Power and Capital Goods Sector Report 2017 PDF

UNNATI INVESTMENT MANAGEMENT AND RESEARCH GROUP
UNNATI
SECTOR
REPORT
POWER AND CAPITAL GOODS
2017-18
Jay Bakhda| Mayank Pandey

Power and Capital Goods
Table of Contents
S. No. Topic Name PageNo.
I Introduction to Technical Terms 4
1 Power Sector in India 6
2 Value Chain of Power Sector 7
2.1 Power Generation 9
2.2 Power Transmission 21
2.3 Power Distribution 24
2.4 Power Trading 26
3 Current Scenario 29
3.1 Electricity Act, 2003 29
3.2 National Tariff Policy, 2016 31
3.3 Resources 33
3.4 Generation 39
3.5 Transmission 50
3.6 Distribution 52
3.7 Impact Analysis 63
4 Overall Sector Performance 64
5 Company Profile 68
5.1 Power Grid Corporation of India Limited 68
5.2 National Thermal Power Corporation Limited 71
5.3 Coal India Limited (CIL) 73
Unnati Sector Report 2017-18 | 1

5.4 PTC India Limited 76
6 Capital Goods Sector in India 81
7 National Capital Goods Policy, 2016 85
8 Export Promotion of Capital Goods Scheme 87
9 Sub-Sector Analysis 89
9.1 Power & Electrical Equipment 89
9.2 Machine tools 90
9.3 Textile Machinery 91
9.4 Construction and Mining Machinery 92
9.5 Plastic Processing Machinery 93
9.6 Process Plant Equipment 93
9.7 Dies, Moulds and Process Tools 94
9.8 Printing Machinery 94
9.9 Metallurgical Machinery 95
9.10 Food Processing Machinery 96
10 Company Analysis 96
10.1 Apar Industries 96
10.2 Triveni Turbines 99
10.3 AIA Engineering 101
10.4 K.E.C International Ltd 105
10.5 Solar Industries Ltd 110
10.6 ABB India Ltd 113
11 Overall Sector Performance 119
12 References 122


Introduction to technical terms used in Power sector

Plant Load Factor (PLF): PLF determines the fraction of load a plant generates compared to its
maximum capacity. Indirectly it gives the capacity utilization of the plants i.e. performance of
the plants. If the PLF is 100%, it means plant is running on full load as per installed capacity. As
the PLF approaches 100%, the performance and efficiency of the thermal power plant also
increases. On higher load, all the respective auxiliaries also run on full load, which results in
utilization of various auxiliaries at higher efficiency. The average PLF of India’s thermal plant
was 62.3% in FY-2015. Since the domestic coal based production did not keep pace with the
coal based capacity addition, it led to fuel shortage and consequently declining PLF.
Availability Factor: The amount of time that a plant is capable to produce electricity over a
certain period, divided by the amount of the time in the period is termed as the availability factor
of a power plant. Instances where only partial capacity is available may or may not be deducted.
Heat Rate: It is defined as the unit of energy required to generate one unit of power. It is
generally expressed in kcal/kWh. Lower the heat rate, higher the efficiency of the plant. It is
considered as one of the most important performance parameters for thermal plant. All plants
have certain guidelines by CERC within which their Heat Rate should fall.
Power Purchase Agreement (PPA): It is a contract between two parties one which generates
electricity and the one which looks to purchase electricity (e.g. DISCOM). The PPA defines all
of the commercial terms for the sale of electricity between the two parties, including when the
project will begin commercial operation, schedule for delivery of electricity, penalties for under
delivery, payment terms, and termination.
Fuel Supply Agreement (FSA): The new coal distribution system has replaced the linkage
system with fuel supply agreement. FSAs will be signed with power plants that have entered
long term power purchase agreements (PPA) with distribution companies. Here power plants
sign a contract with Coal India Limited for supply of coal.
Auxiliary Power consumption: All thermal plants consume some of the electricity units
generated to run its equipment. This is in general range from 8% to 12%. Auxiliary power
consumption should be minimized to the extent possible.
Ramp Rate: The increase or reduction in output per minute is called the ramp rate and is usually
expressed as megawatts per minute (MW/min). It is very crucial factor to estimate plants
capability of fulfilling urgent energy requirement. Generally, we should see the plant’s capacity
to dispatch the required electricity in 10 minutes.
Base Load Electricity: The base load on a grid is the minimum level of demand on
an electrical grid over a span of time, for example, one week. Base load power sources are

