NLC India Ltd Management Discussions.

Power Industry - an outlook

The power sector outlook for the year 2021 looks bright despite COVID-19 disruptions. The sector is currently on the path to recovery with a steady improvement in power demand and recovery in economic activities. The year 2020 witnessed a slew of powerful measures such as the announcement of privatization of DISCOMs in the Union Territories, the special liquidity infusion of 90,000 crore into the distribution utilities and the increased focus on consumer rights that set the stage for greater structural reforms in the power. While the situation is yet to be normal, there are obvious green shoots that indicate a more than expected economy rebound in the near future. With the slow but steady unlocking of the business activities and the economic revival set back in motion, there has been commensurate positive impact on the electricity demand.

The electricity generation target of Conventional Sources for the year 2021-22 has been fixed at 1356 Billion Units (BU) i.e. growth of around 9.83% over the actual conventional generation of 1234.608 BU for the previous year (2020-21). This target comprises of 1155.200 BU Thermal; 149.544 BU Hydro; 43.020 BU Nuclear; and 8.236 BU Import from Bhutan.

Capacity addition

The overall power capacity addition to conventional as well as renewable power generation during the financial year 2020-21 has taken a hit due to the COVID-19 pandemic. The net conventional power capacity addition stood at about 5.4 GW as against 7.065 GW YoY, while the renewable energy power addition was at 7.04 GW as against 9.39 GW in the previous fiscal. The private sector generates 47.3% of Indias thermal power whereas States and Central Sector generates 27.2% and 25.5% respectively. The lower capacity addition was due to supply-side disruptions (which slowed movement of inputs and led to an increase in their prices), labour shortages and the constrained finances and liquidity pressures faced by the developers triggered by the lockdown. Import restriction on the inputs aggravated the problems for solar power developers.

However, growth is set to rebound and renewable expansion is expected to set a new record by the year 2022, driven by the commissioning of delayed projects. However, the current surge in Covid-19 cases in India due to 2nd wave has created short-term uncertainty for this year.

The contribution of the State, Central and Private Sector were as under:

Sector Total capacity (MW) % to Total
Central Sector 97,507 25.50
State Sector 1,03,870 27.20
Private Sector 1,80,774 47.30
Total 3,82,151 100.00

The installed capacity from different sources of energy were as under:

Source Total capacity (MW) % to Total
Thermal 2,34,728 61.42
Hydro(renewable) 46,209 12.09
Nuclear 6,780 1.77
RES(MNRE) 94,434 24.72
Total 3,82,151 100.00

(Source: Central Electricity Authority)

RES (Renewable Energy Sources) includes Small Hydro Projects, Biomass Gasifier, Biomass Power, Urban & Industrial Waste Power, Solar and Wind Energy.

Impact of COVID Pandemic

The growth momentum of Indian power sector has been hindered by the onset of the pandemic and the ensuing lockdown measures. The shutdown of industrial activities as an effect of the lockdown announced on 24th March 2020, led to a sharp fall in power consumption in the industrial and commercial sectors.

The steep decline in demand, coupled with a liquidity crunch, has crippled the financials of power generating and power distribution companies. To address the immediate impacts of the crisis, Government provided temporary relief measures allowing DISCOMs to deposit letters of credit for only 50% of the cost of power they want to schedule, lowering their credit requirements and rebate on capacity charges during pandemic period. Government also came with the power sector reforms, notably the draft Electricity (Amendment) Bill 2020 and financial support through a recovery package worth USD 12 billion ( 90,000 crore) to mitigate the harsh impacts of Covid-19 on the sectors solvency.

Coal and Lignite

Fossil fuels remain the dominant source of energy powering the global economy, providing around 60% of the growth in energy. Coal, Oil and Gas are the primary commercial energy sources with coal being the largest source of energy in India because of its abundant presence.

Coal reserves

About 70% of the coal reserves of the country are from the States of Jharkhand, Odisha and Chhattisgarh. Coal is also produced from mines available in the States of Andhra Pradesh, Telangana, Madhya Pradesh, Maharashtra, West Bengal and Bihar.

As on 01.04.2020, the total estimated reserves of Coal in India was 344.021 Billion Tonnes (BT) out of which the proved category accounted for 163.471 BT.

