Orient Green Power Company Ltd Management Discussions.

Management Discussion and Analysis FY 2017-18

Company Overview

Orient Green Power Company Limited (OGPL) is Indias largest listed renewable-only power generation company focused on developing, owning and operating a diversified portfolio of wind energy power plants.

The Companys portfolio of installed and operational projects currently stands at 425 MW. It has an additional 44 MW of assets under development.

Headquartered in Chennai, Tamil Nadu, OGPLs wind assets are spread across Tamil Nadu, Andhra Pradesh, Gujarat and Karnataka. Further, it also owns and operates a 10.5 MW wind power plant in Croatia.

OGPL has off-take agreements that are diversified, as it supplies power to State Electricity Boards (SEBs), Group Captive Customers, Merchant Power as well as through open access. OGPL has long term supply arrangements in place at attractive tariffs with scheduled upward revisions. OGPL is also one of the most prominent sellers of Renewable Energy certificates (RECs) in the country.

It is part of the Shriram Group which has interests in financing, engineering & construction, software and technology services and wind turbine manufacturing. In addition to the majority shareholding held by the Shriram Group, OGPL is backed by global private equity funds Bessemer Venture Partners and an affiliate of Olympus Capital.

Economic Overview

After a few challenging years, during which the global economy witnessed stalling growth and intermittent turbulence, 2017 benefitted from the strengthening of a broad based cyclical global recovery which began mid-way through 2016. Global GDP is expected to have picked up to 3 % in 2017 from 2.4 % in 2016, while Global output is estimated to have grown by 3.7 % in 2017, supported by a broad-based recovery, encompassing more than half of the worlds economies.

A rebound in trade and investment aided by supportive financing conditions, accommodative policies and the moderating impact of weak commodities, has enabled revival and improved business sentiments across both advanced and developing economies.

Growth in advanced economies is estimated to have rebounded to 2.3 % on the back of pick up in capital spending, a turnaround in inventories, and improving external demand. The US economys 2.3 % growth was largely supported by strengthening private investment. Private consumption continued to grow at a brisk pace despite modest real income gains and moderate wage growth. In addition, lowering of tax rates are expected to further spur investment activity and overall growth rate. The Euro region too picked up substantial momentum in 2017 on the back of policy stimulus and strengthening global demand. The aggregate fiscal stance in the region remained expansionary during the year, while unemployment reached its lowest level since 2009. The uptick is likely to sustain over the coming year, although at a moderated pace. The Japanese economy also expanded at a healthy pace aided primarily by firm domestic demand, gradual recovery in consumer spending and investment, as well as implementation of a fiscal stimulus package.

Growth in developing economies is expected to have accelerated to 4.3 percent in 2017 mirroring firm activity among commodity exporters and continued solid growth among commodity importers. These economies are to enhance growth rates further as the headwinds surrounding commodity exporters dissipate. The Chinese economy grew at a better than anticipated rate of 6.9 percent in 2017, on the back of continued fiscal support, effects of reforms, as well as a stronger than expected recovery of exports. Key activity drivers continued to sway away from state – led investment, as the country continues to transition itself from manufacturing to a services driven economy. However the growth is expected to reduce marginally going forward, owing to policy tightening.

Closer home; the Indian economy witnessed implementation of major structural reforms during the year – the prominent ones being the implementation of the Goods & Services Tax (GST) and new Indian Bankruptcy code. Teething issues surrounding the uncertainties associated with implementation of such reforms, coupled with continuing pressure from last years, demonetization initiative impacted business sentiments and growth rate during the first half of the fiscal. However, the economy stabilized and started showing early signs of revival during the latter half of the year. Improving global macros, persistent efforts from the government to enhance infrastructure spending and PSU capex coupled with initial signs of revival of the private capex investment cycle is expected to help the country retain its tag of fastest growing large economy in the world.

Industry Overview

India is the third largest producer and fourth largest consumer of electricity in the world, with the installed capacity reaching 344 GW as of March 2018. India also has the fifth largest installed capacity in the world after the European Union, China, USA and Japan. Thermal power capacity continues to dominate the mix with a share of 65% While dominant, we have seen its share steadily declining in recent years following Governments efforts towards improving the energy mix. The Indian electricity grid has more than doubled its installed capacity over the past decade and the Government is planning on further strengthening its energy pool by achieving a target of around 175 GW of renewables by 2022. A secure energy supply is vital not only for ensuring steady economic growth but also for the positive spinoff on other aspects like poverty reduction, industrial growth and employment generation.

