Techno Electric & Engineering Company Ltd Management Discussions

INDIAN ECONOMIC REVIEW

India became the fastest-growing economy in FY 2021-22, registering a GDP growth of S.9%1. The growth was fuelled by several factors including wide vaccination coverage leading to increase in economic activities, the RBIs supportive monetary policy, a large fiscal stimulus, and various supportive policy measures by the government. As part of the nation-wide vaccination drive, Indias vaccine coverage exceeded over 185.55 crores vaccine doses as of 9th April 2022.

The eight core sectors that include coal, steel, cement, fertilisers, electricity, natural gas, refinery products, and crude oil grew by 10.4% during FY 2021-22. Steel, cement and natural gas made significant headway with y-o-y growth of 16.9%, 20.8% and 19.2% respectively. Electricity generation witnessed a y-o-y growth of 7.8% during FY 2021-223.

While the economy showed a strong rebound in FY 2021-22 after weathering the effects of multiple COVID-19 waves, the high inflation rate impacted the recovery momentum. Indias Consumer Price Inde (CPI)4 increased to 6.95% and Wholesale Price Inde (WPI)5 reached 14.55% in March 2022. This is primarily due to rise in prices of crude petroleum and natural gas, mineral oils, basic metals, etc., owing to disruptions in global supply chain caused by Russia-Ukraine conflict. In response, the RBI hiked repo rate by 40 bps and CRR (cash reserve ratio) by 50 bps to curb the inflation6.

Outlook

Indias GDP is expected to grow to 7.4% in FY 2022-23 due to various measures introduced by the government, like deregulation of various sectors, resolution of legacy issues like retrospective tax, digital India initiative, the PLI scheme to boost domestic manufacturing, etc. These measures will help the country maintain both demand and supply. In Budget 2022-23, the government announced a larger cape outlay in Budget FY 2022-23, increasing by 35.4% from Rs 5.54 lakh crore in FY 2021-22 to Rs 7.5 lakh crore in FY 2022-23. With all these macroeconomic stability indicators, India is well-positioned to face the challenges and maintain the growth momentum in the coming years. However, the outlook surrounds the risks of inflation, supply chain disruptions caused primarily by the ongoing geopolitical tensions.

INDUSTRY REVIEW

Indias power sector is one of the worlds most diverse ones. Power generation sources include coal, lignite, natural gas, oil, hydro, and nuclear power, as well as viable non-conventional sources including wind, solar, and agricultural and domestic waste. The countrys electricity demand has risen significantly and is likely to continue to rise in the coming years. To meet the countrys growing need for power, a substantial increase in installed generating capacity is required. India is the third-largest producer and

Generation Category-wise Installed Capacity as on 25.05.2022

Fuel	MW	% of Total
Solar Power	55,337.66	13.80
Bio Power	10,682.36	2.66
Small Hydro Power	4,850.90	1.21
Wind Power	40,528.08	10.11
Nuclear	6,780.00	1.69
Hydro	46,722.52	11.65
Thermal	236,088.42	58.88
Total	400,989.93	100

second-largest consumer of electricity worldwide, with an installed power capacity of 395.07 GW, as of January 20 228.

The Government of Indias focus on attaining Power for all has accelerated capacity addition in the country. Coal-based power capacity in India stood at 203.9 GW in January 2022 and is expected to reach 330-441 GW by 2040. However, demand for renewable energy is on the rise worldwide and India is no exception to it. The renewable energy capacity addition stood at 8.2 GW for the first eight months of FY 2021-22 against 3.4 GW for the same period of FY 2020-21.

As of January 2022, Indias installed renewable energy capacity stood at 152.36 GW, representing 38.56% of the overall installed power capacity. Solar energy is estimated to contribute 50.30 GW, followed by 40.1 GW from wind power, 10.17 GW from biomass and 46.51 GW from hydropower9.