The details of Coal Resources as on 01.04.2020 are as follows:

(Resources in Million Tonnes)

State Measured Indicated Inferred Total %
Arunachal Pradesh 31.23 40.11 18.89 90.23 0.03
Assam 464.78 57.21 3.02 525.01 0.16
Bihar 309.53 2,430.58 11.30 2,751.41 0.80
Chhattisgarh 24,984.86 42,367.83 2,079.14 69,431.83 20.18
Jharkhand 49,468.59 30,283.80 5,849.71 85,602.10 24.87
Madhya Pradesh 12,597.25 12,888.39 3,799.31 29,284.95 8.51
Maharashtra 7,623.74 3,257.37 1,846.59 12,727.70 3.70
Meghalaya 89.04 16.51 470.93 576.48 0.17
Nagaland 8.76 21.83 415.83 446.42 0.13
Odisha 40,871.77 36,067.17 7,713.12 84,652.06 24.61
Sikkim 0 58.25 42.98 101.23 0.03
Uttar Pradesh 884.04 177.76 0 1,061.80 0.31
Andhra Pradesh 97.12 1,078.44 431.65 1,607.21 0.47
West Bengal 15,199.49 13,121.95 4,615.85 32,937.29 9.57
Telangana 10,840.88 8,521.40 2,862.84 22,225.12 6.46
Total 1,63,471.08 1,50,388.60 30,161.16 3,44,020.84 100.00

(Source: Indian Coal and Lignite Resource Inventory - 2020 by GSI).

Lignite

Lignite reserves

In India, lignite deposits are mostly confined in the States of Tamil Nadu, Gujarat, Rajasthan and Puducherry. Tamil Nadu contributes major share of lignite resources (80%). Major part of the lignite produced in the country is used for power generation and the demand for lignite is mainly dependent on existing and proposed thermal power stations.

The details of State-wise resources of lignite as on 01.04.2020 are as follows:

(Resources in Million Tonnes)

State /Union Territory Measured Indicated Inferred Total %
Pondicherry 0.00 405.61 11.00 416.61 0.91
Tamil Nadu 4,521.92 22,315.06 9,652.62 36,489.60 79.29
Rajasthan 1,168.53 3,029.77 2,150.77 6,349.07 13.79
Gujarat 1,278.65 283.70 1,159.70 2,722.05 5.92
Jammu & Kashmir 0.00 20.25 7.30 27.55 0.06
Kerala 0.00 0.00 9.65 9.65 0.02
West Bengal 0.00 1.13 2.80 3.93 0.01
Total 6,969.10 26,055.53 12,993.84 46,018.47 100.00

(Source: Indian Coal and Lignite Resource Inventory - 2020 by GSI).

Demand and Production

As per the Report of the Working Group on Coal & Lignite for formulation of XII Five Year Plan, the projected demand of lignite at the terminal year of XIII Plan (2021-22) is 108.62 Million Tonne and the projected lignite production during the same period is 104.55 Million Tonne.

SWOT Analysis Strength

-Diversified energy portfolio of Fossil Fuel Mining, Thermal Power Generation & Renewable Power.

- Expertise in lignite & coal fired power station.

- Expertise in renewable power generation and power trading.

- Experienced Management team with committed and experienced work force.

- Having Pit Head Power Stations.

- Availability of lignite, coal and water for power generation.

- Expertise in open-cast lignite mining with SME technology.

- Strong capabilities for exploration, mine planning, Research & Development.

- Harmonious industrial relations.

- Strong track record of growth and financial performance.

- Expertise in ground water management.

Weakness

- Mines moving towards higher stripping ratio and consequent increase in cost of mining.

- Poor financial health of DISCOMS.

- Higher cost of mining.

Opportunities

- Investment in promoting Green Energy

- Government of Indias (GoI) commitment to improve the quality of life of its citizens through higher electricity consumption.

- Rise in the per capita consumption of power.

- Trading of Power in the Market.

- Launch of 100 smart cities mission by GoI.

Threats

- Delay in realization of dues from beneficiaries.

- Challenges posed by Renewable energy to Thermal Power Generation.