The Indian power sector has undergone progressive transformation in recent times marked by substantial growth in capacity addition, introduction of power trading, enhanced Transmission & Distribution (T&D) system resulting in reduced power loss and theft. Further, increased focus on access, efficiency, affordability and de-carbonization of the sector has led to a greater sophistication of the energy market. The above measures constitute the efforts undertaken by the Government and private sector towards achieving the goal of "Power for All".

The accelerated pace of capacity addition over the past few years has led to a situation wherein the supply potential is greater than the projected demand – a phenomenon, that has occurred for the first time in the sectors history. A record capacity of 76.4 GW was added over the last three years. This growth in capacity was on the back of expectation that the demand for electricity will pick up pace in sync with expected economic growth.

Indias electricity production grew 34% over seven years to 2017, resulting in the country emerging as the third largest electricity producer overtaking Russia and Japan.

Further, the energy mix has undergone changes over the years owing to the enhanced policy focus on climate change, energy security concerns and desire to rebalance energy sources. Even as the share of coal based power plants remain dominant, renewable energy has seen steady rise in the overall mix in recent times. Over- capacity and weak demand growth in the thermal sector have also contributed to the changing mix. The Government has set a target of 175 GW for renewable energy by 2022 which is expected to meet 35% of Indias total requirement of 490 GW by 2022.

Some of the key demand drivers for Renewable energy include – the Governments push to supplement conventional vehicles with Electric Vehicles (EV) in the mere future, which is expected to have a larger implication on energy and allied sectors. Further, the Governments plan to install 40 GW of solar rooftop by 2022 has resulted in states undertaking the necessary measures towards setting up roof-top policies and regulation. With storage prices declining rapidly, rooftop solar has the potential to disrupt the status quo while contributing positively towards the countrys march towards improving its energy mix.

Demand patterns have also witnessed changes on the back of growth in average per capita income levels, improved urbanization levels, improved electricity access, increased economic activity, and greater electrification impacting end use demand. India has been responsible for almost 10% of the increase in global energy demand since 2000. However, based on per capita power consumption, the country still lags behind other developed and emerging economies. Analyst and Industry bodies have estimated that Indias energy needs are likely to double in the next 6 years. Given the countrys aspiration and potential for economic progress as well as to provide a thrust to infrastructure and manufacturing-led growth, the growth and pattern of electricity consumption in future is also expected to change Significantly.

Renewable Energy India

5th 20.06%
69.02GW
Global Position (Total Installed Share of RES in Total Installed Installed Capacity
RES) Capacity (RES) 50%
20.54% Y-o-Y Growth 175GW Share of RES
(Installed Capacity) Target 2022 Installed Capacity 2030
896GW 101.839TWH 167% CAGR Solar
Renewable Energy Potential Generation from RES Capacity (FY13-18)

Renewable Energys share in the countrys overall energy mix has seen a consistent and Significant addition over the years. From a meager 3.3% share in 2002, Renewable Energy currently constitutes 20% of the overall installed capacity. The steady pace of addition has seen India emerge as the sixth largest Renewable Energy player in terms of Installed capacity in the world in 2018. As of March

2018, Indias Renewable Energy installed capacity stood at 69 GW. Further, India has set an ambitious target of establishing 175 GW of new RE installed capacity target by 2022, which will result in India emerging as the worlds largest RE market. Within the RE space, Solar and Wind are tipped as the ones with the highest potential in the country. The solar subsector grew by a CAGR of 167% during FY2013–FY2018, and is expected to sustain high levels of growth due to the abundant potential of solar and low utilization — 2% in FY2018 — of this potential. Even in Wind, it is estimated that India has utilized merely 32% of its wind potential in FY2018.

According to MNRE estimates, India has nearly 1096 GW of Renewable Energy potential (Source). Solar Energy potential of India accounts for 68% of the total RE potential of the country. Indias installable wind energy potential has been estimated by the National Institute of Wind Energy to be 302 GW with towers of a height of 100 meter.

The stupendous success witnessed by the sector is to a large extent driven by the Governments supportive and growth oriented policies. Further, taking into cognizance the sectors potential and the likely benefit it can offer to the country in terms of lowering dependence on imported coal, increased rural electrification and achievement of carbon dioxide emission targets, it is likely that the Govt. and regulatory bodies will continue to extend support to the sector in the future as in the past. Further, RE could also help in speeding up rural electrification and provide electricity in remote areas at lower cost and without the need to establish large-scale infrastructure.

