Olectra Greentech Ltd Management Discussions.

A) Electric Bus

Industry Structure and Development:

The NITI Aayog has proposed that only electric vehicles should be sold in India after 2030. This would result in a reduction of 156 Million tons in Diesel and Petrol consumption for that year and net saving of roughly द3.9 Lakh Crore in 2030 at present oil prices. While the plan to electrify every vehicle by 2030 may seem ambitious, it reflects governments intent towards electric mobility. India has to make a rapid transition to electric vehicles as vehicular pollution is one of the most significant sources of air pollution in Indian cities. Also India is obliged to reduce its global emissions owing to the

Paris climate agreement signed in 2016.

The government has announced द10,000 crore budget for EV adoption under the phase II of FAME scheme for three years. This will boost the Electric Vehicles (EV) sales mainly in the public transport sector with the introduction of subsidized electric buses in multiple states. Electric vehicle policies have also been introduced or under consideration at states level with subsidies for electric vehicle and also exemption of MV tax, registration fees, permit fees and concessional power tariff for charging.

Outlook

The electric bus market across India is expected to register a robust growth over the coming years owing to consistently growing affordability of electric buses and incentives/subsidies provided by the government. Government of India has finalized Phase-II of FAME India Scheme [Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India], for a period of 3 years commencing from 1st April 2019 with total budgetary support of द10,000 Crore.

The main focus of this phase of the scheme is the electrification of public & shared transportation. Under Phase-II of FAME India Scheme, the government intends to support about 7,000 e-buses, with a total outlay of about द3,500 Crores, by extending demand incentives for deployment of electric buses using operational cost model to be adopted by State / City Transport Corporation (STUs).

The scheme will provide a major push for early adoption and market creation of electric vehicles in the country. The thrust for the Government through this scheme will be to allow electric vehicles to become the first choice for the purchasers so that these vehicles can replace the conventional vehicles and thus reduce conventional fuel consumption and thereby pollution in the country from the automobile sector. It is envisaged that early market creation through demand incentive, in-house technology development and domestic production will help industry reach a self-sufficient economy of scale in the long run.

Opportunities: Buses are an important means of public transport in India. However, the share of buses is negligible in most Indian cities. Number of buses per 1,000 population is very low in India as compared with global standards, there is need to improve public transport services to control traffic and pollution in India.

Electric Vehicles are found to be most effective in combating air pollution with zero tail pipe emissions. Disruptive technology advancements in Automotive Battery technology that give prolonged life and storage capacities has made this dream of Electric Vehicles a reality today.

Currently majority of the demand is from State transport undertakings (STU) for Midi 9m and Standard 12m buses. However, there is opportunity to cater to needs of intercity operations, staff transport and airport service.

In Budget 2019-20, in order to encourage the use of electric vehicles the Finance minister has announced customs duty exemption on certain parts of the electric vehicle. In addition, GST Council has also brought down the GST rate on electric vehicles (EVs) and Charging Stations to 5 per cent.

Segment wise Performance

Olectra has crafted strong strategic partnership with BYD Worlds largest EV manufacturer, to bring electric Buses to India. In the FY 2018-19, among others, Olectra has supplied buses to Hyderabad, Telangana State Road Transport Corporation (TSRTC), to Pune Mahanagar Parivahan Mahamandal Limited (PMPML) and Kerala State Road Transport Corporation (KSRTC). During the year under review the Company recorded a net turnover of Rs. 14,480.39 Lakhs against द5,242.01 Lakhs in previous FY18 for electric bus division

Risks, Concerns and Threats

The companys growth potential in electric vehicle space is huge but it also exposes us to certain risks. GOI has introduced Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME-II) policy in India which aims to boost electric mobility and increase the number of EVs in commercial fleet by providing subsidy/ incentives on Electric Vehicles. Any delay in availing of funds by STUs under the scheme may adversely impact the growth of electric buses. Also, it is important for state Governments to firm up their EV policy. some of the states have already introduced their state EV policy which helps in a smooth transition from internal combustion (IC) to EVs, but other states are yet to introduce their EV policy. Another risk is the battery cost of EVs not decreasing as rapidly which in turn does not reduce the cost of the electric vehicle. The number of global players interested in entering the Electric vehicle space is also increasing since the government is planning for providing incentives which would mean an increase in competition as well. The increase in players in EV space will be good for building the EV ecosystem in India.

B) Insulators Industry Industry Outlook

Indian Power Sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continuous to drive electricity demand in India. The Government of Indias focus on attaining ‘power for all has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing at both the market and supply sides (fuel, logistics, finances, and manpower).

The Government of India has released its roadmap to achieve 175 GW capacity in renewable energy by 2022, which includes 100 GW of wind power.

The Union Government of India is preparing a “rent a roof” policy for supporting its target of generating 40 gigawatts (GW) of power through solar rooftop projects by 2022.

Coal based power generation capacity in India, which currently stands at 190.29 GW is expected to reach 330-441 GW by 2040.

All the states and union territories of India are on board to fulfill the Government of Indias vision of ensuring 24x7 affordable and quality power for all shortly, as per the ministry of power and New & Renewable Energy, Government of India.

Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non conventional sources such as wind, solar and agricultural and domestic waste. Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required.

Opportunities

Indian railway is expanding their network and a dedicated fright corridor is being developed, which provide us an opportunity for our railway Insulators.

In transmission sector, various Green energy corridors to transfer power from renewable energy sources are being developed in the form of inter- state/intra state transmission in TBCB schemes. Government has plan to increase the AC transmission lines from 3,75,414 ckt Kms to 4,50,700 Ckt Kms. With the addition of new lines, inter-regional Power transmission capacity would increase to 1,18,050 MW by the end of 13th plan period. This would create good requirement of our products Indian Insulator Industry.

Indian Government has taken various initiatives and MAKE IN INDIA program with the Vision 2022 is to make India the country of choice for the production of electrical equipment and reach an output of US$100 billion by balancing exports and imports.

Segment Wise Performance

We are the one of the largest manufacturer of composite insulators in India. Our proactive approach for design, development and manufacturing composite insulators meeting dynamic requirements of customers and marketing expertise had always provided us competitive advantage. Last year we have developed a new insulator for dedicated freight corridor and supplied 50,000 insulators through L&T in western freight corridor. Keeping the industry overview, the performance of the Companys product is reasonably good. During the year under review, in spite of entry of new players, dollar fluctuations, increase in imports, reduction in margins due to inflationary trends and slow pace of implementation of EPC contracts, the Company was able to record during the year under review a net turnover of द14,550.06 Lakhs against द11,179.52 Lakhs in FY18.

Risks, Concerns and Threats

Slower off-take from utilities due to delays in implementation of various schemes is one concern area. There is also growing trend to award contracts on turnkey basis and EPC contractors are facing numerous issues about right of way etc. The current global trade environment is such that imports are dominant due to aggressive pricing. There has also been capacity addition by existing players and entry of new players.

In the last few years, the revenues of Indian manufacturers of composite insulators have been eroded by the increasing imports despite growth in overall transmission line network. Increasing pricing of key raw material due to delay in global capacity expansion and volatile metal prices are risk to margins.

C) i. Discussion on Financial Performance with respect to operational performance

The Company registered a growth of 77% in Net Sales to द29,030.46 lakhs in FY 2018-19 as compared to द16,421.53 lakhs in FY 2017-18.This was due to higher sales volumes in both Insulator & E Bus businesses. The Companys net loss was द1,357.51 Lakhs for FY 2018-19 as compared to Net profit of द889.27 Lakhs for FY 2017-18. This was primarily due to higher input costs in Insulator Business and higher fixed costs in E-Bus Business in terms of capacity build up, marketing expenses including promotion & commercial trials across the Country for FY 2018-19.

ii. Internal Control systems and their adequacy

The internal audit and other internal checks implemented in the Company are adequate and commensurate with the size and nature of operations providing sufficient assurance and safe guarding all assets, authorizing all transactions and its recording and timely reporting.

iii. Material Developments in Human Resource/Industry Relations front, including number of people employed

Industrial relations are harmonious. The company recognized the importance and contribution of the human resources for its growth and development. As on March 31, 2019, the Company has total strength of 335 employees.

Details of significant changes (i.e. changes amounting to 25% or more compared to the previous financial year) in key financial ratios are as follows:

Standalone
Financial Ratio FY 2018-19 FY 2017-18 Change (%) Reasons for Change
Interest Coverage Ratio (0.33) 2.94 -111.10% The interest coverage ratio has turned negative in FY 2018-19 mainly due to operational losses during the year as explained in the note given below.
Current Ratio 4.80 2.05 134.44% Increased due to Inventory and receivables build up mainly in E-Bus division due to increased operations.
Operating Profit Margin (%) 0.46% 12.94% - 96.42% The ratios have reduced in
Net Profit Margin (%) -1.26% 8.23% -115.30% FY 2018-19 mainly due to operational losses during the year as explained in the note given below.
Return on Networth -1.92% 4.48% -142.94%

Note:- During FY 2018-19 the company has suffered operating losses primarily due to higher fixed costs in E-bus division in terms of capacity build up, marketing expenses including promotion and commercial trials across the country for business growth in coming years.

Cautionary Statement

The Statement in this section describes the Companys objectives, projections, estimates, expectations and predictions which may be “forward looking statements” within the meaning of the applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make difference to the Companys operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates changes in the Government regulations, tax laws and other incidental factors.

Information as required under Section 197 of the Act read with Rule 5(1) of Chapter XIII, Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014. a) the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year;

Non- Executive Director Ratio to Median Remuneration
Mr. M. Gopalakrishna Not Applicable
Mr. B. Appa Rao Not Applicable
Justice Mrs. Gyan Sudha Misra (Retd.) Not Applicable
Executive Director
Mr. N. K. Rawal 38.28:1
Mr. N. Naga Satyam* 30.72:1

Non-Executive directors do not having any specific remuneration other than receiving sitting fees for attending the Board Meetings.

