Torrent Power Ltd Management Discussions

AGas-based

In FY25, AMGEN successfully completed a major turbine overhaul at Unit D, enhancing its efficiency and reliability. However, this upgrade temporarily reduced plant availability, adversely impacting power generation and leading to lower Plant Load Factor (PLF).

During the year, AMGEN managed to get allocation of domestic coal, which aided in Rseeping variable cost under control.

Despite frequent starts/stops due to infrequent and inconsistent demand, gas-based generation plants were able to maintain a healthy Plant Availability Factor (PAF). To enhance operational flexibility, SUGEN implemented upgrades in February 2025, allowing for part load, fast shutdowns, and low load operations.

The overall PLF for gas-based plants remained marginally subdued, primarily due to reduced offtake from long-term beneficiaries and higher gas prices. However, this was partly offset by increased merchant and bilateral sales, supported by Government initiatives aimed at maximising the utilisation of gas-based capacities through measures like implementation of the NVVN scheme and imposition of Section 11.

The Ministry of Power (MoP), through NTPC Vidyut Vyapar Nigam Ltd (NVVN), issued a tender for the procurement of power from gas-based plants to meet high demand periods. This year, as in previous years, the Company successfully secured Letter of Award (LOA) for a contracted capacity of 1,150 MW from DGEN and 150 MW from SUGEN, covering a period of 111 days from March 16, 2025, to October 15, 2025.

B. Renewables

*Based on Contracted Capacity

Wind PLF in FY25 remained subdued as compared to FY24 mainly due to lower wind speed and was also affected by force stoppage due to grid failure and extreme weather. Solar PLF was lower due to lower irradiation and stabilisation period of new projects commissioned during the year.

C. Licensed Distribution

*Represents number of industrial consumers; Dahej licensed area comprises the Dahej SEZ area, which is made up of export-oriented manufacturing units.

The licensed distribution area of Ahmedabad and Surat witnessed growth in demand, primarily from industrial and commercial customers, propelled by market movement, and fresh demand from new customers. Further, licensed distribution area of Dadra & Nagar Haveli and Daman & Diu also marked rise in sales backed by high demand from industrial customers.

Distribution loss at Ahmedabad reduced through loss reduction activities like surveillance and vigilance, theft deterrent systems, law enforcement against illegal connections, along with network improvement activities. Conversely, in Surat licensed distribution area, there has been a marginal rise in distribution losses, due to higher network load on account of high demand during summer. Notably, the distribution losses at both Ahmedabad and Surat licensed distribution areas have consistently remained well below the normative levels.

Tariff for FY26 (including true-up for FY24) was determined by GERC vide order dated March 29, 2025 for Ahmedabad, Surat and Dahej SEZ licensed areas. The Honble Commission has revised the base Fuel and Power Purchase Adjustment Surcharge (FPPAS), resulting in an increase of f0.48 per unit for Ahmedabad and a reduction of f0.43 per unit for Surat. The Companys profits are not directly impacted by the tariff order, as its returns in licensed distribution businesses are determined by post-tax RoE and ROCE as per the tariff regulations. As per Tariff Regulations, any cashflow surplus/deficit due to the tariff order is settled through quarterly FPPAS and true-up mechanism in the subsequent years.

The aggregate amount of regulatory gap of past periods approved and expected to be approved by Commission as on March 31, 2025 is Rs 3,157 Crore and the same is appropriately accrued in the financial statements. In addition, aggregate amount of regulatory gap of Rs 953 Crore is under dispute at various forums (primarily comprising of claims on account of carrying costs) and is not accrued in the financial statements; the same will be accrued in the financial statements of the period in which such disputes are determined by the appropriate statutory authorities.

D. Franchised Distribution

Overall sales in our franchised distribution area increased by ~4%. Agra and SMK saw surge in power sales driven by new residential connections, harsher summer and normal load growth. In contrast, Bhiwandis sales contracted due to lower industrial demand mainly from powerlooms.

Distribution loss for Bhiwandi increased on account of subdued loss reduction activities on account of elections and lower powerloom sales. Agra and SMK franchised units achieved reduction in distribution loss, through various initiatives like network improvement, enhanced vigilance and surveillance activities, etc.