Besides the above, change in the energy mix will also ride upon innovative technologies, growing energy demand, strong wind and solar resources, policy support, and growing investments will ensure smart, reliable, clean and affordable energy to over a billion people with an energy consumption growth of 4.2% p.a., faster than all major economies in the world, overtaking China as the largest growth market for renewable energy by the late 2020s Further, amongst the various developments undertaken in Wind and Solar power segment - the ones that would are likely to have a long-term impact on the power sector include bidding in the wind segment, which would mean that utilities will not have to scout for wind sites and choose wind turbine suppliers through competitive measures.

Another noteworthy measure is the likely tendering of 20,000 MW of Solar capacity, perhaps the largest block of capacity to be auctioned in a single tranche for the first time globally. The government strongly resolved to heightened quality standards for imported solar photovoltaic (PV) modules, by means of inspection will help procurers get over 25 years of module life. This reflects a national commitment to green energy and shows how the country is fast transitioning towards a renewable-focused economy expediting renewable capacity build-up and removing the difficulties being encountered by developers and manufacturers. In addition to the above positive initiatives, the Government is also working towards strengthening the financial situation of Discoms – as bankability of renewable energy projects has been an issue in the country, owing to off-takers inability to absorb power and pay for it. It is undertaking steps towards strengthening the power purchase agreement structure to make renewable energy projects more bankable.

Lastly, in order to remain energy positive and to make the most of renewable energy sources, the Government is working parallelly towards aggressively promoting energy efficiency practices as the countrys demand is likely to witness an exponential surge owing to the lighting and cooling requirements, due to the varied climatic conditions, the developments in the Electric Mobility, growth of the Industries as well as rural electrification However, despite Governments efforts, issues surrounding inadequate storage and evacuation infrastructure, lack of skilled workforce and uncertainties surrounding revenue generation from RE projects owing to lack of adherence to RPO obligation continue to impede the sectors overall growth rate. Energy projects in general, barring Solar, are required to procure a number of clearances, which prolong project implementation and deter investor confidence. Further, the cost of capital is a challenging component across the Renewable Energy landscape. Issues around predictability and honoring of PPAs have surfaced with the replacement of solar and wind Feed-in-Tariffs (FiT) with reverse bidding auctions. Lastly, the ever increasing land cost in the country, exerts negative impact on the project costs. Land acquisition issues not only impact on the development of the projects themselves, but also the construction of necessary infrastructure.

Further, the antiquated state of infrastructure in the country acts as a major hurdle in the sectors progress. The power grid, which is already strained, is expected to face further pressure following the introduction of intermittent nature of Renewable Energy. High capital costs as well acts as a deterrent affecting the viability and overall return ratios from the project. Also, despite the recent measures, Energy theft is still an area of concern – resulting in average losses for discoms in the region of 24% during 2017. Lastly, poor compliance with Renewable Purchase Obligation (RPO) by Discoms has resulted in an excess-supply of RECs consequently leading to price reduction. The above issues are actually being sorted out by the Central Government in a phase wise and time bound manner.

Wind Energy

India is the fourth largest wind market globally with an installed capacity of 34.0 GW. Wind constitutes the largest share of the countrys overall RE pie with a share of 49%. The country has seen steady addition to its capacities over the years aided primarily by supportive Government policies.

Despite its impressive performance, it is believed that the current installed capacity represents 11% of the countrys total wind potential, highlighting that India has strong, untapped potential in this sub-sector. The Government also has set a target to scale up the wind capacities to 60 GW by 2022.

The National Institute of Wind Energy (NIWE) estimated the potential to be of 302 GW at 100 m height. In terms of regions – the state of Gujarat, has the highest wind potential in India — about 34% of the countrys total wind potential.

Some of the primary schemes include – Generation Benefit Incentive / Accelerated Depreciation: The GBI is available for a minimum of 4 years, and a maximum of 10 years. Accelerated depreciation allows up to 40% depreciation of wind power equipment in the first year of installation. This scheme is discontinued for new installations from April 2017.