- Huge surrender of Power by the beneficiaries and consequently under-utilization of Thermal and Mining Capacity.

- Resistance from land owners for acquisition, demand for enhanced compensation, demand for employment.

- Necessity of pumping of water below the lignite seam for safe mining leading to higher cost of production.

- Higher cost for rehabilitation & resettlement measures for land evictees.

Segment-wise performance Covered in the main report.

Company Outlook

Your Company is presently operating lignite mines with a total installed capacity of 30.60 MTPA and considering the other Projects under formulation / implementation, the total lignite mining capacity will be increased to 62.15 MTPA by the year 2025.

Your Company has also started Coal mining operations from Talabira II & III Opencast Mines at Odisha from 26th April 2020 with a mining capacity of 20.0 MTPA thereby increasing the total mining capacity to 50.60 MTPA. Coal production to the mining capacity is expected to reach in 2027-28. The Pachwara South Coal Block with a capacity of 9.0 MTPA has been allotted to NUPPL, the Subsidiary Company and with the commencement of the said Coal Block by end of the year 2025, the total coal mining capacity of the Group would be 29.0 MTPA.

Your Company has added 500 MW Thermal Power and 17.5 MW Renewable Power during 2020-21 and retired 350 MW (of TPS I) of its installed capacity. With this addition and retirement, the total installed capacity has become 6061.06 MW.

Your Company has formed a JV with CIL named "Coal Lignite Urja Vikas Pvt. Ltd." which was incorporated on 10.11.2020 with equity participation of 50:50 for establishing Thermal and Solar Projects and to undertake Project Management Consultancy (PMC) and the said JV is also proposed to participate in the tenders for Renewable Energy Projects.

Details of Projects under construction / implementation / formulation

Covered in the main report.

Risks and Concerns

A brief on the major risks faced by the Company are given below:

Operational risks

• Delay in realisation of Power dues.

• Power surrender by the Beneficiaries.

• Denial of agreed tariff due to delay in commissioning of project within the control period prescribed by Regulators.

• Cost and time over run of projects under execution.

• Higher cost of lignite mining.

• Compliance to the stringent New Environmental Emission norms for Thermal Power Stations.

• Competition consequent to de-regulation in Indian Power Sector.

• Resistance from land owners against land acquisition and its restricted availability impacting the operations.

• Stringent norms prescribed by Regulatory Authority affecting power tariff.

Internal Control Systems and their adequacy

The Company has well-established Internal Control Systems and Procedures commensurate with its size. The Company has in place an approved and well laid out Delegation of Powers (DoP), Purchase, Contracts and HR Manuals. The internal audit is conducted by external firms of Chartered Accountants covering all offices / Units and their reports are periodically reviewed by the Audit Committee.

The Audit Committee periodically interacts with Internal and Statutory Auditors to assess the adequacy of Internal Control Systems and also supervises the financial reporting process through review of periodical Financial Statements. Further, the accounts of the Company are subject to C & AG audit in addition to the propriety audit conducted by them.

The effectiveness of compliance of Service Rules and Office Orders are subjected to periodical HR audit carried out with an objective to identify the deficiency/deviations and for initiating appropriate corrective measures. HR audit has been carried out Unit-wise, during the year focusing on evaluating the correctness / accuracy in complying with the rules and procedures on identified areas in HR.

Internal Financial Controls over financial reporting

A Companys internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Standalone Financial Statements for external purposes in accordance with generally accepted accounting principles. A Companys internal financial control over financial reporting includes those policies and procedures that:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of Standalone Financial Statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorisations of management and directors of the Company; and

• provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the Companys assets that could have a material effect on the Standalone Financial Statements.

Statutory Auditors are required to review the adequacy and operating effectiveness of such internal financial control over financial reporting and furnish a separate audit report on such review as required by Companies Act, 2013 along with the audit report on financial statements.

In order to strengthen internal financial control, external expert has been appointed to prepare a comprehensive document for the key control areas along with responsibility matrix.

Discussion on financial performance with respect to operational performance Financial Discussion and Analysis

A detailed discussion and analysis on financial statements is furnished below. Reference to Note(s) in the following paragraphs refers to the Notes to the standalone financial statements for the financial year 2020-21 placed elsewhere in this report.

