palco metals ltd Management discussions

The management of the Company is pleased to present its report on the business environment & industry scenario, industry risks, opportunities and the Companys financial & operational performance during the financial year 2022-23.

BUSINESS ENVIRONMENT Global Business Environment

Global economic recovery remain dim amid stubborn inflation, rising interest rates and heightened uncertainties. Instead, the world economy faces the risk of a prolonged period of low growth as the lingering effects of the CoVID-19 pandemic, ongoing conflict in Ukraine, the ever-worsening impact of climate change and macroeconomic structural challenges remain unaddressed. According to IMF World Economic Outlook report 2023, global growth will bottom out at 2.8 percent in 2023 before rising modestly next year. Further, emerging markets and developing economies are already powering ahead in many cases, with growth rates jumping from 2.8% in 2022 (Q-o-Q) to 4.5% this year. Advanced economies are expected to experience a significant slowdown in growth, dropping from 2.7% in 2022 to 1.3% in 2023. Growth in the volume of world trade is expected to decline from 5.1% in 2022 to 2.4% in 2023, echoing the slowdown in global demand.

During the financial year 2022-23, the world economy demonstrated growth driven by the resilience of labour markets, robust households consumption, business environment etc. Flowever, the US Federal Reserve and Central Banks across the world reversed the quantitative easing measures implemented during the pandemic years, which consequentially ended the era of near zero interest rates. The Federal Reserve pulled back pandemic-era policies in the US and effected unprecedented rate hikes during the year to tame inflation, resulting in interest rate increase from 0.25% in March 2022 to 5% by the end of financial year 2023. As a result, inflation in the US decreased from 8.54% in March 2022 to 4.98% by the end of financial year 2023.

Going forward, investors have lowered their expectations of global interest rate hikes following the sudden failure of some mid-sized banks in certain advanced economies.The trust in the banking sector of these countries have not fully recovered and the global financial system has faced significant challenges.

Most commodity prices eased since mid-2022 to varying degrees, due to slowing global growth. Oil prices declined from their mid- 2022 peak, as concerns about demand emerged; for the year as a whole, the price of Brent crude oil averaged $ 100/bbl. European natural gas prices surged to an all-time high in August 2022 but have since receded. Similarly, coal prices hit a record high during the same time before beginning to soften by the end of calendar year 2022. Although, energy prices are expected to ease in 2023, they are projected to remain higher than previously forecast, primarily reflecting an upward revision to coal prices.

In 2022, global electricity demand increased nearly by 2% and India and United States has contributed to this electricity demand

specifically, although due toCovid related restrictions Chinas growth was affected. Further, India experienced a significant 8.4% increase in electricity demand in 2022, driven by a combination of its robust post-pandemic economic recovery and extreme weather conditions. The share of renewables in the global power generation mix was forecasted to rise from 29% in 2022 to 35% in 2025. The expansion of renewables will lead to a decline in the shares of coal and gas fired stations. Consequently, emissions of global power generation are expected plateau by 2025 and its C0₂ intensity will further decline in the coming years.

In a world where both the demand and supply of electricity are becoming increasingly weather-dependent, electricity security requires increased attention. Along with the high cost of electricity generation, the worlds power systems also faced challenges from extreme weather events like heatwaves in India, drought in Europe, winter storms in United States etc. Mitigating the impacts of climate change requires faster decarbonisation and accelerated deployment of clean energy technologies. Accordingly, the share of weather- dependent renewables in the generation mix will continue to grow. In such a world, increasing the flexibility of the power systems while ensuring security of supply and resilience will be of paramount importance.

Indian Business Environment

India stands as one of the worlds fastest-growing economies, benefitting from its diverse business environment and a vast consumer base and as per IMF, likely to transit from estimated level of USD 3.4 trillion to USD 5 trillion economy by 2027. The country is renowned for its large-scale manufacturing, IT services, and agriculture sectors. The Indian government has actively pursued reforms to facilitate a conducive business environment by implementing various reforms to promote ease of doing business, attracting foreign investments and nurturing the growth of start-ups. Supported by strong macroeconomic fundamentals, robust domestic demand, fiscal discipline, high saving rates and demographic trends, India has emerged asthefifth-largest economy globally.

According to the Economic Survey forecast and Reserve Bank of India (RBI), India is expected to achieve a growth rate of 6.5% in the financial year 2023-24. This projection indicates that Indias economic growth next fiscal year will be the fastest among major economies. Therefore, in the upcoming years, increasing consumption and investments, both from domestic and foreign sources, will play a significant role in driving the nations growth and potentially elevate Indias position in the World GDP Ranking.

Government policies and investment focus in infrastructure subsectors including roads, railways, multi-modal logistics, ports, waterways, shipping, energy transition and renewable energy etc. are expected to keep India on track to achieve its aim of becoming a USD 5 trillion economy. It is noteworthy that Infrastructure sector was included as one of the "Saptarishi" (seven) priorities in Budget

2023-24 by the Government of India, with a substantial increase of 33.4% in capital investment outlay, amounting to Rs.10 lakh crore.