2. Consolidated Financial Performance

The key financial data from the Statement of Profit and Loss is set out below:

(Rs in Crore)

Profit Before Tax (PBT) for the year registered growth of 26% compared to previous year. Growth was mainly driven by higher merchant sales from gas-based generation plants, including the sale of RLNG, and one-time gains from sale of non-current investments. Additionally, key operating drivers of our distribution business namely volumes, distribution losses and additional Return on Equity (RoE) due to incremental capex during the year, were all positive, improving profits during the year. Contributions from our renewable energy businesses were lower on account of lower Plant Load Factor (PLF) caused by inclement weather and partial commissioning of solar project still in its stabilisation period.

Tax expenses for the year have significantly decreased, primarily due to a one-time reversal of deferred tax liabilities amounting to Rs 637 Crore. This reversal is attributed to income tax refunds received during the year, pertaining to earlier years, on account of various favourable tax orders.

Liquidity, Capex and Debt Positions

The Companys liquidity, including mutual fund investments and deposits with banks/financial institutions, was f1,347 Crore at the beginning of the year. Liquidity as at the end of the year was f1,244 Crore, a decrease of f103 Crore. For the year:

• net cash generated from operating activities was Rs 4,199 Crore

• proceeds from issue of share (net of expense) via Qualified Institutions Placement (QIP) Rs 3,440 Crore and

• net cash utilised for (a) capital expenditure Rs 3,982 Crore; (b) normal repayment and prepayment from QIP proceed net of new borrowings (including short term debt) Rs 2,858 Crore and (c) dividend distribution Rs 902 Crore; leaving a closing liquidity balance of f1,244 Crore.

Capital expenditure was majorly towards improvement of existing network at our distribution areas and expansion of renewable businesses.

The long-term debt of the Company at the year-end was Rs 8,497 Crore, net decrease of Rs 2,815 Crore over the previous year [new debt raised f1,069 Crore less repayment of debt Rs 3,884 Crore (including prepayment of Rs 2,873 Crore)]. The weighted average rate of interest at the year-end was 8.26% with repayment profile as under:

(Rs in Crore)

The Company is rated by leading Credit rating agencies - CRISIL and India Ratings and the long-term and short-term ratings are as under:

• Long-term Rating: CRISIL AA+ / Stable and IND AA+/Stable

• Short-term Rating: CRISIL A1+ and IND A1 +

The following table sets forth key financial ratios based on consolidated financials:

RISKS AND CONCERNS

Key risks and concerns in the businesses of the Company are briefly explained below:

• The Company has operational gas-based power generation capacity of 2,730 MW, out of which 1,163 MW is tied up as on March 31, 2025 under long-term PPAs and balance 1,567 MW untied capacity is dependent on short-term power contracts. The Company utilised a portion of its untied capacity for short-term power contracts during the year, especially during high-demand periods. However, large available coal-based capacities and the Governments thrust to increase renewable generation capacity in the Country coupled with falling tariffs of renewable power, pose a risk to the Companys uncontracted gas-based generation capacity.

The Company has built capabilities to import LNG from international markets at efficient prices to operate its gas-based power plants. The demand for gas-based power is increasing, driven by its critical role in meeting the nations growing energy needs, particularly during peak demand periods. Additionally, gas-based power is essential for balancing the grid, accommodating the variability associated with the rising share of renewable energy sources. Gas prices are subject to fluctuations and associated foreign exchange risks, geopolitical and supply-demand mismatch risks, consequent to which, there would be periods during which power from these plants could be uncompetitive. To mitigate price volatility and achieve competitive pricing, the Company is exploring long term LNG contracts.

To manage the price fluctuation risk for the cargos whose price are linked to the reference indices (i.e. Date Brent, ICE Brent Future, etc.), the Company has executed International Swaps and Derivatives Association (ISDA) Agreements for Hedging activities with counterparties.

The fuel procurement, regasification and transportation contracts of the Company are subject to Take or Pay/ Use or Pay/Ship or Pay obligations. Given the volatility in the LNG market, there could be a potential liability on the Company to pay the obligation charges as defined in the contracts. The Company is taking several steps to mitigate the negative effects of these issues, such as selling RLNG and power from merchant capacity, requesting suppliers and transporters for waivers of charges, rolling over unused capacity to future years, and subleasing regasification capacity, etc.

Under the ‘One Nation, One Grid, One Tariff initiative, the Petroleum and Natural Gas Regulatory Board (PNGRB) has introduced a draft regulation to implement a unified and levelised tariff system for the entire national gas grid/pipelines. As per the draft regulation, the grid shall be divided into two zones based on their distance from the gas source. However, this system will result in higher tariff costs for power plants located near the gas source, nearly doubling their transportation costs. Consequently, these plants will be at a competitive disadvantage, often falling out of the merit order in the market. To mitigate future transportation risks and optimise the RLNG supply and generation costs, the Company is planning to implement a dedicated gas pipeline from the PLL Dahej terminal to the SUGEN plant. This initiative has already received consent from Petroleum and Natural Gas Regulatory Board (PNGRB).