A. Financial position

The items of the Balance Sheet are as discussed under:

1 Property, Plant & Equipment (PPE), Capital work-in- progress, Intangible Assets and Assets under development (Note-2 to Note-6)

The PPE, Intangible assets, Capital work-in-progress and Intangible assets under development of the Company are detailed as under:

(Rs. in crore)

Particulars As at March 31 %
2021 2020 Change
Gross Block of PPE (Note-2) 25764.29 22094.84 17
Net Block of PPE (Note-2) 20753.04 18298.74 13
Net Block - RoU Assets (Note-3) 3.66 3.06 20
Net Block of Intangible assets (Note-4) 24.50 6.36 285
Capital work-in-progress (Note-5) 1019.71 4083.58 (75)
Assets under development (Note-6) 101.68 127.67 (20)

During the year, total gross block of PPE increased by 3669.45 crore over the previous year i.e. by 17%. This was mainly on account of declaration of commercial operation of Unit # 2 (500 MW of 1000 MW) capacity of NNTPP and 17.5 MW of Solar Power Plant of 20 MW Solar Plant at Andaman & Nicobar Islands, correspondingly Net block of PPE also increased by 2454.30 crore i.e., 13% and reduction of CWIP by 3063.87 crore i.e., 75%.

Increase in Intangible assets by 20.98 crore is mainly on account of implementation and capitalization of various modules of SAP in Phase-II implementation process.

Reduction of Assets under development by 25.99 crore i.e., 20% is mainly due to transfer of related expenses of Talabira II & III mines to CWIP.

2 Financial Assets (Note-7) & Other Non-Current Assets (Note-8)

(a) Investments in Subsidiaries, Associate and Joint Venture Companies (Note-7a)

The break-up of investments in Subsidiaries, Associate and Joint Venture Companies is as follows:

(Rs. in crore)

Particulars As at March 31
2021 2020
Investment in Subsidiaries 3609.21 3506.63
Investment in Joint ventures 0.01 -
Investment in Associates 12.77 12.77
Total 3621.99 3519.40

The movement in investment in subsidiary is mainly on account of additional equity contribution of 102.58 crore to NUPPL. Investment in Joint venture is the token equity contribution of 0.01 crore to newly formed JV Company with Coal India Limited i.e., Coal Lignite Urja Vikas Pvt Ltd.

(b) Loan ( Note - 7b)

The secured loans and unsecured loans to Employees include House Building loan, Car loan, Vehicle loan, Multipurpose loan, etc. outstanding at 31st March of current year and previous year are as follows:

(Rs. in crore)

Particulars As at March 31
2021 2020
Loans to Employees 28.91 30.88

(c) Other Non-Current Assets (Note-8)

(Rs. crore)

Particulars As at March 31
2021 2020
Capital Advance 390.66 450.59
Other Assets 148.86 148.84
Total 539.52 599.43

The reduction in Capital advance is mainly due to completion of major project activity of NNTPP, 17.50 MW Andaman Solar and balance activities of 709 MW Solar. Other assets is in the nature of payment to contractors against LDBG.

3 Current Assets (Note-9 to Note-12)

The current assets as at 31st March 2021 and 31st March 2020 and the changes therein are as follows

(Rs. in crore)

Particulars As at March 31 YoY %
2021 2020 Change Change
Inventories (Note-9) 1416.95 1324.55 92.40 7
Trade receivables (Note-10 a) 5611.18 6691.83 (1,080.65) (16)
Cash & Cash equivalents (Note-10 b) 152.36 12.97 139.39 1075
Bank Balances other than Cash and Cash equivalents (Note-10 c) 465.04 360.30 104.74 29
Loans (Note-10 d) 29.17 37.98 (8.81) (23)
Other financial assets (Note-10 e) 59.33 65.13 (5.80) (9)
Income Tax Assets (Net) (Note-11) 786.83 832.28 (45.45) (5)
Other Current Assets (Note-12) 1482.35 1226.70 255.65 21
Total current assets 10,003.21 10,551.74 (548.53) (5)

Note 9. Increase in inventories by 92.40 crore i.e., 7% is mainly due to increase in stock of stores and spares by 35.41 crore, and change (increase) of lignite stock Rs.54.47 crore

Note 10 a. Reduction of trade receivables by 1080.65 crore is mainly due to realization of dues under "Atmanirbhar Bharat Scheme" and Bill Discounting of various DISCOMS.