In recent years, inflation has been significant concern for the Indian economy. However, in response to monetary policy actions and supply side measures, headline CPI inflation has gradually declined from its peak of 7.8% in April 2022 to 5.7% in March 2023 and is projected to ease further to 5.2% for the financial year 2023-24.

Foreign direct investment (FDI) plays a crucial role in Indias economic growth.The Government has been implementing various reforms to attract foreign investments, including liberalizing foreign investment policies and simplifying the process of doing business in India. Over the past two decades, India has experienced a remarkable 20 fold increase in annual FDI inflows, positioning itself as a favored investment destination.

INDUSTRY STRUCTURE AND DEVELOPMENT Industry Overview

In the post-pandemic recovery phase, the Power Sector has been buoyant, aided by rising demand and energy transition focus. In the financial year 2022-23 the total power generation reached 1624 BU, marking an 8.87 % growth compared to the previous year. Peak electricity demand continued to increase consistently over the years and reached 215.9 GW during financial year 2022-23. Renewable energy generation (excluding Hydro) during the year witnessed a significant increase of 18.72% i.e. 203 BU over the previous year. Nonfossil fuel power generation as a whole stood at 418 BU, reflecting a growth rate of 10.9% compared to the previous year. Consequently, the share of non-fossil energy stood at 26%. Further, the installed power capacity addition during the year was 17 GW, taking the total installed capacity to 415.50 GW by the end of financial year. It is noteworthy that renewable energy accounted for 90% of the added capacity. The share of non-fossil capacity also increased from 41% to 43% compared to the previous year. Peak electricity demand witnessed an all-time high of 215.9 GW, as compared to 203 GW in the previous year. Additionally, the overall Plant Load Factor (PLF) improved to 64.15% against 58.9% over last year.

Industry-Structure

Generation

As on March 31, 2023, the installed power generating capacity in the Country was 415.50 GW comprising of 100 GW in the Central Sector; 105.5 GW in the State Sector, 210 GW in the Private Sector. In terms of generation capacity by type, the conventional coal & lignite capacity was 211.9 GW, Renewable Energy capacity 172 GW, Nuclear capacity 6.8 GW and Gas based capacity 24.8 GW. The Plant Load Factor (PLF) for thermal power plants across the country improved to 64.15% compared to 58.9% in the previous year. Central sector thermal stations achieved a PLF of 74.67%, whereas state sector and IPP sector achieved PLF of 61.85% and 56.63% respectively.

Further, according to the Generation Expansion Planning studies conducted by the Central Electricity Authority (CEA), the share of non-fossil fuel-based generation capacity in India is expected to witness substantial growth. By the year 2029-30, the share of nonfossil fuel based generation capacity is likely to increase from current

43% to over 64%, thereby exceeding the energy transition goals of the country.

Renewable Energy Sources

Globally, India stands at 4^th position in terms of Renewable Energy I nstalled Capacity (including large hydro), 4^th in Wind Power capacity & 4^th in Solar Power capacity. As on March 31,2023, Indias installed renewable energy capacity (including large hydro) stood at 172 GW. Out of which, Solar energy contributed 66.78 GW, followed by 42.63 GW from wind power, 42.1 GW from hydro and 20.49 GW from bio-power, waste, small hydro, etc. In terms of renewables capacity addition in the year, a total of 15.3 GW capacity was added, out of which Solar addition was 12.8 GW, wind 2.3 GW, Bio power & Small Hydro 0.2 GW respectively.

Transmission & Distribution Transmission

Transmission is a crucial element in the power delivery value chain and facilitates evacuation of power from generating stations to the load centers, both inter-state and intra-state. Efficient dispersal of power to deficit regions requires commensurate strengthening of Intra-State Transmission System (ISTS) network; enhancing the Inter-State power transmission system and augmentation in the National Grid.

During the financial year 2022-23, a total of 14,625 cKM transmission lines were added together with 75,902 MVA of transformation (substation) capacity. As on March 2023, our country has one of the largest synchronous interconnected electricity grids in the world with 4,71,341cKM oftransmission lineand 11,80,352 MVA of transformation capacity.

As a significant step towards successfully achieving the planned renewable energy capacity of 500 Gigawatt (GW) by 2030, CEA portrayed the broad transmission system roadmap for reliable integration of 537 GW renewable energy capacity by the year 2030. The length of the transmission lines and sub-station capacity planned under ISTS for integration of additional wind and solar capacity by 2030 has been estimated as 50,890 cKM and 4,33,575 MVA respectively at an estimated costof Rs.2,44,200 crore.The transmission schemes have been planned considering energy storage, so as to meet the requirement of Round-The-Clock (RTC) power. Several HVDC transmission corridors have also been planned for the evacuation of power from large renewable energy potential zones.

Distribution

Distribution constitutes pivotal link within the power sector value, serving as the vital intermediary connectivity between utilities and consumer.Throughout history, the domain of power distribution had predominantly rested as the monopoly of Government-owned state utilities, with the private sector playing only a limited part. Recently this situation is reforming, as increasing number of private players are engaging in the sector.