*Mr. N. Naga Satyam was appointed w.e.f. May 23, 2019.

b) the percentage increase in remuneration of each Director, Chief Executive Officer, Chief Financial Officer, Company Secretary or Manager, if any, in the financial year;

Name of the Person Designation Percentage of increase in remuneration
Mr. N. K. Rawal Managing Director 0.00%
Mr. N. Naga Satyam Executive Director 0.00%
Mr. B. Sharat Chandra Chief Financial Officer 0.00%
Mr. P. Hanuman Prasad Company Secretary 46.77%

Percentage in brackets represents negative percentage.

c) The percentage increase in the median remuneration of employees in the financial year: 5.99%

d) The number of permanent employees on the rolls of company as on March 31, 2019: 335

e) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration

The average increase in salaries of employees other than managerial personnel in 2018-19 was

15.01 %. Percentage increase in the managerial remuneration for the year was 11.69%.

f) Key Parameters for any variable component of remuneration availed by the directors: Not Applicable

g) Affirmation that the remuneration is as per the remuneration policy of the Company

The Companys remuneration policy is driven by the performance of the individual employees and the Company. The Company follows a compensation mix of fixed pay, benefits and performance based variable pay. Individual performance pay is determined by business performance and the performance of the individuals measured through the annual appraisal process. The Company affirms remuneration is as per the remuneration policy of the Company. The nomination and remuneration committee continuously reviews the compensation of our Managing Director and senior executives to align both the short-term business objective of the Company and to link compensation with the achievement of measurable performance goals.

Particulars of Conservation of energy / technology absorption, foreign exchange earnings and outgoings:

Information required to be furnished as per the Rule 8 (3) of Companies (Accounts) Rules 2014 is furnished below::

1. CONSERVATION OF ENERGY

A) INSULATORS

i) Energy Conservation Measures taken or under implementation

During the period the company had added new Injection Molding Machines, Crimping Machines and FRP Machines, which are 15% more energy efficient than the existing machines.

ii) Additional investment and proposals if any, being implemented for reduction of consumption of energy

Additional/new measures will be initiated for further reduction in energy consumption based on technical evaluation and study of the measures already implemented.

iii) Impact of measures at (a) and (b) for reduction of energy consumption and consequent impact on the cost of production of goods

The measures taken during the Year has ensured optimum use of energy and increased efficiency and ensured lower use of energy per insulator.

iv) Consumption of Energy Particulars

Electricity FY 2018-19 FY 2017-18
A. Purchased
Units KWH 44,90,089 37,86,960
Total Amount-In Rupees 3,36,19,825 2,85,42,455
Rate/Unit-In Rupees 7.49 7.50
B. Own Generation through Diesel Generator
Units-KWH 71,151 60,966
Total Amount-In Rupees 15,65,211 11,92,620
Rate/Unit-In Rupees 22.0 19.56

B) ELECTRIC BUS DIVISION

i) Energy Conservation Measures taken or under implementation

During the period the company installed a Capacitor Bank panel to maintain power factor, which helps to reduce the power cost.

ii) Additional investment and proposals if any, being implemented for reduction of consumption of energy

Additional/new measures will be initiated for further reduction in energy consumption based on technical evaluation and study of the measures already implemented.

iii) Impact of measures at (a) and (b) for reduction of energy consumption and consequent impact on the cost of production of goods

The measures taken during the year has ensured optimum use of energy and increased efficiency. Accordingly the power consumption has been reduced by 30% approximately.

iv) Consumption of Energy Particulars.

Electricity Purchased FY 2018-19 FY 2017-18
Units KWH 4,31,879 13,567
Total Amount-In Rupees 42,91,011 1,20,494
Rate/Unit-In Rupees 9.61 8.97

2. TECHNOLOGY ABSORPTION:

A) INSULTORS DIVISON

i) Specific Areas in which R & D carried out by the company:

The Company has been continuing its Research and Development activities to optimize the productivity and performance. The designs of Insulators have been optimized for improvement in quality, standardization and value engineering.

Further the Company has been working continuously on new compositions for Compound and FRP to enhance the performance of the Insulator and also working on new processes to detect the defects.

ii) Benefits derived as results of the above R & D:

Improved quality of the Product which gives edge over competitors.

New Opportunities for business.

To reduce manpower, process wastage and better control on quality.

iii) Future Plan of Action:

The company plans to improve the existing processes and continue with value engineering.

B) ELECTRIC BUS DIVISION

i) Specific Areas in which R & D carried out by the company:

Company has been engaged in design and development of bus body for E-buses and new models were developed during the financial year and which were homologated at independent test labs.

ii) Benefits derived as results of the above R & D:

Improved quality of the Product which gives edges over competitors.

New Opportunity for business

iii) Future Plan of Action:

The company plans to improve the existing process and continue with value engineering.

3. FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars 2018-19 2017-18
a) Value of Imports on CIF Basis
Raw Materials 7086.17 8,883.09
Capital Goods 666.81 148.88
b) Expenditure in Foreign Currency
Travelling Expenses 25.73 13.76
Others - 0.74
c) Earnings in Foreign Currency (on receipt basis)
Export of Goods (FOB Basis) 1247.07 149.10
Deemed Exports 1,855.65 1,500.42