Replacement of Feed-in-Tariffs (FiT): New system implemented by the Government to replace the wind FiT. Introduced reverse bidding auction for wind power for the first time in 2017. In reverse bidding, the roles of buyers and sellers are reversed, and a bid is won by the entity offering the lowest price Repowering Policy: Approved in August 2016, Repowering policy aims to replace ageing wind turbines with more powerful units in order to increase electricity generation. The Government intends to initially replace turbines of 1 MW and below.

1 GW Inter – State Transmission System (ISTS): The Government in August 2016 approved the 1GW ISTS scheme with an objective of aiding the non-windy states fulfill their non-solar RPOs at a lower cost. Under 1 GW ISTS, developers bid on wind projects through a transparent e-bidding process Further, the Government has set a target of 60 GW of installed capacities by 2022 – of which southern and western regions are expected to contribute about 85% of the additional wind capacity targeted by 2022.

Solar Industry

Solar, having grown at a CAGR of 167% over FY13-18, has been the highest growth sub-sector amongst Renewable Energy space in recent years. Given that most part of the country receives 4kWh to 7 kWh per m per day of solar energy; it has been at the forefront of Governments push towards increasing and developing the scope of Renewable Energy in the country. Further, Solar is the only energy source that does not require environmental clearance for projects.

The national target for solar installed capacity by 2022 represents 75% of the total target for installed RES capacity by 2022. Of the total, Northern region is expected to contribute the most to the achievement of the 2022 target for solar energy, followed by the Western and Southern regions.

Some of the key supportive schemes include –

National Wind–Solar Hybrid Policy: The Wind–Solar Hybrid Policy aims to promote large-scale wind–solar systems and technologies in order to efficiently utilize transmission capacity and available land, as well as provide better grid stability. The objective of the policy is to achieve 10 GW of wind–solar hybrid capacity by 2022.

Solar Parks and Solar Zones: Under this initiative, the Indian government is trying to attract large-scale investors. As part of the scheme, the government will identify suitable land for solar parks and construct the entire necessary infrastructure. The financial support of the government is expected to reach INR 40bn by FY2020. As a result, 20 GW of new, additional solar capacity is projected.

Rooftop Solar: IREDA launched a financing scheme in 2015 to promote the development of rooftop solar installations in the country. Under the scheme, rooftop solar developers have access to loans provided by IREDA at interest rates between 9.8% and 10.75%. Rooftop solar installations on governmental or public buildings are eligible for discounted interest rates.

Business Overview Wind Energy Business

A leading wind energy generating company – OGPLs wind assets currently aggregates 425 MW. The Companys wind assets are located across some of the countrys best wind sites. Further, the Companys assets comprise a mix of installations by leading suppliers.

The Companys revenue has grown steadily over a period of FY13 – FY18 aided largely by its improving asset base and attractive tariff rates. In addition to the impressive revenue growth, the Companys operating Profitability has also seen sharp improvement over the corresponding period. The Company ended the year with margins of ~80%, expansion of 500 bps over the past three years. Growing share of newer assets coupled with persistent efforts towards improving operational efficiencies have been primary reasons for driving the Profitability. The performance would have been even better had it not been for external factors ranging from frequent grid back downs, deteriorating financial performance of SEBs and muted performance under REC mechanism.

The situation though has improved Significantly in recent times owing to persistent actions on the part of TANGEDCO and the Company.

• The measures have resulted in reducing the incidents - from 40% four years ago it presently stands around 5%.

• Further, scheduled shutdown of Thermal power plants for maintenance during wind season

• Increased frequency bandwidth from 150 MW to 250 MW for renewables coupled with completion of the 2,000 MW Green energy corridor from Kayathar to Sholinganallur have helped improve the business prospects.

• Introduction of scheduling and forecasting mechanism to ensure improved uptime of the grid. Further, sale of excess power to outside states has contributed positively to the sector and the business.

• Integration of Tamil Nadu into National Grid – Enabling transfer of excess power in Tamil Nadu to meet requirement of power Deficit states.

The Company is also pursuing growth through addition of capacities in the wind business. The Company will be adding 43.5 MW in AP in wind season 2018, which is the second phase of a project where it has already set up 50.4 MW. This expansion makes economic sense as other infrastructure at the site including land, grid connectivity, layout, etc., is already in place and the Company can rapidly start generating power from fresh capacity which will deliver higher incremental Profitability due to readily available benefit of operating leverage.