The sector has been reeling under losses, making it crucial for the policy makers to devise various measures to make the State Discoms/ Utilities viable. Over the years, owing to, strong reform initiatives like

revision of tariff, National Electricity Fund (NEF) and Ujwal Discom Assurance Yojana (UDAY) etc. progress has been made in the overall functioning of the Discoms. Schemes namely, the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) for strengthening the distribution system in rural areas and Integrated Power Development Scheme (IPDS) for strengthening the distribution system in urban areas were implemented. Any gaps which were left in the distribution system were addressed under SAUBHAGYA.This has resulted in 100% village electrification and household electrification with significant and robust last mile electricity connectivity. These schemes also have enabled Discoms in improving their operational efficiency parameters such as billing efficiency, collection efficiency, AT&C losses and also the financial performance to some extent. ACS-ARR gap of Discoms at the national level has significantly reduced from 0.58 Rs./kWh in the financial year 2015 to 0.22 Rs./kWh in the financial year 2022. AT&C losses during the same period have also decreased from 25.72% to 17%.

As all these reform measures were largely aimed at improving the financial health of Discoms, this eventually lead to a reduction in outstanding dues to Power Generating Companies (GENCOS). The outstanding dues of DISCOMSs to GENCOs have declined considerably in the last one year which is expected to add to the overall health of the power sector.

Power Sector Policy Environment

India has demonstrated a firm commitment towards achieving the ambitious energy transition goals announced by the Prime Minister at COP26.These goals include an ambitious target of 500 GW installed renewable energy capacity by 2030 and increase the share of Green energy to 50% of total energy required by 2030. The government has also pledged to achieve net-zero emissions by 2070, which reflects its determination to promote sustainable development and reduce the countrys carbon footprint. A major focus was laid on capturing emerging energy transition trends - from Renewables to Flydrogen and even Smart Metering.

On Indias 75^th Independence Day, Flonble Prime Minister Shri Narendra Modi introduced the concept ofAmrit Kaalwhich is his vision for a New India by the 100^th year of independence in 2047, giving a statement of nations aspirations.The Union Budget 2023-24, the first budget of Amrit Kaal, provides a roadmap for promoting sustainable development through greener and futuristic (technology- driven) methods. The objective is to lay the building blocks for the forthcoming 25 years of the Indian economy and bifurcate principal policies into 7 co-dependent departments - termed as "Saptrishis" or seven sages with green growth being one of them. The Union Budget 2023 carried forward the momentum in the power sector by announcing various measures as under:

• In order to achieve the countrys climate targets, a slew of measures for green growth chiefly fuelled by an outlay of Rs.35,000 crore, to achieve energy transition and net zero objectives;

• The National Green Flydrogen Mission has been allocated an outlay of Rs.19,700 crore, which is expected to play a significant role in helping India achieve its annual production target of 5 MMT (million metric tonnes) of green hydrogen by 2030;

• Incentives for manufacturing vital clean energy equipment, including solar modules, electrolysers used in making green hydrogen have been announced;

• Provision has been made for an inter-state transmission system for evacuation and grid integration of 13 GW of renewable energy to be generated in Ladakh. The project will be constructed with an investment of Rs.20,700 crore, including the Central Governments support of Rs.8,300 crore;

• Viability gap funding mechanism designed to provide capital support to Public Private Partnership (PPP) projects for battery energy storage systems with a capacity of 4,000 MWh; and

• Support to aid the green growth through PPPs, including support for scrapping and replacing old vehicles, ramping up battery storage systems, setting up compressed biogas plants and promoting coastal shipping to promote cheaper modes of transport.

Other measures announced by the Government included allowing 100% FDI under automatic route, waiver of Inter State Transmission charges for sale of power from solar and wind projects to be commissioned by June, 2025; declaration of trajectory for Renewable Purchase Obligation upto 2029-30; setting up ultra-mega renewable energy park; schemes such as PM-KUSUM; Solar Rooftop Phase-ll; CPSU Scheme Phase-ll; laying new transmission lines and creating sub-station capacity under the Green energy corridor scheme; standard TBCB guidelines for Photovoltaic & Wind projects and launch of Green Term Ahead Market to facilitate sale of Renewable Energy Power through exchanges.

As a step towards addressing the issue of mounting dues of the State power utilities, the Ministry of Power, (MoP) Government of India, has issued Electricity (Late Payment Surcharge and Related matters) Rules, 2022. This initiative works with the sole aim of financially strengthening the electricity suppliers and bringing financial discipline in the power sector. Furthermore, it will ensure that the end consumer not only gets reliable and quality power, but additionally it alleviates the interest burden on account of late payment of power purchases dues by the State Utilities. REC was advised by the MoP to extend its support to Discoms for timely payment of their dues underthe new LPS rules. During theyear, REC has disbursed financial assistance of approx. Rs.16,177 crore to Discoms across states for clearing the outstanding dues.