power stations which can economically generate the electrical power needed to satisfy this
minimum demand.
Peak Load Electricity: Peak demand, peak load or on-peak are terms used in energy demand
management describing a period in which electrical power is expected to be provided for a
sustained period at a significantly higher than average supply level. Peak demand fluctuations
may occur on daily, monthly, seasonal and yearly cycles.
Wheeling Charges (Wc):A wheeling charge is a currency per megawatt-hour amount that a
transmission owner receives for the use of its system to export energy. The total amount due in
TAC (Transmission Access Charges) fees is determined by the equation:
Total wheeling fee (TAC) = Wc ($/MWh) * Pw (MW) * t (h)
The fee associated with wheeling is referred to as a "wheeling charge.
Grid Parity: Grid parity (or socket parity) occurs when an alternative energy source can
generate power at a levelized cost of electricity (LCOE) that is less than or equal to the price of
purchasing power from the electricity grid. As in India, major power purchasing from the grid
comes from the coal fired thermal power plant, we compare the LCOE of other sources with that
of the coal fired thermal power plant.

1. Power sector in India

The power sector is one of the foundational sectors for socio-economic growth of a nation. As
India makes a spirited attempt to get into the league of developed nations, the performance of
this sector will be crucial to watch out for. A 2016 statistical research survey by CDC Group
shows a strong correlation between power availability and economic growth and business
activity [1]. The implications of these results are not lost on policy makers of India. The
importance of the Power sector can be gauged from the fact that Electricity generation is
monitored under an exclusive head by the Index for Industrial Production (IIP) as well as the
Index of Core Industries (ICI). It is impossible to ignore the Power sector in any macroeconomic
policy for national development. The same is reflected in the budgetary allocations for the
Ministry of Power which have increased at a healthy CAGR of 13% from 2014 till 2017; Union
Budget for FY2018 has allocated INR 13,881 crores which is 32% more than the revised figures
for FY2017. Likewise, allocation for the various schemes for the development of the power
sector was INR 12,278 crores, again 31% more than the revised figures for FY2017. This shows
the commitment of the Central government towards development of the Power sector [2].
However, it is important to keep the policy and budgetary support against the backdrop of India’s
poor showing on all parameters related to Power. For example, the per capita electricity
consumption in India was 1010 kWh for the year 2014[3], the lowest among BRICS. By
comparison, China consumed 3927 kWh, the USA consumed 12,986 kWh and the world average
was around 3128 kWh in the same year [4]. Around 20% of people in India do not have access to
power. This is likely to change soon as the complete electrification of villages is being targeted
for completion by October-2017 with 100% household electrification to be accomplished by
May-2018[5]. AT&C losses in India are amongst the highest in the world at 20.2%, owing largely
to obsolete equipment, poor maintenance and power theft. This data serves to emphasize the
potential for investment and growth in the Power sector. Total FDI inflows in the Power sector
from 2000 to 2015 account for 3.5% of all FDI inflows into the country and the estimated
investment potential is around Rs 15 trillion in the next 4-5 years [6]. Total installed capacity for
generation has increased to 330 GW in FY2017 at an impressive 5-year CAGR of 8.15%. Total
power generated also reached an all-time high of Approximately 1230 BU. There is a major push
on the Renewable energy sector and it is expected to provide 175 GW of electricity by 2022 with
Solar and Wind energy leading the way with total planned capacities of 100 GW and 60 GW
respectively. India has remained committed to its Paris climate agreement goals and has been
leading the charge on renewable energy with initiatives like International Solar Alliance.
Likewise, Transmission and Distribution sector is also undergoing major growth – investments
of INR 3 trillion are planned in the next 4-5 years. In our view, all these factors and many more
point to the fact that the Power sector remains poised for growth and will be one of the key
sectors leading the India growth story.