The natural gas market in FY25 has been significantly influenced by various international developments and political instabilities. While demand continues to grow, supply constraints and geopolitical tensions pose significant challenges that require coordinated efforts from both producers and consumers to ensure market stability and security. Global demand for natural gas has increased by more than 2.5% in Calender Year (CY) 24, driven by a rebound in industrial gas demand in Europe and fast-growing Asian markets. However, the growth of LNG production has been relatively slow, resulting

in limited new gas supplies. This shortage has been further exacerbated by geopolitical tensions, which have fuelled price volatility and supply uncertainty. Additionally, constraints in Rsey transit routes, such as the Panama Canal and the Red Sea, have impacted LNG shipping, underscoring the vulnerabilities in the global gas trade. Going forward, it is anticipated that gas prices may moderate around 2027/28 in the backdrop of increased supplies in the global market, which would enhance the competitiveness of our gas- based generation.

• As per circular of Union Ministry of Environment, Forest and Climate Change (MoEFCC), the Companys 362 MW coal-based power plant (AMGEN) is required to comply with the revised emission norms. AMGEN is compliant with all environmental norms except SO_x (Sulphur Oxide). As per the latest MoEFCC notification dated December 30, 2024, plants scheduled to retire by December 31, 2030, are exempt from compliance of SO_x emission norms till that date. However, if operations continue beyond the planned closure date, an environmental compensation charge of Rs 0.40/kWh of electricity generated will be imposed retrospectively from January 1, 2028, until the plant ceases operations. Based on this, AMGEN is permitted to operate until December 2030 without Flue Gas Desulphurisation (FGD) installation.

To meet with the cyclic variations in generation and demand gaps due to increase in renewable energy generation, Central Electricity Authority (CEA) has mandated flexible operation for all coal-based power plants, under which all coal-based power plants have to become capable of minimum load operation with defined ramp rate. CEA on 15^th December 2023, published a notification for phase-wise plan for implementation of flexible operation in thermal power plant for 40% of MCR (Maximum Continuous Rating). As per the notification, AMGEN is under Phase 4, taking the deadline for compliance to January 2030. AMGEN has initiated feasibility study in this regard.

The Government of Gujarat (GoG) has announced plans to construct a large sports complex on AMGENs ash pond land at Motera, in preparation for the upcoming Olympic and Commonwealth Games. The GoG has notified the Company to hand over ~60% of the ash pond area by December 2025. In response, AMGEN is actively seeking alternative solutions to accommodate the proposed reduction in ash pond land. However, there is a significant risk of plant shutdown if adequate time is not provided to explore and implement these alternative solutions.

• The Ministry of Power (MoP) has issued draft guidelines on revenue recognition for licensed distribution businesses. These revisions come in response to various representations made by private distribution companies. The draft guidelines stipulate that 50% of regulatory assets must be de-recognised if they are not approved by the Honble Regulatory Commission within three years. Furthermore, 100% of these assets must be de-recognised if not approved within five years. Additionally, the guidelines mandate several other disclosures to be included in the Annual Accounts. These changes introduce significant risks for financial reporting and asset management.

The Companys licensed distribution business faces the risk of delay in recovery of some part of cost of supply due to regulatory stipulations. The unrecovered regulatory claim as at year end was Rs 3,157 Crore, recognised in the financial statements for the year. While such recoveries are permitted with carrying costs for delayed recovery, the same may affect the cash flows of the Company. In addition, regulatory disputes also cause delay in recovery of some part of the cost of supply. Such disputed regulatory claim as at the year-end was Rs 953 Crore, which is not recognised in the financial statements for the year.

In DNH & DD, some industrial consumers have started availing open access, reducing the Companys sales. In Dholera SIR, despite two years of operations, sales remain low, as major potential consumers, such as Tata, are sourcing power directly from the grid. This may lead to a significant accumulation of regulatory assets. Likewise, in MBSIR, Marutis decision not to opt for power from the Company may impact future growth. In Ahmedabad and Surat license areas, despite substantial regulatory assets, the Honble Regulatory Commission is not approving corresponding rise in tariffs, the same may strain financial performance. With the Governments emphasis on multiple distribution licensees in the same area, the competition in the distribution segment could increase going forward.