National Green Hydrogen Mission

The National Green Flydrogen Mission was approved by the Union Cabinet on January 4, 2022, with the intended objectives of making India a leading producer and supplier of Green Flydrogen in the world; Creating export opportunities for Green Flydrogen and its derivatives; Reduction in dependence on imported fossil fuels and feedstock; development of indigenous manufacturing capabilities; attracting investment and business opportunities for the industry; creating opportunities for employment and economic development; and supporting R&D projects.

The National Green Flydrogen Mission will help in development of green hydrogen production capacity of at least 5 MMT per annum with an associated renewable energy capacity addition of about 125 GW in the country, with investment of over Rs.8,00,000 crore and will create over 6,00,000 jobs, by 2030. Further, this will enable to reduce cumulatively fossil fuel imports over rupees one lakh crore and aid in abatement of nearly 50 MMT of annual greenhouse gas emissions.

Pradhan Mantri Kisan Urja Suraksha Evam Utthaan Mahabhiyan (PM-KUSUM)

PM-KUSUM scheme is one of the largest initiatives in the world to provide clean energy to more than 3.5 million farmers by solarizing their agriculture pumps.

PM-KUSUM is a demand driven scheme and quantities/capacifies are allocated based on demand received from the states. As of June 30, 2023, grid-connected solar power plants of 113.08 MW capacity have been installed and 2.44 lakh agriculture pumps have been solarized under the scheme. This installed capacity is estimated to have reduced the C0₂ emissions by 0.67 million tonnes and reduced diesel consumption by 143 million liters of diesel perannum.

The Ministry of New and Renewable Energy has taken several steps to achieve the targets under the PM-KUSUM Scheme, including recent amendments. The amendments resulted in extention of scheme till March 31, 2026, feeder level solarization has been introduced under Component-C of the scheme, to support small farmers, the solar power projects smaller than 500 kW may be allowed by states, removal of penalty on solar power generator for shortfall in solar power generation under Component-A etc.

Revamped Distribution Sector Scheme (RDSS)

The Central Government has approved a Revamped Distribution Sector Scheme, a Reforms-based and Results-linked Scheme with an outlay of Rs.3,03,758 crore over a period of five years from the financial year 2021-22 to financial year 2025-26 with the objective to improve the quality, reliability and affordability of power supply to consumers through a financially sustainable and operationally efficient distribution sector. The scheme aims to reduce the AT&C losses Pan-India levels of 12-15% and ACS-ARR gap to zero by

2024-25, by improving the operational efficiencies and financial sustainability of all DISCOMs/Power Departments excluding private sector DISCOMs. DISCOMs/Power Departments would be able to access funds under the Scheme for Pre-paid Smart Metering, System Metering and Distribution infrastructure works for loss reduction and modernization.

The Scheme provides for annual appraisal of the DISCOM performance against pre-defined and agreed upon performance trajectories including AT&C losses, ACS-ARR gaps, infrastructure upgrade performance, consumer services, hours of supply, corporate governance, etc. DISCOMs have to score a minimum of 60% of marks and clear a minimum bar in respect to certain parameters in order to be eligible for funding against the Scheme in that year. Implementation of the Scheme would lead to consumer empowerment by way of prepaid smart metering, to be implemented in Public-Private-Partnership (PPP) mode and leveraging Artificial Intelligence to analyze data generated through IT/OT (Information Technology and Operational Technology) devices including System Meters, prepaid smart meters, to prepare system generated energy accounting reports every month to enable DISCOMs to take informed

decisions on loss reduction, demand forecasting, Time of Day (ToD) tariff. Renewable Energy Integration and for other predictive analysis.

It is pertinent to mention that earlier schemes of Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY), Integrated Power Development Scheme (IPDS) along with Prime Minister Development Package (PMDP-2015) for the erstwhile State of Jammu & Kashmir, have been subsumed in RDSS as per their extant guidelines and under their existing terms & conditions.

RDSS lays special emphasis on leveraging advanced technologies to analyze data generated through IT/OT devices, including system meters and prepaid smart meters, to materialize the envisaged goal i.e., introducing advanced technologies like AI/ML (Artificial Intelligence and Machine Learning) in power distribution, by leveraging partnerships and consultations.

Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY)

Government of Indias flagship programme, Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY), for which REC was the nodal agency, has been completed in its sunset year 2021 -22 i.e., on March 31,2022. The MoP had notified DDUGJY in 2014, as an integrated scheme covering all aspects of rural power distribution. The scheme had an approved outlay of Rs.43,033 crore, including budgetary support of Rs.33,453 crore from the Government of India. All erstwhile RE schemes (including Rajiv Gandhi Grameen Vidyutikaran Yojana i.e., RGGVY) were subsumed in DDUGJY and after March 31, 2022, the DDUGJY scheme has been subsumed in RDSS. On closure, the total executed cost under the scheme has arrived at Rs.45,942.74 crore.

Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA)

The Honble Prime Minister of India launched the Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA) scheme on September 25, 2017 with the objective of achieving universal household electrification in the country. REC was the nodal agency for SAUBHAGYA scheme.