REC Mechanism –

Renewable Energy Certificate (REC) is a market-based instrument promoting renewable energy. The mechanism aims to enable obligated entities to meet their requirements of generating a percentage of power from renewable sources. Where entities are unable to set up projects themselves to generate the required proportion of renewable power, they can purchase RECs for the shortfall. One REC certificate is treated as equivalent to 1 MWh. REC certificates are bifurcated into solar RECs and non-solar RECs. RECs are sold by entities by eligible renewable energy projects only.

However, FY18 was a good year for REC trading despite the abrupt start wherein trading in RECs was discontinued for couple of months following CERCs order to lower REC prices to historic low. Trading resumed in the month of July following Supreme Courts decision to allow trading of renewable energy certificates (RECs) on the appeal of Indian Wind Power Association (IWPA). However, the order was restricted to non-solar RECs and would have to comply with the earlier prices. Volumes picked up sharply following the courts order on the back of strong demand from the buyers following strict enforcement of obligations by state regulators. FY 18 was also the first year after FY12, wherein total demand for RECs (Non solar segment) in the market exceeded the supply. However, excess backlog resulted in most of the certificates getting liquidated at fioor price.

The Company generated revenues worth Rs. 116 crore (including amount deposited with CERC) under the REC mechanism during the year as against Rs. 38 crore in the previous year, growth of 3x. OGPL liquidated its entire REC inventory during the year. OGPL sold 7,84,237 certificates in 2017-18 as against 2,55,605 Certificates in the previous year. It may be noted that, in the present year, following the Supreme Court Order, the trading continued at Rs. 1500 per REC, but Rs. 500 was kept in escrow with the CE pending final decision. AS a result the company generated revenues worth 78 Crores under the REC mechanism. OGPLs share in trading on the exchange represented 4.91% of trading volumes during FY18. A well-functioning REC mechanism will create another revenue and liquidity avenue for the Company which will further improve its financial and cash flow position. Further, it will not only help create a fertile environment for maintaining renewable energy market growth in the country, but will also help the Govt. in meeting its target of improving the energy mix of the country. Lastly, stable REC market will also allow the developers to raise and lock in funding for long dated projects by selling RECs, thereby improving the projects viability.

Transforming the Business

OGPL has been working diligently towards reviving the business operations and restoring Profitability. The Company has undertaken a number of strategic initiatives towards addressing the legacy issues and putting in place necessary measures towards ensuring a steady trajectory of growth in Profitability.

One of the key reasons impacting the overall Profitability of the business has been the subdued performance of the biomass business. Inability to operate the plants at high utilization levels on a consistent basis, a pre-requisite for running the business viably coupled with limited working capital, hampered the ability to run the biomass business Profitably; in turn dragging down the overall performance of the business. The Biomass business has contributed to about 30%-40% of the Companys losses over the last three years. Further, against a high operating margin for Wind business, the Biomass business has been consistently running at a negative margin.

Against this backdrop and, after contemplating number of alternative measures towards reviving the business, the Board decided to divest off the loss making business by selling 8 biomass units to Janati Bio Power Pvt. Ltd. (subsidiary of its promoter - SVL Ltd.). The transaction has resulted in OGPL receiving an equity consideration of Rs. 49 crore while Rs. 193 crore of debt has been taken over by the buyer -The transfer of debt against assets and proceeds from sale will result in moving out of biomass related debt of ~Rs. 330 crore. Overall reduction in the debt amounting to ~Rs. 330 crore will result in strengthening the financial position of the Company and accelerate value creation for Shareholders. Further, the Company is also working towards completing the sale of the remaining units and expects to complete the same shortly.

The other reason hampering the business has been the stretched balance sheet. Despite delivering steady operating performance – vindicated by steady operational Profitability, bottom line of the business was largely impacted by the higher interest outgo which soaked up a large proportion of inherent Profitability of the business. The Company has been undertaking a number of measures such as restructuring part of its high cost debt, negotiating with the bankers towards lowering the interest rate and extending the tenure of the loans. Owing to such actions, the Company has been successful in lowering the interest cost from Rs. 286 crore in FY15 to Rs. 235 crore in FY18.