2. Value chain of the Power Sector

Although electricity forms an integral part of our lives, its working as an industry is not common
knowledge. In this section, we will build up a cursory understanding of the Power sector value
chain, its various components and the industry outlook for each of them.
From a physical infrastructure point of view, the Power Sector can be broadly broken into three
components: Generation, Transmission and Distribution. This gives a broad idea of what sub-
sectors contribute to power supply to our homes. This does not however completely explain the
flow of revenues. Therefore, the final component of the Power sector value chain is Power
Trading. Ref Fig 1 to get a schematic understanding of the Power sector value chain.
Fig 1: Power sector value chain
The simplified model above does not give a complete sense of the size and scale of the industry
being discussed here. A landscape model, as depicted in Fig 2, gives a better idea as to the role of
the various common and everyday structures that we associate with the Power sector.
Fig 2: The Power sector landscape

Even the model shown in Fig 2 is rather simplistic but it will serve our purpose for now. As the
report progresses, we will have more opportunity to discuss the various components and their
specific impact on the overall value chain.
From the above, a simplified understanding of Power sector operations can be developed. The
generation component is where the electricity is generated. As electricity possesses negligible
storage value [technologies that may enhance electricity’s storage value are discussed later] it
needs to be transmitted to its location of use. Transmission is an infrastructure industry which
facilitates this. It uses high voltages (typically above 240 kV) to transmit electricity over long
distances through conductors mounted on transmission towers. Once electricity has reached the
broad location of where it will be used then the distribution network takes over. The task of the
distribution is, as the name suggests, to distribute electricity to various users, be they residential
(homes etc), commercial (offices, hospitals etc), agricultural or industrial. The distribution
segment, however, neither receives electricity for free nor supplies it without charge. For its
services, it is paid by its customers and therefore must, in turn, make payment to those who
supply it with electricity. This is where Power Trading comes in. Power trading matches the
generation component of the power sector value chain with the distribution sector thus
facilitating competitive trade and reducing wastages or shortages.
Fig 3 Power Supply Value Chain
We will now talk about each of these sub sectors in detail.

2.1 Power Generation

India is a large and geographically diverse country. India’s energy resources, optimistically
speaking, are more suited for future growth. We have only about 0.3% of global oil and 0.8% of
global gas reserves. However, we are blessed with abundant solar and wind; India’s renewable
energy capacity is assessed at 900 GW [7].India’s coal reserves are also among the largest in the
world. The total installed capacity in India, as on 31-Mar-2017 is 326 GW.
Fig 4: Growth in generation capacity over the years [Source: CEA data]
The total electricity generated in FY-2017 was 1236.4 BU.
Fig 5: Total Electricity generate in India in BU [Source: CEA data]
India produces electricity through various sources. Electricity generation and Installed capacities
can be broken down in terms of sources of power (coal, hydro, renewable) [Fig 6, 7] or the entity

owning and operating (centre, state, private) [Fig 8]. Private participation in power generation
opened up after 2003.
Fig 6: Source-wise inst. capacity Fig 7: Source-wise Elec. Generated Fig 8: Capacity by Operator
2.1.1 Thermal Power Plants:
Thermal is the largest component of India’s energy mix. Thermal power plants can be Coal
based, Diesel based or Gas based. Biomass, although fundamentally a thermal power plant, is
usually classified under renewable and therefore is not discussed here. As can be seen from Fig 6
and Fig 7, India’s power sector is dominated by thermal, which in turn is dominated by Coal.
Fig 9: Worldwide distribution of recoverable coal deposits
India has large reserves of Coal – as much as 7% of world’s proven coal reserves are located in
India. The draft National Energy Policy, 2017, estimates that by 2040 Coal may be supplying as
much as 330-441 GW of India’s energy needs. The NEP estimates that the share of coal in
India’s commercial primary energy supply will shift from 55% in 2015-16 to 48-54% in 2040,
which is not significant. One caveat that the NEP includes is that the falling costs of emerging
battery storage technologies makes it difficult to predict the future of coal based technologies. If
battery storage and other supporting technologies falls enough to make renewable power
economically viable, coal may be phased out altogether.

Fig 10: Rising coal imports of India [Source: Central Statistical Office, India]
In terms of Coal production, CIL is the largest player, producing as much as 65% of total supply
of India for FY-2016. Generally, studying CIL’s performance gives a fair idea of how the Coal
industry is performing. Close to 24% of the total coal supply was met through imports. Various
commentators have noted these as unhealthy trends for the Indian Power sector. The draft NEP-
2017, in fact states, that CIL has no incentive to cut costs as it is able to pass them on to the
Gencos and is bleeding the industry. This coupled with more plants being designed for import
quality coal and lack of coking coal in India has meant that India’s imports have continuously
risen [ref Fig 10].
Coal based thermal power plants are also challenged by slowing demand for power and supply
glut from RES. No new coal capacity addition is planned except for 50,025 MW already under
construction and which is expected to go operational during 2017-22. The plant load factors for
the thermal power have been continuously declining. This is not attributed to shortage of coal
supply; rather coal supply has been adequate. Overcapacity and weakened demand for electricity
seem to be driving this trend.
Fig 11: Decrease in PLFs of Coal plants [source: CEA, India ratings & research]