To expedite and monitor the electrification process under SAUBHAGYA, a web portal was launched to monitor electrification status across the country. A feature named SAMVAD was also provided on the portal to facilitate the general public to raise their queries and interact with officials of discoms, thus establishing transparency and accountability. A special vehicle,Saubhagya Rath, was deployed in villages/towns so that the public may approach them to avail electricity connections under the scheme. SAUBHAGYA scheme has been completed successfully.

Solar Parks Scheme

To facilitate large scale grid-connected solar power projects, a scheme for"Development of Solar Parks and Ultra Mega Solar Power Projects is under implementation with a target capacity of 40 GW capacity by March, 2024. Solar Parks provide solar power developers with a plug and play model, by facilitating necessary infrastructure like land, power evacuation facilities, road connectivity, water facility etc. along with all statutory clearances. As on February 28,2023,57 Solar Parks have been sanctioned with a cumulative capacity of 39.28 GW. Out of these 57 Solar Parks, 9 parks are fully complete and additional 8 parks

are partially complete, with a cumulative capacity of 10.11 GW solar projects commissioned in these parks.

Rooftop Solar Programme Phase-ll

With an objective to achieve 40 GW of Rooftop Solar (RTS) capacity in the country, the Government of India launched Rooftop Solar Programme Phase-ll on March 8, 2019. The Programme envisaged installation of 4,000 MW of RTS capacity in the residential sector by providing Central Financial Assistance and incentives to DISCOMs for achievement of additional RTS capacity in a year over and above the installed capacity of the previous year. A provision of total central financial support of Rs.11,814 crore, including service charges to the implementing agencies, has been made under the programme, which was initially scheduled for completion by 2022 but later the Programme has been extended till March 31,2026.

As on February 28, 2023, against the target capacity of 4000 MW for residential sector under Rooftop Solar Programme Ph-ll, around 3,377 MW capacity has been allocated to various state implementing agencies based on the demand received from them and an amount of Rs.2,917.59 crore has been released to them under the Programme.

4.3 lakh beneficiaries have benefited under Rooftop Solar Programme Phase-ll. An aggregate 8.03 GW rooftop solar capacity is reported installed in the country as on February 28,2023.

National Electricity Fund

The National Electricity Fund (NEF) was launched in financial year 2012-13 with interest subsidy outlay of Rs.8,466 crore, to promote capital investment in distribution infrastructure for reducing distribution losses in the country with REC as the nodal agency. As on March 31,2023, interest subsidy of Rs.1,475 crore has been released under NEF.

Infrastructure Sector

Robust infrastructure is critically linked to growth in the GDP of any economy. While continuing to accord high priority to the development of Infrastructure, Ministry of Finance on October 11, 2022, announced an "Updated Flarmonized Master List of Infrastructure Sub-sectors" by adding some large emerging sectors and broadly categorizing them into 5 segments:

i. Transport and Logistics-Roads and bridges, Ports, Shipyards, Inland Waterways, Airports, Railways, Urban PublicTransport, Logistics Infrastructure, Bulk Material Transportation pipelines;

ii. Energy - Electricity Generation, Electricity Transmission, Electricity Distribution, Oil/Gas/Liquified Natural Gas (LNG) storage facility. Energy Storage Systems (ESS);

iii. Water and Sanitation - Solid Waste Management, Water treatment plants. Sewage collection, treatment and disposal system. Irrigation (dams, channels, embankments, etc.). Storm Water Drainage System;

iv. Communication - Telecommunication, Telecommunication towers.Telecommunication &Telecom Services, Data Centers;and

v. Social and Commercial Infrastructure- Education Institutions, Sports Infrastructure, Hospitals, Common infrastructure for Industrial Parks and other parks with industrial activity such as food parks, textile parks. Special Economic Zones, tourism facilities and agriculture markets. Terminal markets. Soiltesting laboratories, Cold Chain, Affordable Flousing etc.

Supportive macroeconomic factors and policy initiatives like the National Logistics Policy, PM Gati Shakti, Make-in-lndia and Production Linked Incentive (PLI) Scheme are creating huge space for infrastructure investments. REC obtained the necessary permissions to finance the Infrastructure & Logistics sector which presents a significant financing opportunity for REC over the long term.

OPPORTUNITIES AND STRENGTHS

Opportunities

• REC plays a key role in implementation of flagship Government of India schemes and financing Indias power sector;

• Rising energy demand in a fast growing economy augurs well for future business growth;

• Significant investments are required as per the generation capacity expansion planning report by CEA. Installed generation capacity by end of financial year 2027 is projected to be 610 GW requiring investments of 14.54 lakh Crore. In further period of five years, i.e. by financial year 2032 the generation capacity is expected to be 900 GW which corresponds to additional fund requirement of Rs.19.06 lakh crore;

• Counter-part funding in schemes like RDSS (~ Rs.2 lakh crore); and

• Ministry of Power has permitted REC to lend to infrastructure & logistics sector also subject to certain limits. This opens up another large universe of financing avenues for REC.