Various policy support from the government has been a crucial factor in promoting sustained growth for power sector. Electrification in the country is increasing with support from schemes like Deen Dayal Upadhyay Gram Jyoti Yoiana (DDUGJY), Ujjwal DISCOM Assurance Yojana (UDAY), and Integrated Power Development Scheme (IPDS). In the Union Budget 2022-23, the government allocated Rs 19,500 crores (US$ 2.57 billion) for a PLI scheme to boost the manufacturing of high-efficiency solar modules10.

GENERATION

India has transformed itself when it comes to power generation i.e., from power deficit to power surplus. As of November 2021, we have added power generation capacity of 160.8 GW consisting of 83,920 MW from fossil fuel and 76,900 MW from non-fossil fuel capacity11.

In FY 2021-22, total electricity generation including generation from renewable sources in the country increased 85% to 1,234.298 BU from 1,137.850 BU the previous year. The electricity generation solely from renewable sources has increased at a CAGR of 6.8% from 2013-14 to 2020-21.

Annual Growth Trend in Power Generation13

YEAR	Growth in Fossil Fuel Generation (%)	Growth in Renewable Generation (Including Hydro) (%)	Growth in Non-Fossil Fuel (RE + Nuclear) Generation (%)	Growth in Total Generation (%)
2017-18	4.3%	ii.i%	9.55%	5.35%
2018-19	3.4%	14.3%	12.09%	5.19%
2019-20	-2.7%	12.7%	13.99%	0.95%
2020-21	-1.0%	2.1%	0.86%	-0.52%
2021-22	7.96%	7.74%	7.96%	7.96%

1 IMF WEO April 2022

2 PIB: Ministry of Health and Family Welfare

3 PIB: Ministry of Commerce and Industry

4 PIB: MOPSI

5 PIB: Ministry of Commerce and Industry

6 RBI MPC press release

7 IMF, World Economic Outlook, April 2022

8 https://www.ibef.org/industry/power-sector-india

9 https://www.ibef.org/industry/power-sector-india

10 https://www.ibef.org/industry/power-sector-india

11 https://powermin.gov.in/sites/default/files/uploads/ MOP_Annual_Report_Eng_2021-22.pdf

12CEA

13 Ministry of Power

Electricity Generation FY 2021-22 in Billion Units: upto Jan, 2022 (Prov)

Fuel	MW	% of Total
Bhutan IMP	7.28	1
Nuclear	38.80	3
Hydro	133.74	11
RE	141.28	11
Thermal	913.19	74
Total	1,234.3	100

Total Generation and Growth Trend

Year	Total Generation (Including Renewable Sources) (BU)	% of growth
2017-18	1,308.146	5.35
2018-19	1,376.095	5.19
2019-20	1,389.102	0.95
2020-21	1,381.827	-2.49
2021-22	1,490.277	7.85

TRANSMISSION

Transmission capacity plays a crucial role in making the flow of power continuous and reliable. We have significantly expanded the transmission network, resulting in a considerable reduction in transmission congestion and market splitting has become a rarity, resulting in the discovery of single price in the market. Tariff Based Competitive Bidding is increasingly being adopted for new projects in the Transmission Sector instead of Regulated Tariff. This has reduced transmission tariff by 30-40%.

Today, the country has one of the largest synchronous grids in the world. As on 31st December 2021, the status of national grid is as given below:

• Transmission line (ckm): 4,52,440

• Transformation capacity (MVA): 10,79,766

• Inter-regional capacity (MW): 1,12,250

This has facilitated seamless transfer of power from power surplus regions to power deficit regions, thus optimising the use of generation resources as well as meeting the demands of end consumers without any transmission constraints. It has also assisted growth of renewable energy-based capacity.

As of August 2021, we have undergone the following improvements:

DISTRIBUTION

Power Distribution remains the most critical link in the power sector value chain. It generates cash that feeds the entire value chain right up to power generation and fuel supply. Ministry of Power has taken massive initiatives to transform the country by connecting the whole nation via one grid, strengthening the distribution system, and achieving universal household electrification. The Distribution Systems have been strengthened to ensure reliable and uninterrupted power supply. To strengthen the distribution system, Gol launched Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) for rural areas and Integrated Power Development Scheme (IPDS) for strengthening the distribution system in urban areas in 2014. SAUBHAGYA scheme was also launched to address any gaps which were left in the distribution system.