• In terms of the implementation of renewable energy projects, the key concerns that could impact the projects success are as below:

- Difficulty in acquiring suitable land for wind projects due to limited availability of high-potential wind sites. Compromising on site selection can result in sub-optimal energy generation and higher wind tariffs.

- Connectivity at ISTS substations is nearly saturated and booked till 2028. This results in stalling large-scale renewable energy deployment and adding uncertainty.

- Unexpected delay in obtaining Right of Use (RoU)/ Right of Way (RoW) clearance for laying of transmission lines and amicable solution with local stakeholders can lead to cost and time overrun, potentially affecting the scheduled commissioning dates.

In terms of operational projects, stringent renewable scheduling and forecasting guidelines considering unpredictable weather forecast may result into penalties for no fault of developers.

• Cybercrime, ransomware and third-party risk remain Rsey concerns for businesses. To reduce such risks, the Company has implemented Artificial Intelligence (AI) based advanced Endpoint Detection and Response (EDR) system along with Unified Endpoint Management (UEM) system to ensure infrastructure hygiene, avoid east-to-west malware spread, data leakage and Mobile Data Management. The Company has also implemented Vendor Risk Management system to continuously monitor the risk of key vendors. Further, to reduce the impact of any vulnerability in applications, the Company has implemented AI-based Web Application Firewall (WAF). The Company carries out assessment of any vulnerability in application on regular basis and uses Dev Ops for application development. For any associated risks, the Company is following National Institute of Standards and Technology (NIST) framework published by the US National Institute of Standards and Technology and Zero Trust Architecture Network is being deployed, with an emphasis on three pillars: end points/devices, access/authorisations and data. The IT Policies and Processes are certified for ISO 27001:2022. To protect the Company from any financial loss, cyber insurance has also been obtained.

BUSINESS OUTLOOK

1. Thermal Generation

SUGEN and UNOSUGEN plants are backed with long term PPAs for 76% capacity. DGEN plant is operated intermittently for supply of power through merchant power market during period of power supply deficit, provided affordable natural gas and/or RLNG is available. AMGEN, being an embedded generation unit supplies power to Companys own discom.

LNG prices have experienced significant volatility over the past few years. In CY22, prices averaged around $32/MMBtu, dropping to approximately $13/MMBtu in CY23, and further to about $11.50/MMBtu in CY24. Historically, LNG prices have ranged between $5 and $10/MMBtu. Recently, in Q4 FY25, prices have shown a downward trend, currently fluctuating between $11 and $13/MMBtu. Several factors are expected to influence LNG prices moving forward, including geopolitical issues in the Middle East, the European Unions inventory draw and restocking efforts, and the uncertainty surrounding gas supplies from Russia to the European Union. Additionally, the tariff policies of United States, changes in production volumes by OPEC+ members, and the timely commencement of LNG liquefaction projects, particularly in North America, will play crucial roles. Anticipated increases in RsNG demand from China and weather patterns will also significantly impact LNG prices. These elements collectively will shape the future trajectory of LNG prices.

Based on opportunities and favourable prices, the Company booked and took delivery of ~10.5 cargoes (~3.2 tbtu each) in FY25 and has so far tied up quantities equivalent to ~4 cargoes for delivery in FY26.

Considering the projected electricity demand vis-a-vis the current power supply position, both coal and gas- based power plants are expected to maintain PLFs as last year. In the medium to long term, power demand is expected to increase driven by the Government of Indias goal to increase gas in the energy mix, grid balancing demand due to variable renewable energy generation, emissions reduction, and government support for the revival of gas-based generation.

Gas-based plants remain crucial to balance the intermittency of rapidly expanding renewable energy segment and meeting the rising power demand, especially during peak demand periods.

The Governments vision of a ‘gas-based economy and increasing procurement from gas-based capacity indicate a strategic push towards enhancing the role of natural gas in Indias energy future. Considering these factors, the medium to long-term outlook on gas-based plants remains positive. Despite facing several challenges, gas-based power generation continues to be a vital component of Indias energy strategy, contributing to a cleaner and more diversified energy mix. Gas-based generation can complement renewable energy sources by providing reliable backup power and helping to stabilise the grid. The future outlook calls for efforts in the following areas:

• Continued policy support and infrastructure development are crucial for the growth of gas-based power generation. This includes investments in gas pipelines and LNG terminals.

• Adoption of advanced technologies to improve the ramp rates and cost-effectiveness of gas-based power plants will be major area wherein appropriate policy support to enhance flexibility will be crucial.