Strengths

• REC holds a strategic position, given RECs role in financing power sector & implementing policies and flagship programs of the Government of India;

• REC continues to maintain a strong financial position, is well capitalised with high asset quality, to meet future business growth;

• REC has a diversified asset portfolio with no single borrower with more than 10% asset portfolio; and

• Strong relationship and network with stakeholders in Central & State Government enables REC to access new strategic initiatives.

THREATS, RISKS AND CONCERNS

• Competition from other banks and financial institutions in power, infrastructure and logistics sector may require lending at fine rates; and

• Financial and operational health of the distribution utilities continues to be an area of concern.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

REC is a leading non-banking financial company (NBFC) categorized as Infrastructure Finance Company (IFC) by the RBI, servicing the financing needs of entire power sector value chain.

RECs principal products are interest-bearing loans to state utilities, private sector borrowers etc. Further, during the year, REC has actively started financing/exploring to Infrastructure and Logistics sector as well.The Company does not have any separate reportable segment.

During the financial year 2022-23, the Company has sanctioned loans worth Rs.2,68,460.54 crore. The loans sanctioned for the financial year 2022-23 includes Rs.34,529.33 crore towards generation projects, Rs.21,371.11 crore towards renewable energy projects, Rs.1,22,050.50 crore towards T&D projects including the loans under Revolving Bill Payment Facility and Late Payment Surcharge, Rs.85,734.60 crore towards Infrastructure & Logistics projects and Rs.4,775 crore towards other loans such as short-term, medium-term loans etc.

During the financial year 2022-23, the Company has disbursed an amount of Rs.96,846.30 crore, which includes Rs.25,049.27 crore towards generation projects, Rs.12,984.89 crore towards renewable energy projects, Rs.27,502.84 crore towards T&D projects, Rs.1,453.29 crore towards Power Infrastructure projects and Rs.29,621.37 crore towards other loans including short term, RBPF etc. The disbursements also included T234.64 crore of counter-part funding under DDUGJY (including DDG component) and SAUBFIAGYA schemes of the Government of India.

Apart from the above, the Company also disbursed total subsidy of Rs.1,065.56 crore received from the Government of India under DDUGJY scheme (including DDG component) and SAUBFIAGYA schemes of the Government of India

OUTLOOK

The power sector in India, is on course for a long period of high growth and transformation which is visible in the increasing deployment of clean renewables. Comprehensive transmission planning and execution to evacuate power from renewable-rich regions to the rest of the nation is well in progress. Utility-scale energy storage and pumped storage projects are likely to play an important role in enhancing the flexibility of the system. With Government of India, setting and pursuing the target of achieving 500 GW of renewable energy capacity by 2030, energy transition is expected to drive significant investment in the sector. The global trend towards Electric Vehicles (EVs) and its fast adoption in India is likely to see an increased demand for electricity. The National Smart Grid Mission, which aims to modernize the countrys power grid is expected to improve grid stability and reduce power losses. The government is also promoting the use of smart meters and digital technologies to improve the efficiency of the distribution network. The government is promoting measures such as cost-reflective tariffs, improved collection efficiency, and reduction in AT&C losses to improve the financial health of distribution companies. As Indian economy continues to grow fast, with a growing population and the current low level of per-capita electricity consumption, the future outlook for investments in power sector is quite promising over the long term.

MoU RATING AND AWARDS

During the financial year 2022-23, REC has received various awards and recognition including "Maharatna" status by the Department of Public Enterprise, Government of India for the Issuers operational

efficiency and financial strength. The performance of the Company in terms of MoU signed underthe guidelines of the DPE, Government of India for the financial year 2023 is likely to be excellent, subject to final evaluation by DPE. For the financial year 2021-22 MoU rating of REC has been "Very Good", primarily due to a newly introduced parameter of stock price performance.

Apart from above, Shri Vivek Kumar Dewangan, CMD, REC has been conferred with the prestigious The Most Promising Business Leaders of AsiaAward, at the 7^th edition of the EconomicTimes Asian Business Leaders Conclave 2022-23, for his stellar leadership in scaling up the operational business matters in the power sector value chain, pathbreaking energy transition initiatives, remarkable achievement and contribution to the overall well-being of the economy.

Environment, Social and Governance Risks

The Board approved Environment, Social & Governance (ESG) Policy framework of company serves as a guiding document for all ESG initiatives and activities undertaken by REC. It articulates the Companys commitment to ESG by incorporating environmental impact considerations in its operational, financial and risk management linked decision-making. Further, to ensure the financing of clean energy, suitable conditions related to Environmental, Health, Safety and Social (EHSS) aspects, are being added in the loan agreement/sanction.

With this, long term value creation is also ensured for internal and external stakeholders including customers, employees, investors, regulators, business partners and community members.