From 2014 to 2021 we have added the following infrastructure to our distribution system:

• The total outlay for the strengthening was Rs 2.02 lakh crore.

• These capabilities have improved the operational efficiency and financial sustainability of major DISCOMs and power departments.

CHALLENGES

Generation

• For optimum capacity use, the energy miRs must be balanced.

• The electricity sector has a large share of non-performing assets in public sector banks.

• Environmental concerns due to thermal power generation

• Achieving Indias renewable energy generating target of 175 GW by 2022

Transmission

• Power transmission infrastructure is insufficient.

• Grid connectivity of renewable energy sources

Distribution

• DISCOMs1 poor financial health

• Inadequate quality of residential supplies

Outlook

Indias ability to provide affordable, clean, and reliable energy to its growing population will be critical to the countrys economic future development. However, avoiding the carbonintensive path taken by other countries will require strong policies, technological leaps, and a surge in clean energy investment.

India is set to see the largest increase in energy demand of any country over the next 20 years. The combination of a growing, industrialising economy and an expanding urban population will drive the energy use to higher numbers.

DATACENTRES

The Indian data centre industry has witnessed a significant growth in the last decade, propelled by the rising popularity of cell phones, social networking sites, e-commerce acceleration, digital entertainment, and other digital services. Adoption of developing technologies such as quantum computing, Artificial Intelligence (Al), and the Internet of Things (loT), among others, is fuelling this increase in data utilisation and generation. Various government programmes are supporting this sectors growth.

Between 2010 and 2018, there was an increase in the computational output of data centres by more than sixfold. Growing industries requires infrastructure support to keep up with their growth. By combining the newest technologies and economics of renewables with the greater efficiencies made available by Al and loT, data centres are paving the way for other industries to follow.

Businesses acquired data management capabilities to handle massive volumes of data generated as a result of the rapid adoption of cloud-based operations. The sector is predicted to increase at an exponential rate because of this. The Indian data centre industry is likely to increase at an annual rate of 8% between 2021 and 2026, according to projections. Increased use of online shopping is likely to boost the market in the future, thanks to the availability of user-friendly interfaces, high-speed internet, and smart devices such as smartphones, tablets, and laptops, among others.

COMPANY REVIEW

Techno Electric & Engineering Company Ltd. (TEECL) is one of Indias most important power-infrastructure companies. In the three industry categories of generation, transmission, and distribution, we are at the forefront of engineering, procurement, and construction (EPC), asset ownership, and operations and maintenance services. Incorporated in 1963 and headquartered in Kolkata, our operations are spread across India and abroad. The Company has assumed a leadership position on the back of association with state-of-the-art technology manufacturers and high standards of quality management, competent human resources, and resourceful financing. We develop, own, and operate transmission, distribution and generation businesses that improve lives through reliable and accessible electricity, promoting economic growth and social wellbeing and making the communities where we work better.

Operational Summary

• Sold its 26% stake in Kohima Mariani Transmission Limited (KMTL) toApraava Energy Private Limited (formerly CLP India Private Limited) for a total consideration of Rs 177 crores

• Plan to build an ultra-scalable, hyper-density data centre of 24 MW IT Load in Chennai, Tamil Nadu by FY 2022-23 and a data centre of 24 MW IT load in Kolkata, West Bengal by FY 2024-25

• Collaborated with global major K C Cottrell, South Korea foremission control technology and under discussion with other global majors for similar technology tie-ups

• Partnered with Commutate Electrique du Benin (CEB), TOGO, for extension of Kara substation and design, supply, installation and commissioning of new 161/20 kV substation at Mango worth US$ 9.69 million

Our Data Centre Roadmap

We entered the Data Centre industry with the goal of increasing our power generation capacity and EPC capabilities. We want to focus on enhancing our Large Infrastructure Asset Development and Ownership Experience, as well as setting up Operations and Maintenance services, by focussing on producing value for our organisation through ultra-scalable, hyper-density data centres.