Note 10 b. Increase in Cash and Cash equivalent is mainly due to short term deposit (7 days) of PRMA fund of 80 crore and increase in current account balance due to realization of dues on the last day of the year.

Note 10 c. Increase in bank balance other than cash and cash equivalent is on account of additional deposit towards "Mine Closure" by 94.31 crore.

Note 10 d. Loan to Employees has been reduced by 8.81 crore due to repayment/ settlement of loan amount by the employees.

Note 11. Income Tax movement of ( 45.45) crore is the net movement of Advance Tax after adjustment towards provision for tax for both the periods.

Note 12. Increase in Other current asset by 255.65 crore is mainly on account of increase in prepaid expenses by 85 crore, increase in unbilled revenue by 105.05 crore and deposit of 56.21 crore with Sales Tax authorities for filing appeal against VAT demand.

4 Regulatory Deferral Account Debit Balances (Note-13)

Expense/income recognized in the Statement of Profit & Loss to the extent recoverable from or payable to the beneficiaries in subsequent periods as per CERC Tariff Regulations are recognized as ‘Regulatory deferral account balances. Regulatory deferral account balances are adjusted from the year in which the same become recoverable from or payable to the beneficiaries.

Revision of pay scales of employees of the Company has been implemented w.e.f. 1 January 2017 based on the guidelines issued by Department of Public Enterprises (DPE) The guidelines provide payment of superannuation benefits @ 30 % of Basic +DA to be provided to employees of CPSEs. The impact of wage revision has been considered as regulatory asset. Accordingly, an amount of 612.67 crore as at 31st March 2021 (31st March 2020: 612.67 crore) has been accounted for as ‘Regulatory deferral account debit balance.

Further, Gratuity ceiling has been changed to 20 lakh from the existing ceiling of 10 lakh. As per Proviso 8(3) of Terms and Conditions of Tariff Regulations, 2014 applicable for the period 2014-19, truing up exercise in respect of Change in Law or compliance of existing law will be taken up by the CERC. The increase in gratuity limit from 10 lakh to 20 lakh falls under the category of Change in Law and a Regulatory Asset has been created. Accordingly, an amount of 170.98 crore as at 31st March 2021 (31st March 2020: 170.98 crore) has been accounted for as ‘Regulatory deferral account debit balance.

Further, exchange differences arising from settlement/ translation of monetary item denominated in foreign currency to the extent recoverable from or payable to the beneficiaries in subsequent periods as per CERC Tariff Regulations are recognized on an undiscounted basis as ‘Regulatory deferral account debit/credit balance by credit/debit to ‘Movements in Regulatory deferral account balances and adjusted from the year in which the same becomes recoverable from or payable to the beneficiaries.

Based on petition filed with CERC for NNTPP (2 X 500 MW), the differential amount of 52.11 crore considered under Regulatory Deferral Account Debit Balance.

The Company undertakes concurrent Mine Closure activity. In line with the Mine Closure Guidelines issued in May 2020 by Ministry of Coal, GoI, actual expenses incurred on mine closure upto a maximum of 50% of the Mine Closure Deposit along with interest in Escrow Account can be withdrawn on verification in every five years. Accordingly, for the 5 year period from 2016-17 to 2020-21, an amount of 165.78 crore has been considered on provisional basis under Regulatory Deferral Account Debit Balances pending filing of the claim with "Coal Controller".

Further, Security Expenses, Water Charges and O&M expenses as per the new Tariff guidelines 2019-24 has been considered under "Regulatory deferral account debit balance".