• Medium and long-term gas tie-ups so as to ensure gas supplies at optimum prices.

India is planning to add significant thermal capacity to meet growing electricity demand and for 24X7 reliable power supply, with a target of 80 GW by 2032. The government is actively supporting the thermal power sector through various initiatives aimed at enhancing production, efficiency, and environmental compliance. Overall, the thermal power sector in India is expected to remain a vital component of the energy landscape. We are participating in thermal tenders issued by various state discoms and exploring suitable land for installation of coal based thermal power project.

2. Renewables

The Company is well-positioned for a promising future in the renewable power and green energy business. This positive outlook is supported by several key factors, including the global shift towards sustainable practices due to increased awareness of climate change and environmental concerns, supportive regulatory environment, technological advancements, and the growing integration of renewable power sources into mainstream energy systems. The Government has announced ambitious targets for the clean energy segment, along with a robust framework to facilitate integration of higher share of renewables in the grid.

Capitalising on these trends, the Company aims to diversify its presence across the renewable energy spectrum by leveraging its expertise in executing and managing renewable projects. The Company intends to have presence across the renewable energy chain by participating in utility scale solar, wind, hybrid projects and also supplying renewable power to C&I customers. Furthermore, with a commitment to a sustainable future, the Company is also exploring new avenues in the green energy segment, covering Pumped Storage, Green Hydrogen and Green Ammonia. The Company already has ~1.7 GWp of operational and more than 3 GWp under construction renewable capacity. The Company is actively exploring avenues, both organic and inorganic, within the renewable energy sector and is diligently working towards expanding its renewable portfolio to 10 GWp by 2030.

3. Distribution

In its Licensed and Franchised Distribution business, the Companys focus remains on developing the exiting areas by adopting state-of-the-art technology and automation in operations to cater to the growth in demand and further reduce AT&C losses. Distribution loss of 2.34% in its licensed distribution business is a testament of its achievement and is one of the lowest across the country which is comparable to global benchmarks. In its franchised distribution areas, Agra has achieved its historical low AT&C losses of 6.94% compared to 58.77% when it was takeover in 2010.

Ahmedabad and Gandhinagar cities are being developed as the hub for commercial and service sector. Accordingly, the load density is likely to increase in the coming years and there is potential for further horizontal and vertical development. The rapid urbanisation of the twin cities, new initiatives such as Smart City, infrastructure projects like Bus Rapid Transit System (BRTS) /Metro, etc. necessitate creation of state-of- the-art electrical network with ability of handling large quantum of power at the highest levels of reliability.

The Company continues to look for new opportunities in the distribution sector in the form of privatisation or franchise of existing areas. Several states and Union Territories, including Uttar Pradesh, are evaluating the privatisation of discoms. With the Companys long experience in supplying reliable & quality power and reducing distribution losses to amongst the lowest in the country, the Company expects to benefit from the Government of India (GoI)s plans of delicensing the electricity distribution business and allowing discoms to have non-discriminatory access to the distribution system of any area. It is expected that new opportunities of privatisation of power distribution may be announced during the course of the next year.

Further, the track record of the Company in turning around existing franchised operations helps attract greater franchise opportunities for the Company in the near to medium term. Business opportunities are also being explored in other distribution areas in form of parallel licensee in the near future.

4. Transmission

Currently, the Company has limited investments in the transmission segment. As the segment offers robust regulatory mechanism and limited counter-party risks, the Company intends to selectively participate in tariff based competitive bidding for transmission projects (inter-state and intra-state). Considering the Companys strengths in financing and executing large projects, this is an area for future growth. Further, the Company is also evaluating brownfield opportunities.

INTERNAL CONTROL SYSTEMS

The Companys Internal Control Systems are commensurate with the size and nature of its operations, aimed at achieving efficiency in operations, optimum utilisation of resources, reliable financial reporting and compliances with all applicable laws and regulations. Ernst & Young (EY) LLP is the Internal Auditor of the Company. It carries out extensive internal audit throughout the year across all functional areas and submits reports to the Audit Committee. The recommendations from such internal audit and follow-up actions for improvements of the business processes and controls are also periodically reviewed and monitored by the Audit Committee.

CAUTIONARY STATEMENT

Certain statements in the Management Discussion and Analysis may be forward-looking. Actual outcomes may vary from those expressed or implied. The Company assumes no responsibility to publicly amend, modify, update or revise any such statements on the basis of subsequent developments, information or events.