrease in Inventories of Finished Goods and Construction / Development Work in Progress	-360	-6%	-140	-2%	157%
Sub-Total	5,091	-	6,583	-	-23%
Employee Benefits Expenses	354	6%	351	5%	1%
Other Expenses	241	4%	263	4%	-8%
Total Expenses	5,686		7,198		-21%

COST OF MATERIAL CONSUMED

The total cost of material decreased by 16% during 2015 – 16.

EMPLOYEE BENEFITS EXPENSES

During the year 2015-16, employee benefits expenses increased by 1% over the previous year on account of slight increase in employee salaries and other benefits.

					(Rs. Cr)
Particulars	FY16	% of Total	FY15	% of Total	YoY Growth
Salaries, allowances and benefits to employees and ESOP	327	89%	319	89%	3%
Contribution to provident fund and other funds	20	6%	17	5%	18%
Recruitment, training and Staff welfare expenses	19	5%	24	6%	-21%
	366		360		2%
Less: Capitalized	12		9		33%
Total	354		351		1%

OTHER EXPENSES

Other expenses decreased by 84% compared with the previous year. Net gain on foreign exchange fluctuations for the year FY16 was Rs. 119 Cr compared with Rs. 480 Cr loss in FY15 made the reduction in the other expenses in the FY16 compared to FY15.

					(Rs. Cr)
Particulars	FY16	% of Total	FY15	% of Total	YoY Growth %
Rent	22	15%	30	4%	-27%
Rates and taxes	22	15%	11	1%	100%
Donations	4	3%	2	0%	100%
Corporate Social Responsibility Expenses	1	1%	1	0%	0%
Repairs and Maintenance:
Office Building	1	1%	2	0%	-50%
Others	21	14%	15	2%	40%
Marketing and selling expenses	4	3%	3	0%	33%
Office maintenance	10	7%	8	1%	25%
Insurance	4	3%	3	0%	33%
Printing and stationery	2	1%	2	0%	0%
Consultancy and other professional charges	76	52%	60	8%	27%
Directors sitting fee	1	1%	1	0%	0%
Electricity charges	5	3%	4	1%	25%
Net Gain on sale of the long term investments	0.44	0%	-	0%	100%
Net Loss on Foreign Exchange Fluctuations	-119	-82%	480	64%
Remuneration to auditors	4	3%	4	0%	0%

 

					(Rs. Cr)
Particulars	FY16	% of Total	FY15	% of Total	YoY Growth %
Travelling and conveyance	27	18%	30	4%	-10%
Communication expenses	5	3%	6	1%	-17%
Net Loss on Sale of fixed assets	11	8%	31	4%	-65%
Provision for Advances / claims / debts	28	19%	38	5%	-26%
Business Promotion & Advertisement	5	3%	6	1%	-17%
Miscellaneous expenses	12	8%	17	2%	-29%
	146	100%	754	100%	-81%
Less: Recovery of Common Expenses/ Eliminations	24		10		140%
Less: Transferred to Capitalised cost	1		1		0%
Total	122		743		-84%

FINANCE COST

Total Finance costs decreased by 18% during the year due to lower interest cost over previous year on account of lower average debt resulted from sale of Udupi subsidiary.

DEPRECIATION/AMORTISATION

Depreciation and amortisation expenses decreased by 25% for the year on account of sale of Udupi subsidiary.

PROVISION FOR TAXATION

The reversed provision of deferred tax in the FY16 was more compared to FY15 which resulted in higher tax credit in FY16 compared to FY15.

			(Rs. Cr)
Particulars	FY16	FY15	YoY Growth %
Current Tax / Minimum Alternate Tax (MAT) Payable	33	16	106%
Relating to Previous Years	0	-46	NA
Deferred Tax	-263	-87	202%
Total Tax Expense	-230	-117	97%

SHARE OF PROFIT / LOSS OF ASSOCIATES

The share of Profit of associates stood at NIL against a loss of Rs. 3 Cr in the previous year.

SHARE OF MINORITY INTEREST

Share of minority interest represents the interest of minority shareholders in various companies. Share of minority interest in FY16 was a loss of Rs. 34 Cr against a gain of Rs. 100 Cr in FY15.

PROFIT AFTER TAX PLUS ELIMINATION

Reported loss for the year 2015-16 was Rs. 266 Cr against a loss of Rs. 2,037Cr in the previous year. Adjusted Profit (Reported loss plus Profit eliminated) for the year was Rs. 6 Cr against an adjusted loss of Rs. 2,065 Cr in the previous year.