Further, the Company is poised to achieve further reduction in finance costs by about Rs. 35-40 crore in FY19 on the back of transfer of Rs.193 crore of biomass debt along with the assets on Dec 31, 2017; refinancing of one tranche of high cost debt of Rs. 100 crore in Oct, 2017 from 18% p.a. to 12.75% p.a. resulting in an annual saving of over Rs. 5 crore and healthy intent indicated by financial institutions to refinance the tranche of Rs. 765 crore of debt which was refinanced under the 5/25 scheme. Taking into consideration the improved performance, the Company is in active discussions with banks for refinancing debts to the tune of Rs.1, 000 crore to a single digit interest rate (from current average cost of debt of ~13%). All such measures are expected to Significantly improve the bottom line and cash flow and liquidity profile of the Company.

In addition to the above internal factors, the performance of the business in recent times was also to a large extent impacted by external factors like inadequate grid infrastructure and sub-optimal revenue generation under the REC mechanism owing to lax attitude of the regulators. Inadequate grid infrastructure in the past especially in the southern region contributed to roughly ~10% to 40% of the losses in the past few years. Inadequate infrastructure resulted in frequent grid-back down resulting in failure to evacuate generated power during the peak season in the past. The situation though has improved Significantly in recent times owing to consistent efforts of the Company and TANGEDCO.

Further, revenue generation under REC mechanism was below estimates in recent years owing to lack of strict enforcement of the regulations – excess supply in the market of the certificates exerted downward pressure on the prices which remained at or near fioor prices. However, things appear to be changing for the better as implementation is seen to be getting tighter and the increased compliance has resulted in an increase in REC volumes. This has led to highest ever trading volume of certificates on the power exchanges in FY18 and OGPL was able to liquidate its entire inventory.

Financial Performance –

FY18 witnessed the Companys best ever annual performance. The improved performance in effect partly captures the managements recent efforts towards reviving the business. The efforts have enabled the Company to perform well even while undergoing transformation process. The Companys recent strategic initiatives are expected to help the business deliver steady and consistent returns going forward.

Revenues from continued operations amounted to Rs. 394 crore as against Rs. 384 crore generated during FY17, higher by 3%. Steady performance of Wind business was on the back of better operational performance and supportive macros. The business to a large extent was benefitted by improved grid infrastructure especially in Tamil Nadu – wherein grid availability stood in excess of 90% during the year. Also, higher share of new wind assets contributed positively to the business. Going ahead, the future outlook remains positive on the back of solid support from regulators and State Electricity Board.

EBITDA for the year stood at Rs. 302 crore as against Rs. 292 crore reported during last year, higher by 3%. Higher revenue generation coupled with better operating efficiencies resulted in steady margins for the business. Depreciation for the year stood at Rs. 124 crore as against Rs. 137 crore generated during FY17 lower by 10%, owing to sale of some of the capacities.

Interest expense for the year stood at Rs. 211 crore as against Rs. 224 crore outgo during last year. The Company has been aggressively focused towards reducing its interest cost in recent times and has undertaken a number of strategic efforts towards the same. Some of the key initiatives include successful refinancing of one tranche of loan amounting to Rs.100 crore at reduced rate of 12.75% from

FY16 FY17 FY18
Component Amount (Rs.cr) Interest Rate (%) Cost (Rs.cr) Interest Rate (%) Cost (Rs.cr) Interest Rate (%) Cost (Rs.cr)
Biomass Debt 350 18% 63 18% 63

TRANSFERRED

Wind Debt
5/25 Scheme Implemented ~765 14% 107 13% 100 12% 92
1 tranche of High cost debt ~100 18% 18 18% 18 12.75% 13
Balance debt in Wind business ~350 12% 42 12% 42 12% 42
Promoter Group ~300 10.5%
Avg. cost of debt 16% 15 13%
Total Interest Cost 278 267 230

18% per annum earlier with effect from 1st July 2017. The reduction in interest cost should save around Rs.5 crore per annum. Also loans amounting to Rs.765 crore which were restructured under 5/25 scheme will be refinanced in MCLR rates which are approximately 100 basis points lower than the prevailing rates of 13%. The combination of these initiatives should help reduce annual expense by Rs.30- Rs.35 crore which will flow directly to PBT in turn improving cash flows and liquidity profile of the company. Also completion of Biomass would result in total debt reduction, approximately Rs.330 crore.

Loss after tax for the year stood at Rs. 71 crore as against loss of Rs. 96 crore reported during last year, lower by 26%. The Companys net worth net worth stood at Rs. 538 crore as against Rs. 597 crore during March 2017. Long term debt of the Company stood at Rs. 1,508 crore as against Rs. 1,313 crore during last year. Debt – equity ratio as of March 2018 stood at 2.8 as against 2.2 during March 2017.