5 Total equity (Note-14 and 15)

The total equity of the Company at the end of financial year 2020-21 increased to 13574.68 crore from 12639.51 crore in the previous year, an increase of 7.40%. Major reasons for the same are tabulated below:

(Rs. in crore)

Particulars Total Equity (Rs. in crore) Value per Share (Rs.)
Opening balance as on 1st April 2020 12639.51 91.15
Profit for the year 1041.79 7.51
Other comprehensive income and other adjustments to reserves 32.04 0.23
Dividend & dividend tax (138.66) (1.00)
Balance as on 31st March 2021 13574.68 97.90

6. Non-Current and Current Liabilities

Details of Non-Current and Current Liabilities are discussed below:

a. Non-Current financial liabilities and Current maturities of long term borrowings (Note-16(a) and 19(c) (a):

Total Non-current financial liabilities as at 31st March 2021 were 9697.90 crore in comparison to 11370.16 crore as at 31st March 2020. Current maturities out of long-term borrowings have been shown under current liabilities. Details of the total borrowings are as under: ^ crore

Particulars As at March 31
2021 2020
Borrowings in Non-current financial liabilities-Borrowings (Note-16 (a)) 9697.90 11370.16
Current maturities of non-current borrowings included in current liabilities- 1519.79 1768.89
Other financial liabilities (Note-19 (c)(a))
Total borrowings 11,217.69 13139.05

Reduction of long term borrowing by 1921.36 crore is mainly on account of repayment and pre closure of term loans availed for various projects.

The total debt to equity ratio (in times) at the end of financial year 2020-21of the Company stands at 1.11 compared to 1.34. The Debt Service Coverage Ratio (DSCR) and Interest Service Coverage Ratio (ISCR) for financial year 2020-21 are 1.25 and 4.02 compared to 1.81 and 4.86 respectively.

b. Non-current liabilities -Deferred tax liabilities (net) (Note-17):

Deferred tax liabilities (net) has increased from 2118.89 crore as at 31st March 2020 to 2573.52 crore as at 31st March 2021.

The increase in deferred tax liability during the year is mainly on account of capitalisation of new units during the year 2020-21. Net increase in deferred tax liability during the year amounting to 454.63 crore has been debited to the Statement of profit and loss.

c. Non-current liabilities- "others" (Note-18)

Non-current liabilities (for capital purchase) have decreased from 701.84 crore as (2019-20) to 609.58 crore (2020-21). Mine closure liability has increased from 267.18 crore (2019-20) to 361.57 crore (2020-21) and other deferred income increased from 97.37 crore (2019-20) to 119.03 crore (2020-21).

d. Current liabilities (Note-19):

The current liabilities as at 31st March 2021 were 8134.10 crore as against 8694.74 crore as at the end of previous year. The break-up of current liabilities is as under.

(Rs. in crore)

Particulars As at March 31 YoY %
2021 2020 Change Change
Borrowings (Note- 19 a) 3700.00 3641.42 58.58 2
Trade payables (Note-19 b) 1512.18 1830.89 (318.71) (17)
Other financial liabilities (Note-19 c) 1,787.59 1,886.53 (98.94) (5)
Other current liabilities (Note-20) 670.30 587.64 82.66 14
Provisions (Note- 21) 464.03 748.26 (284.23) (38)
Total 8134.10 8694.74 (560.64) (6)

Note 19 a. Borrowings has been increased by 58.58 crore mainly due to issue of commercial paper on substitution of working capital demand loan.

Note 19 b. Trade payables has been reduced by 318.71 crore mainly due to timely settlement of payment to various vendors.

Note 19 c. Reduction of 98.94 crore in Other Financial liability is mainly on account of repayment / prepayment of loans availed for various projects.

Note 21. Reduction on provision by 284.23 crore is mainly on account of reduction on liability towards Gratuity and other employee benefit by 253.05 crore

7. Regulatory Deferral Account Credit Balances (Note-22)

The Company has filed appeals before the appellate authority against the following CERC Orders which are pending for Disposal:

a) Thermal Power Station-II (Neyveli) - Disallowance of decapitalisation of LEP Assets and reduction of claim towards capital expenses while truing up for the tariff period 2009-14

b) Lignite Truing up - Disallowance of O & M escalations at 11.50% p.a as per MoC guidelines considering FY 2008-09 as the base year

c) Sharing of profits on adoption of pooled lignite price considering the cost of Mines II Expansion

The impact on the above mentioned orders have been appropriately considered under Regulatory Deferral balances in the respective financial years.