CASH PROFIT

Cash Profit is the Profit the Company has earned after adjusting for non-cash expenditures like depreciation, forex gain/loss, deferred tax, MAT credit entitlement and adding eliminated Profit. Cash Profit for the year FY16 was Rs. 440 Cr versus a cash loss of Rs. 506 Cr in the previous year.

			(Rs. Cr)
Particulars	FY16	FY15	YoY growth (%)
Reported PAT	-266	-2,037	-87%
Add: Depreciation	838	1,114	-25%
Add: Deferred Tax	-263	-87	202%
Add: Forex Loss / (Gain)	-119	480	-125%
Add: Profit Eliminated	272	-28	NA
Less: Exceptional item	-22	-52	-58%
Cash Profit	440	-506	NA

ANALYSIS OF BALANCE SHEET SOURCES OF FUND

			(Rs. Cr)
Particulars	FY16	FY15	YoY Growth %
Shareholders Funds
Share Capital	274	245	12%
Reserves and Surplus	-996	-693	44%
Minority Interest	1,479	1,339	10%
Sub Total	757	891	-15%
Non–Current Liabilities
Long Term Borrowings	39,360	33,145	19%
Deferred Tax Liabilities (net)	96	381	-75%
Other Long Term Liabilities	1,544	2,987	-48%
Long Term Provisions	607	707	-14%
Sub Total	41,608	37,220	12%
Current Liabilities
Short Term Borrowings	2,971	4,529	-34%
Trade Payables	3,743	3,904	-4%
Other Current Liabilities	4,436	6,045	-27%
Short Term Provisions	99	83	19%
Sub Total	11,249	14,561	-23%
TOTAL	53,614	52,673	2%

SHAREHOLDER’S FUND INCLUDING MINORITY INTEREST

Due to a reported loss for the full year, shareholders’ funds including minority interest for the year 2015-16 were Rs. 757 Cr against Rs. 891 Cr for the previous year.

NET WORTH

The net worth of the Company, as at March 31, 2016 and as at March 31, 2015, is as under:

			(Rs. Cr)
S. No.	Particulars	FY16	FY15
1	Share Capital	274	245
2	Reserves & Surplus	-996	-693
3	Shareholders Fund (1+2)	-722	-448
4	Eliminated Profit on Transactions with Subsidiaries and Associates	1,503	1,473
5	Shareholders Fund plus Elimination (3+4)	780	1,025
6	Minority Interest	1,479	1,339
7	Net worth plus Elimination (5+6)	2,259	2,364

BORROWINGS

Total Borrowings include Long Term, Short Term and Current Maturities of Long Term Borrowings. Total borrowings increased by 13% for the year while long term borrowings increased by 19%. There was a decrease of 34% in short term borrowings. The increase in the long term borrowings was on account of increase in the fixed assets purchase.

			(Rs. Cr)
Particulars	FY16	FY15	YoY growth (%)
Long Term Borrowings	39,360	33,145	19%
Current Maturities of Long Term Borrowings	2,033	1,517	34%
Short Term Borrowings	2,971	4,529	-34%
Total	44,364	39,191	13%

CURRENT LIABILITIES (EXCLUDING BORROWINGS)

Current liabilities (excluding borrowings) decreased by 27% during the year

			(Rs. Cr)
Particulars	FY16	FY15	YoY growth (%)
Current Liabilities as per Balance Sheet	11,248	14,561	-23%
Less: Short Term Borrowings	2,971	4,529	-34%
Less: Current Maturities of Long Term Borrowings	2,033	1,517	34%
Total	6,244	8,515	-27%

APPLICATION OF FUNDS

			(Rs. Cr)
Particulars	FY16	FY15	YoY Growth %
Fixed Assets	40,855	37,252	10%
Non-Current Investments	1,726	3,143	-45%
Deferred Tax Assets (net)	76	97	-22%
Long Term Loans and Advances	934	699	34%
Other Non-Current Assets	319	1,021	-69%
Sub Total	43,939	42,212	4%

 

			(Rs. Cr)
Particulars	FY16	FY15	YoY Growth %
Current Assets
Current Investment	53	13	308%
Inventories	3,365	3,320	1%
Trade Receivables	2,988	3,354	-11%
Cash and Bank Balances	634	808	-22%
Short Term Loans and Advances	2,121	2,360	-10%
Other Current Assets	513	606	-15%
Sub Total	9,674	10,461	-8%
TOTAL	53,613	52,673	2%

FIXED ASSETS

Fixed assets of the company increased by 10% during the year.

INVESTMENTS

Total investments (current and non-current) decreased by 44% during the year. During the year Vidarbha and Babandh became subsidiary companies from associates and Teesta became associate from subsidiary.