Outlook –

The Company is close to concluding a transition phase, wherein the legacy issues are close to resolution freeing up resources to embark on a sustainable new growth phase. The Company has undertaken a number of strategic initiatives in order to drive earnings growth and align in to the improved EBITDA trajectory, deleveraging its balance sheet, hiving off the biomass business and consolidating its leadership position in wind business.

The Company has been diligently working towards lowering its debt burden and has been regular in payments and is actively in dialogue with its bankers to enhance repayment terms given improved operational Profitability.

The Company has been successful in lowering its existing cost of debt and extending the repayment schedule on part of its loans. Further, selling off the biomass business will also help in lowering its debt burden and improving the overall cash and liquidity profile of the Company.

The Wind business is expected to deliver a better performance going forward on the back of supportive macros – better grid infrastructure and availability. Occurrences of Grid back - down are a thing of the past now especially in the state of Tamil Nadu, where the bulk of the Companys assets are located. Grid availability continues to remain in excess of 90% plus in recent times owing to persistent efforts on the part of Company and TANGEDCO which augurs well for the business. The Company will now also commence undertaking investments on scheduled maintenance and replacement of parts, which will further contribute positively to the performance of its wind turbines. The Company was postponing such expenses until the resolution of grid availability. Lastly, it will also plans to its capacities which will further strengthen its leadership position in the segment.

Another factor which has led to improving macros has been the sustained uptick in the trading of REC certificates following stricter enforcement of penalties by the regulators. The REC mechanism which was supposed to stimulate the demand for Renewable Energy had limited impacted in recent times owing to lax attitude on the part of the regulatory agencies. However, things appear to be changing for the better led by higher demand and better regulatory environment. The Company will benefit positively from the improved REC market – improve revenue and cash flow generation.

Further, sale of biomass business should not only help the Company to improve its overall Profitability and working capital level but will also result in a leaner balance sheet. Suboptimal performance of Biomass business had a negative impact on the overall Profitability and margin profile of the Company as it dented the performance of high margin and Profitability generating Wind business. Post the sale of biomass business, OGPL will transform into a pure wind energy generating company – Profit and margin accretive business.

The Company is well positioned to deliver consistent growth going forward on the back of its recent strategic initiatives and improving macros. Having addressed its legacy issues, the Company is confident of meeting its true potential and capitalizing on the sectors growth opportunities.

Human Resources

The Company recognizes the need for change management and talent management throughout the business and just how critical these aspects are to its future growth and success as any other element of its commercial strategy. Accordingly, the Company places Significant emphasis on training personnel, increasing their skill levels, and fostering ongoing employee engagement.

The Company has also established a transparent working environment as it believes that employees voice and feedback are extremely important.

OGPL organizes in-house training for employees through skill building programs and professional development programs at all levels and across all functions.

All of this has contributed to high employee engagement levels which have ensured a lower employee turnover ratio.

Internal Controls and adequacy

The Company has an appropriate system of internal control in place to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition, and that all transactions are authorized, recorded and reported correctly. It also has an effective audit committee in place which carefully scrutinizes audit reports submitted by the internal auditors.

It also has an effective audit committee in place which carefully scrutinizes audit reports submitted by the internal auditors. The committee is empowered to follow up and implement progressive measures to further elevate the standards of internal controls.

The internal control system is supplemented by an extensive program of internal audits, reviews by management, and documented policies, guidelines and procedures.

Managements Responsibility Statement

The management is responsible for making the Companys consolidated financial statements and related information mentioned in this annual report. It believes that these financial statements fairly reflect the form and substance of transactions, and reasonably represents the companys financial condition and results of operations in conformity with Indian Generally Accepted Accounting Principles / Indian Accounting Standard.

Safe Harbour

Some of the statements in this Annual Report that are not historical facts are forward looking statements. These forward looking statements include our financial and growth projections as well as statements concerning our plans, strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change.

There are risks and uncertainties that could cause actual events to differ materially from these forward looking statements. These risks include, but are not limited to, the level of market demand for our services, the highly competitive market for the types of services that we offer, market conditions that could affect our services, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualified personnel, currency fluctuations and market fluctuations in India and elsewhere around the world, and other risks not specifically mentioned herein but those that are common to any industry.