Weve started the process of constructing our first 24-MW data centre in Chennai, Tamil Nadu. By FY 2029-30, we expect to expand our presence across India to create hyper-density data centres with a capacity of 250 MW.

The following is our strategy for reaching this goal:

• By FY 2022-23, a 24 MW IT Load data centre will be built in Chennai, Tamil Nadu.

• By FY 2024-25, a 24 MW IT Load data centre would be built in Kolkata, West Bengal.

• Taking advantage of economies of scale: a data centre in NCR by FY 2025-26, and a data centre in Navi Mumbai by FY 2026-27.

Financial Summary

We generated a consolidated gross revenue of Rs 1,07,387 lakhs in FY 2021-22, compared to Rs 88,923 lakhs in FY 2021-22. In FY 2021-22, our net profit was Rs 26,389 lakhs, compared to ?18,178 lakhs in FY 2020-21.

Principle Risks and Uncertainties

We have a sophisticated and detailed risk management structure in place that identifies short- and long-term risks, develops mitigation strategies for each identified risk, and tracks the effectiveness of those strategies. The following are the primary hazards linked with our operations that we discovered:

Nature	Description	Mitigation Measure
Economic risk	Due to Indias dynamic macroeconomic dynamics and intergovernmental issues, there are likely to be business ramifications.	To make cautious decisions in choosing new projects and navigating the macroeconomic landscape, we rely on the expert direction of our management and the strength of our financial sheet. Our numerous business divisions assist us in maintaining economic balance and protect our Company in the event of unexpected economic downturns.
Business continuity risk	Incidents that could have a negative impact on the Companys operations. Our organisation and supply chain faced unexpected hurdles because of the ongoing pandemic which resulted in a nationwide lockdown.	We take steps to adapt to changing circumstances and make quick judgments to ensure the health and safety of our employees while making strategic business decisions.
Industry risk	Changes in the industry can have an impact on our business operations prudence.	We stay current in the sector by pursuing a variety of commercial options in order to reduce our reliance on the Indian power market.
Liquidity risk	Failure to pay our short-term financial obligations poses a threat to our viability.	Customers who are in a good liquidity situation and have a good rating from rating agencies are the ones we choose. We deal with well-known Indian companies that have consistently been cash-positive and responsibly manage their working capital.
Segment risk	Our viability may be jeopardized if we rely on a single business segment.	To reduce our reliance on one business area, we invested in a wide range of business categories, including EPC contracting services, transmission network development, operations, maintenance, and power production.
Time bound completion risk	Delays in achieving project deadlines pose a risk to our profitability.	We have completed and submitted over 425 projects ahead of schedule, and we aspire to continue delivering on time and in high quality in the future.
Working capital risk	Inadequate working capital availability could be a hazard to the Company.	We ensure the sustainability of our operating capital by selecting projects with multilateral funding.
Price-based competition risk	Failure to stay cost-competitive could result in contracts being lost to competitors.	By proposing a competitive price plan, we secure clients ahead of the competition.

HUMAN CAPITAL

Our workforce remains our most important source of strength, resilience, and confidence. We work hard to foster a supportive, safe, and fair management culture. We make significant investments in upskilling our workforce and retaining the top people in the business.

We hold training courses to help them improve their core competencies, stay relevant in a changing working environment, and gain experience in management and leadership.

Our engineering team consists of talented and experienced individuals with a combined experience of more than 25 years. Our Board of Directors are made up of a miRs of veterans and technicians from all backgrounds who provide strategic direction and drive our growth strategy.

INTERNAL CONTROLS AND THEIR ADEQUACY

We have a solid internal control system in place for inventory management, fixed assets, and the sale of products and services, which is consistent with the size and nature of our business. To satisfy statutory requirements and changing business conditions, we upgrade and update our system on a regular basis.