			(Rs. Cr)
Particulars	FY16	FY15	YoY growth
			(%)
Non-Current Investments	1,726	3,145	-45%
Current Investment	53	13	308%
Total	1,779	3,158	-44%

OTHER NON-CURRENT ASSETS

Decrease in other non-current assets from Rs. 1,021 Cr to Rs. 319 Cr is on account of realization of retention money, fixed deposits and change in the classification from non-current to current

CURRENT ASSETS (EXCLUDING INVESTMENTS)

			(Rs. Cr)
Particulars	FY16	FY15	YoY Growth
			(%)
Inventories	3,365	3,320	1%
Trade Receivables	2,988	3,354	-11%
Cash and Bank Balances	634	808	-22%
Short Term Loans and Advances	2,121	2,360	-10%
Other Current Assets	513	606	-15%
Total	9,621	10,448	-8%

Current assets (excluding current investments) remained 8% lower as compared to the previous year on account of sale of Udupi subsidiary. Trade receivables decreased by 11% during the year. As at March 31, 2016 the Group has receivables from various State Electricity Utility companies and other customers against sale of power aggregating to Rs. 1,782 Cr (Rs. 2,627Cr as at March 31, 2015). Cash and bank balance as at end FY16 was Rs. 634 Cr compared to Rs. 808 Cr as at March 31, 2015.

LOANS AND ADVANCES

Long term loans and advances increased by 235 Cr during the year and short term loan and advances reduced by 239 Cr during the year. A total advance remains same during the year.

			(Rs. Cr)
Particulars	FY16	FY15	YoY Growth (%)
Long Term	934	699	34%
Short Term	2,121	2,360	-10%
Total	3,054	3,059	0%

NET CURRENT ASSETS

			(Rs. Cr)
Particulars	FY16	FY15	YoY Growth (%)
Current Assets (excluding investments)	9,621	10,448	-8%
Current Liabilities (excluding borrowings & current maturities)	6,244	8,515	-27%
Net Current Assets	3,377	1,933	75%

Net Current Assets increased by 75% compared to previous year due to reduction in other current liabilities on account of elimination arising by change in the status of Vidarbha and Babandh to subsidiary from associate.

KEY FINANCIAL DATA OF MAJOR OPERATING COMPANIES

									(Rs. Cr)
Particulars	LITL	Amarkantak	Anpara	Kondapalli	Tanjore	Solar Consol	Griffin Consol	Hills	NETS
Income
Income	2,671	784	3,237	1,464	225	551	500	156	657
Other Income	74	16	29	137	13	27	0	9	8
Total	2,745	800	3,266	1,601	238	577	500	165	665
Expenditure
Construction/ Development/ Generation Expenses	2,055	447	1,817	1,070	182	478	501	136	653
Administrative and Other Expenses	183	50	52	26	12	38	42	21	7
EBITDA	506	304	1,398	505	43	62	-43	7	5
EBITDA to Total Income (%)	18	38	43	32	18	11	-9	4	1
Interest and Finance Charges	925	299	609	320	2	51	257	2	1
Depreciation	111	151	250	105	22	13	146	3	0.10
Exceptional item	-85			-115		-0.4
Profit before Tax	-445	-146	538	194	19	-3	-446	1	4
Provision for Taxation
- Current Tax	-0		21		4			-	1
-Minimum Alternate Tax Credit Entitlement			-		-	-	-	-
- Deferred Tax (Net)			-		3		-292	-	1
- Fringe Benefit Tax	-	-	-	-	-	-	-	-	-
Net Profit before prior period	-445	-146	517	194	12	-3	-155	1	2
Prior period items		-1					21
Net Profit	-445	-147	517	194	12	-3	-133	1	2

RISKS AND MITIGATION

Lanco Infratech has significant presence in the verticals of Power, EPC, Natural Resources, Solar and Infrastructure. To operate, execute and manage these verticals, the company faces various macro-economic risks that are also dynamic in nature. The major risks that the company faces relate to inadequate fuel supply for operation of installed capacity, regulatory approvals and statutory approval delays, lack of investor interest in the power sector for equity infusion into under construction projects, lack of PPA opportunity, delay in loan disbursement, foreign exchange fluctuation risks, limited vendors, change in MoEF norms etc., Risk mitigation and risk management practices are followed to overcome these risks. The areas of critical risks are regularly reviewed and monitored and necessary action is taken to mitigate their effect. The following are the probable risks and the mitigation plan for each risk:

Risk Description	Mitigation Plan
Inadequate Fuel Supply (Coal and Gas)	1. Pursuing with Government of India for allocation/supply of gas/coal
	2. Participation in gas pooling bids invited by the government for supply of gas
	3. Purchase of deficit quantity of coal from e-auction/open market/imports
Regulatory and legal issues affecting performance of installed capacity	1. Pursuing with procurers and regulatory authorities to resolve pending issues
	2. Amicable settlements where ever possible to avoid the delay in the legal outcome
Delays in obtaining necessary clearances, land acquisition etc.,	1. Regular interaction with locals and employing confidence building measures through CSR
	2. Regular follow up with concerned regulatory authorities for timely clearances
Lack of investor interest for infusion of equity into under construction projects	1. Divestment of stake in operational assets to raise the required equity for infusion into under construction assets
	2. Structuring alternative funding patterns
	3. Raising equity from the strategic investors
Tying up of long term PPAs	1 Participation in all bids
	2. Regular follow up with authorities to ensure signing of power purchase agreements post the bids
Delay in approvals and disbursements from lenders	1. Frequent interaction with Top Management of Banks and convening JLFs
	2. Close follow up for implementation of JLF decisions and escalation to the Lead Bank for corrective action.
Loss on account of foreign exchange fluctuation	1. Review of forex exposure on a regular basis
	2. Hedging as per the Forex Risk Management policy
	3. Avoid foreign exchange transactions where ever possible
Limited vendors for certain packages	1. To gain in-depth knowledge of the packages and procure sub-packages instead of turnkey packages
Change in MoEF Norms for emissions from power plants	1. Negotiations with the client for increasing contract value under change in Law
	2. Additional cost to be passed on to the customer

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Lanco Foundation is the CSR arm of the Lanco Group. The Foundation operates in 12 locations across 10 states in India. Its programmes range across various sections of the society. Some of these are:

HEALTH

Under the health segment, 155 villages and 304,528 beneficiaries were covered across the southern, central and northern regions.

The Lanco Mobile Health Service (LMHS) has 16 units in operation. The number of actual per day beneficiaries was 1,064 against the per day plan beneficiaries target of 960, an achievement rate of 113%. Under LMHS, 8,353 camps were conducted during the reported year. In the regions that LMHS operates, the percentage of its outreach vis--vis the population of the area was 53%. (Total registrations as on March 31, 2016 of 149,641 vs. population of 284,421).

DRINKING WATER

The foundation also has 36 functional water plants in 8 locations that benefitted 14,670 households. The number of households registered under the drinking water scheme is 14,806. A total number of 68,682,013 litres of water was distributed during the year.

DISABILITY

The Foundation has set up four Artificial Limb Fitting Centre (ALFC) in the states of Andhra Pradesh, Chhattisgarh, Odisha and Tamil Nadu.

During the FY16, under the outreach based program, a total of 28 Artificial Limb Fitting screening camps were held in the states of Andhra Pradesh, Chhattisgarh, Odisha and Tamil Nadu with a total number of 1,520 people screened. And, a total of 27 Artificial Limb Fitting distribution camps were held in the states of Andhra Pradesh, Chhattisgarh, Odisha and Tamil Nadu with a total number of 1,200 people covered.

Under the center based program, a total of 548 people were screened during the year with a total number of 423 people covered.

Blood donation camps were held at 18 locations during the FY16 with the number of donors at 1,356.

During the FY16, Lanco Group has spent Rs. 3.61 Cr on CSR related activities.

HEALTH, SAFETY AND ENVIRONMENT

Your Company has taken an integrated approach towards Health, Safety & Environment (HSE) and follows, National & International Standards. The Company through its Subsidiaries implemented British 5 Star Safety Programs. The Company aim to be a National Leader in environmental Standards and Practices.

All the Operational Thermal and Gas Power Plants, EPC Division, Lanco Hills and Lanco Solar are OHSAS-18001 & ISO-14001 certified.

Bagging various HSE Awards during the year make us proud. Details of awards received during the FY16 are as under:

Company	Award
Lanco Amarkantak Power Limited	• NSCI Safety Awards, "Prashansha Patra"
Lanco Tanjore Power Company Limited	• Won First (Gold) Prize in FICCI Safety Systems Excellence Awards for manufacturing under Medium Sector.
	• CII Best Safe Practices awards from Confederation of Indian Industries & Directorate of Industrial Safety & Health Department (State Government).
Lanco Kondapalli Power Limited	• Best Greenery Maintenance award from Andhra Pradesh Industrial Infrastructure Corporation, IALA, IDA - Kondapalli.