In this regards an amount of 1972.23 crore as at 31st March 2021 (31st March 2020: 1870.46 crore) has been accounted for as ‘Regulatory deferral account credit balance.

Further Truing up petitions for lignite transfer price for tariff period 2014-19 has been filed with CERC in FY 2019-20. Pending order from CERC, regulatory liability created for lignite transfer price amounting to 544.37 crore as at 31st March 2021 (31st March 2020: 544.37 crore) has been maintained as ‘Regulatory deferral account credit balance.

In respect of Renewable energy tariff differential which is subject to regulatory orders have been recognised to the tune of 41.23 crore as at 31st March 2021 (31st March 2020: 34.49 crore) has been accounted for as ‘Regulatory deferral account credit balance.

Further, exchange differences arising from settlement/ translation of monetary item denominated in foreign currency to the extent recoverable from or payable to the beneficiaries in subsequent periods as per CERC Tariff Regulations are recognized as ‘Regulatory deferral account debit/credit balance by credit/debit to ‘Movements in Regulatory deferral account balances and adjusted from the year in which the same becomes recoverable from or payable to the beneficiaries. Accordingly, an amount of 30.57 crore as at 31st March 2021 has been accounted for as ‘Regulatory deferral account credit balance (31st March 2020: 34.26 crore).

8. Results from operations

Total Income (Note-23 & Note-24)

(Rs. in crore)

SI. No. Particulars FY 2020-21 FY 2019-20 Change
Revenue
1 Sale of Power 6837.46 7355.15 (517.69)
2 Sale of Lignite / Coal 430.25 517.46 (87.21)
3 Sale of by-products 38.83 26.87 11.96
4 Consultancy & other services 33.36 30.65 2.71
Less: Transfer to CWIP & Rebate 90.27 13.83 76.44
5 Revenue from Operations 7249.63 7916.30 (666.67)
Other Income
6 Interest on deposits/ loan to subsidiary and loan to employees 110.28 166.85 (56.57)
7 Provisions written back 112.34 0.05 112.29
8 Dividend from subsidiary 58.42 97.37 (38.95)
9 Surcharge 1236.53 840.41 396.12
10 Others (Net off transfer to CWIP and Mine closure liabilities) 199.31 112.30 87.01
Total Income 8966.51 9133.28 (166.77)

The power generation in 2020-21 has been lower by 2600.98 MU (19,322 MU in FY 2020-21 against 21,922.98 MU in FY 2019-20) i.e.,12% mainly due to unexpected fire incident in TS-II units. Due to fire incident and consequent shut down of the affected units for safety audit and statutory clearances the revenue on power sale got impacted in 2020-21. Revenue from operations reduced by 666.67 crore i.e, 8% over the previous year. Power sale includes sale of power through power trading 408.41 crore (PY 1129.43 crore).

The Sale of Lignite also reduced due to availability of cheaper alternative fuel in the open market. The increase in surcharge income is due to delay in realization of payment from DISCOMS. The provision written back is mainly due to receipt of arbitration order in favour of the company for which provision was created in the books in previous years.

9. Expenses (Note Nos. - 25 to 31)

Details of various expenses and movement with previous year are as follows:

Particulars 2020-21 2019-20 Inc/(dec)

% of Inc/(dec)

Change in Inventories (54.47) 81.99 (136.46) (166.43)
Employee Benefit Expenses 2,688.36 2,804.70 (116.34) (4.15)
Finance Cost 980.63 820.38 160.25 19.53
Depreciation & Amortization 1204.41 958.39 246.02 25.67
Other Expenses 2662.11 2255.38 406.73 18.03
Total Expenses 7,481.04 6,920.84 560.20 8.09
Net Movement in regulatory deferral account balances income/(expenses) 314.72 (4.41) 319.13
Exceptional items 46.79 3.44 43.35 1260.17

The total expenses have increased mainly due to the followings reasons:-

a. Inventory :

Increase in level of closing stock of lignite compared to opening stock resulting in positive movement of change in inventory in the current financial year.

b. Employee Benefit Expenses :