Environment:

REC aspires to play a key role in financing the green energy transition goals of the country whereby share of renewable capacity is targeted to be 50% by 2030. REC recorded higher business in renewables as compared to previous year. Renewable sanctions were up by over 45% while disbursement was increased manifold. Going forward the share of renewables is likely to expand faster, thus improving the share of renewables in total loan portfolio of REC. Further, the Corporate Office building of REC in Gurugram named"RECWorld Headquarters" is a GRIHA-5 rated green building with solar rooftop capacity of 964 kwp and many energy efficiency features. The building received award at the 9^th GRIHA summit (Green Rating for Integrated Habitat Assessment) under the category "Integrated Water and Energy Management". Further, REC has taken steps to make the office free of single-use plastics. As an initiative to sensitise the employees towards environment issues, awareness lectures on Green Energy and online quizamong REC employees on "Environment and Mission Life" were also organized.

Social:

REC periodically reviews and updates its policies in line with DPE guidelines to achieve non-discrimination and fair treatment amongst employees, career progression and employee benefits, employee health and well-being, women safety etc. REC maintains an"employee ethics and code of conduct" manual to promote integrity, ethics and good conduct among all employees. A well laid out grievance redressal mechanism is put in place to resolve employee concerns if any. REC is mindful of the customer experience in service delivery and regularly take feedback from all its borrowers with a view to enhance the same. Besides providing loans, REC has played a key role in successful implementation of Government Schemes such as DDUGJY,

SAUBHAGYA which have ensured 100% village electrification and last mile connectivity resulting in lighting of every rural household. Feedback reports suggest that these schemes, besides other things, have improved rural prosperity and inclusiveness. Further, REC has also been nominated as the nodal agency for implementation of the Revamped Distribution Sector Scheme which aims at loss reduction, and improving operational efficiency of Discoms. REC has a well defined "Corporate Social Responsibility" policy to fulfill its obligations as a socially responsible corporate.

Governance:

REC believes that high standards of corporate governance combined with ethical and transparent business processes leads to greater effectiveness and efficiency, and superior business outcomes. REC is fully compliant with the prescribed disclosure requirements by regulatory bodies and also voluntarily discloses data as per statutory requirements. In recognition of RECs efforts in this direction, it was awarded with the Golden Peacock Award for excellence inCorporate Governance by the Institute of Directors on November 10, 2022. REC also has in force, a "Whistle Blower Policy" which encourages its stakeholders to report any issues involving violation of its employee code of conduct/ethics, corruption etc. REC ensures security of data and strictly follows the information security guidelines issued from time to time by the Ministry of Electronics and Information Technology.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company maintains an adequate system of internal controls including suitable monitoring procedures to ensure accurate and timely financial reporting of various transactions, efficiency of operations and compliance with statutory laws, regulations and Company policies. Suitable delegation of powers and guidelines for accounting have been issued for uniform compliance. REC also has in place its ERP operations and e-office system, to ensure IT based operations with minimum manual interventions. In order to ensure that adequate checks and balances are in place and internal control systems are in order, regular and exhaustive internal audits of various divisions and offices are conducted by in-house Internal Audit division and through external professional audit firms.

Further, review audits of various Regional and State offices are also conducted by the in-house Internal Audit division, for those offices where internal audit is being outsourced continuously for three years. The internal audit covers all the major areas of operations of the Company including identified critical/risk areas, as per the Annual Internal Audit Programme. The Audit Committee periodically reviews the significant findings of audits, as prescribed in the Companies Act, 2013 and in the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

Further, Company has a Board-approved Risk Based Internal Audit (RBIA) framework which includes independent risk assessment of the operation / activities, identification of audit universe, development of risk matrix, preparation of annual RBIA Plan and execution of internal audit as per the frequency defined in the said policy.

FINANCIAL & OPERATIONAL PERFORMANCE

The Company achieved impressive performance during the financial year 2022-23. The operating income of the Company on a standalone basis was Rs.39,208.06 crore, which was 0.19% higher than last year ( Rs.39,132.49 crore). The Profit Before Tax for the financial year 2022-

23 was Rs.13,738.77 crore, which was 10.57% higher than last year ( Rs.12,424.90 crore). Net Profit for the financial year 2022-23 stood at Rs.11,054.64 crore, which was 10.04% higherthan last year ( Rs.10,045.92 crore). The Net Worth as on March 31,2023 stood at Rs.57,679.67 crore, which was 13.13% higherthan last year ( Rs.50,986.60 crore).

The Company gives utmost priority to timely realization of its dues towards principal, interest, etc. During the financial year 2022-23, the Company recovered Rs.82,910.87 crore, against the total sum of Rs.83,138.84 crore due for recovery, including interest for Standard Assets (Stage I &II), thereby achieving a recovery rate of 99.73%.

KEY FINANCIAL RATIOS

The details of changes in key financial ratios and specific to the Company, are given herein below:-

Particulars	FY 2022-23	FY 2021-22
Interest Coverage ratio (times)	1.58	1.56
Debt Equity ratio (times)	6.49	6.41
Operating Profit Margin (%)	34.93	31.50
Net Profit Margin (%)	28.16	25.61
Return on Net Worth (PAT/Average Net Worth) (%)	20.35	21.28
Gross Credit Impaired Assets (Stage-Ill) (%)	3.42	4.45
Net Credit Impaired Assets (Stage- Ill) (%)	1.01	1.45

There was no significant change in the key financial ratios for financia I year 2022-23 Ws-d-v/sthe last financial year 2021-22.