Employee Benefit Expenses has also been decreased mainly due to reduction in employee strength from 12,097 Nos in 2019-20 to 10,975 nos in 2020-21. Corresponding decrease in provision towards employee benefits recognised based on actuarial valuation and freezing of DA for executives from July, 2020.

c. Finance Cost :

Increase in Finance Cost is mainly due to commissioning of NNTPS Unit-II, Andaman (17.5 MW) in current year and full year operation of NNTPS Unit-I & Solar 709 MW which was partly offset by availing low cost short term borrowings viz, Commercial Paper and Bonds.

d. Depreciation :

Increase in Depreciation compare with previous year mainly on account of Unit-I of NNTPS (in Dec-2019) and Solar 709 MW (in Oct-2020) project were commissioned in the previous year hence depreciation was charged only for part of the period in the previous financial year and commissioning of Unit # II of NNTPS in Feb2021 contributed for increase in depreciation in 2020-21.

e. Other Expenses :

Increase in Other Expenses mainly due to recognition of provision towards loss allowances on outstanding power debtors, insurance premium towards mega insurance policy and provision towards non-moving stores and spares.

f. Net movement in regulatory deferral account balances income/expenses:

Net movement in regulatory income/expenses has shown a positive movement mainly due to recognition of mine closure recovery for the 5 year period 2016-17 to 2020-21 and income on account of tariff petition filed before CERC for NNTPS based on actual capitalization value.

g. Exceptional Items

Exceptional Items is mainly towards one time rebate to DISCOMS based on the directives of Ministry of Power on capacity charges and surcharge during the lockdown period on account of COVID19.

Environmental Protection and Conservation, Technological Conservation, Renewable Energy Developments, Foreign Exchange Conservation

Covered in the main report.

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

Covered in the main report.

Details of Significant Changes in Key Financial Ratios

Ratio Description 2020-21 2019-20 Reasons for variation beyond 25%
Debtor Turnover Ratio 1.15 1.36 -
Inventory Turnover Ratio 5.27 4.97 -
Interest coverage Ratio 4.02 4.86 -
Debt Equity Ratio 1.11 1.34 -
Operating Profit Margin (%) 26.95 35.04 -
Net Profit Margin (%) 11.62 15.48 -
Current Ratio 1.78 1.83 -

Details of any change in Return on Networth as compared to the immediately previous financial year along with a detailed explanation thereof

The Net Worth of the Company has increased from 12511.84 crore to 13473 crore. The accretion to the Networth was mainly on account of profit for the FY 2020-21 after appropriation of dividend declared. The profit for the FY 2020-21 has decreased from 1413.85 crore to 1041.79 crore, due to decrease in revenue from operations by 666.67 crore mainly on account of shutdown of TS-II Units for a substantial period after two consecutive fire incidents and shutdown of TS-I Expansion Units for substantial period due to some technical failure in Turbine Generator and decommissioning of TPS-I in a phased manner. Increase in other income for FY 2020-21 by 499.90 crore was mainly due to increase in surcharge income .

The above change in revenue from operations and other income was partly offset by increase in the Finance Cost by 160.25 crore and depreciation & amortisation by 246.02 crore mainly on account of commissioning of Unit II of NNTPS & 17.5 MW of Andaman Solar in FY 2020-21 and full year of operation of 709 MW Solar Project & 500 MW of Unit I of NNTPS.

Further the following movements in various other expenses / income as compared to previous financial year, which has contributed for change in Profit in the FY 2020-21:

(a) Increase in Net movement in regulatory Income by 319.13 crore.

(b) Decrease in Changes in inventory by 136.46 crore.

(c) Decrease in Employee benefit expenses by 116.34 crore.

(d) Increase in other expenses by 406.73 crore.

Corporate Social Responsibility Covered in the main report

Cautionary Statement

Statement in the Management Discussion & Analysis Report and in the Directors Report, describing the Companys strengths, strategies, projections and estimates are forward looking statements and progressive within the meaning of applicable laws and regulations. Actual results may vary from those expressed or implied depending upon economic conditions, Government policies and other incidental factors and hence it is cautioned not to place undue reliance on the forward looking statements.

For and on Behalf of the Board of Directors

Place: Neyveli Rakesh Kumar
Date : 06.09.2021 Chairman-cum-Managing Director