HUMAN RESOURCES / INDUSTRIAL RELATIONS

As on March 31, 2023, total manpower of the Company was 419 employees, which included 379 executives and 40 non-executives. The industrial relations scenario continued to be on a cordial and harmonious note. During the financial year 2022-23, there was no loss of man-days on account of industrial unrest.

Employee training and development continued to receive key focus. During the year, 315 employees of the Company attended various training programmes, workshops, webinars etc. during the financial year 2022-23, achieving 1,136 training man-days.

In order to equip the employees professionally, 19 executives were also deputed for training programmes abroad.

CSR INITIATIVES

RECs Corporate Social Responsibility and Sustainable Development initiatives are pursued with key focus on addressing community based, social and environmental concerns.The Company undertakes its CSR activities through REC Foundation, a not-for-profit society, registered under the Societies Registration Act, 1860.

During the financial year 2022-23, the Company sanctioned a total amount Rs.190.20 crore towards various CSR initiatives in the fields of safe drinking water and sanitation facilities, employment enhancing vocational skills, education, environmental sustainability, rural development projects etc. The implementation of CSR projects is done in project mode with baseline survey, specific project period, identified milestones, periodic monitoring and impact assessment.

The disbursement towards CSR projects is linked with the achievement of pre-defined milestones and deliverables. During the financial year 2022-23, the Company spent a total amount of Rs.210.35 crore (including disbursements in ongoing projects, other expenses and carry forward of excess spent of T0.40 crore from previous year).

RISK MANAGEMENT FRAMEWORK

The Company has a comprehensive Risk Management Policy, covering credit risk, operational risk, liquidity risk and market risk. The Company has constituted a Risk Management Committee, the main functions of which are to identify and monitor various risks of the organization and to suggest actions for mitigation of the same. Further, the Company has appointed Chief Risk Officer (CRO) and Chief Compliance Officer (CCO), as per the requirement of RBI norms.

The risks faced by REC have been categorized and are being monitored systematically. Credit risk is an inherent risk of the financing industry and involves risk of loss arising from the diminution in credit quality of the borrower and the risk of the borrower defaulting on contractual repayments under a loan or an advance. Operational risk, on the other hand, arises from inadequate or failed internal processes, people and systems or external events. Liquidity risk is the risk of potential inability to meet the liabilities as they become due; and the inability to fund increase in assets, manage unplanned changes in the funding sources and to meet obligations when required. Market risk is defined as the risk to the Companys earnings and capital due to changes in the interest rates or prices of securities, foreign exchange changes as well as volatilities of changes. ESG risk is the risk due to environmental, social and governance factors on companys operations, financial performance and management.

In order to mitigate credit risk, the Company follows institutional appraisal and project appraisal processes, which include detailed appraisal methodology, identification of risks, suitable structuring and mitigation. The operational risks are measured and categorized asHigh,ModerateorLow, through a comprehensive risk register covering all functional areas, namely business, compliance, finance, human resource, information technology, legal, operational and

strategy. The Company manages its liquidity risk through a mix of strategies, including forward-looking resource mobilization based on projected disbursements and maturing obligations. Further, to mitigate market risk, the Company has an Asset Liability Management Committee (ALCO) with CMD, Whole-time Directors and Senior Officials as its members, which meets regularly for review. The Company also has in place an Asset Liability Management Policy and Hedging Policy, as part of Comprehensive Risk Management Policy. To mitigate the relevant ESG risks, the Company has formulated & implemented an ESG policy covering the focus areas inter alia including climate change strategy, corporate governance etc.

STRATEGY

While continuing to finance the power sector requirements in generation, transmission and distribution segments, REC is poised to capitalize on the Indian Governments focus on energy transition and finance upcoming renewable energy projects such as solar, wind, biomass, hydro EVs / charging infrastructure, manufacturers of EVs; financing of equipment manufacturing for clean technologies, funding of solar parks, solar SEZ, solar pump-sets, energy storage systems etc.

Further, during the year. Ministry of Power has permitted REC to lend to non-power Infrastructure and Logistics sector subject to annual sanction in Infrastructure not exceeding 1/3^,d of total sanctions including for power infrastructure and green energy projects and subject to a ceiling of 30% of outstanding loan book. As a result, REC has actively started financing to sectors like Airports, Metro Rail, Roads & Highways, Green Hydrogen/Green Ammonia, Irrigation/Water resources, Multi-Modal Logistics Parks, Cold Chains, Railway Stations redevelopment. Ports, Healthcare Infrastructure etc. Necessary permissions in this regard are in place and projects aggregating Rs.85,735 crore were approved during the year. The pipeline of approvals built during the later part of the financial year, will result in robust disbursement in the balance part of the year.

	For and on behalf of the Board of Directors
	Vivek Kumar Dewangan
	Chairman & Managing Director
	(DIN: 01377212)
Place : Gurugram
Date : August 11,2023