Other factors plaguing the coal based capacity are the lack of long term PPAs, cheap power
available on merchant market and declining cost of supply from RES, especially solar. Capacity
utilization of private sector has been hit worse than Public sector [ref Fig 12].
Fig 12: PLF of Private vs Central coal power plants [source: CEA, India ratings & research]
The other types of thermal plants are based on Natural Gas and Diesel. Diesel based plants will
not be discussed in this report as they are not significant and we do not expect that to change for
the foreseeable future. Gas based plants fuel 8% of India’s installed capacity. Gas based power
plants can be based on various technologies: Open Cycle Gas Turbines (OGCT), Closed Cycle
Gas Turbines (CCGT), Reciprocating Engines etc. Gas plants have a special role in the grid –
that of meeting the peak loads. As penetration of RES increases in the overall generating
capacity more peak load adjustment systems will have to be added as RES is inherently
unpredictable. Peaking plants must have certain characteristics. They must be capable of cycling
(turning on and off quickly), they must have high ramp rates (ability to change power supply)
and must have good efficiency across various loads [10]. Typically, peaking plants are not
designed to act as base load plants as continuous operation leads to accelerated wear and tear of
components and lesser life.
Unfortunately, gas plants in India have been typically lying unused owing to lack of natural gas.
As per National Electricity Plan, 2016, a whopping 3,840 MW gas based capacity is ready for
commissioning but cannot be commissioned due to lack of fuel. An additional 500 MW is under
construction. Keeping all this in view no new capacity additions are planned from FY2017 to
FY2022. The plan also points out that against a target supply of 87 MMSCMD of gas, the supply
was a meager 28 MMSCMD; the minimum to meet the grid balancing requirements is 56
MSCMD. There have been reports that Indian government is in talks with the Indonesian
government to transfer India’s unused capacities to the latter. Although there have been policy
interventions to secure fuel supply for the stranded plants, the long-term scenario is not yet very
clear and depends on exploration and further development of the natural gas sector. Until then
gas based power remains unlikely to take-off.

Fig 13: Electricity generated from gas based power plants (GWh)
2.1.2 Hydro Power Plants:
Among all types of Power plants, Hydro power plants are the best suited for providing dual
purpose of base load or peak load with the same design. The crux however, is the availability of
water. Hydro power plants located in states with surplus water year-round are better suited for
supply during peak hours. Our discussion in this section is derived heavily from the National
Electricity Plan, 2016. An important point to note here is that Hydro power with capacity lower
than 25 MW is not counted as Hydro Power but as Renewable power.
India has a lot of potential for Hydro power development. It is estimated that almost 65.3% of
total assessed capacity is yet to be developed for use [ref Fig 14].
Fig 14: Breakup of total assessed capacity of Hydro power development [source: NEP, 2016]
As already stated above, Hydro plants play an important role in grid balancing and frequency
regulation. They can start from zero load and have a high ramp rate. Amongst Hydro plants,

Pumped storage plants deserve special mention. These plants are especially suitable for
integration with RES as they use electricity from RES during non-peak hours to pump and store
water to be used during peak hours.
Development of Hydro power faces various challenges. Being large scale projects requiring
major changes to the local landscape, land acquisition, environmental clearances, rehabilitation
of displaced populations, inter-state water sharing etc are some of the major socio-political
challenges. Additionally, planning a hydro project is one of the most technically challenging
tasks owing to various risks involved like geological structure, risk of natural calamities etc.
Extensive feasibility studies need to be carried out before committing to any such project.
Capacity addition of 15,330 MW is planned during 2017-22 and 12,000 MW during 2022-2027.
The public sector is the major player in the Hydro Electric power market. The National
Hydroelectric Power Corporation (NHPC), Northeast Electric Power Company (NEEPCO),
Satluj Jal Vidyut Nigam (SJVNL), THDC, and NTPC-Hydro are some of the prominent public
sector players. Jayprakash Associates, Tata Power, Greenko and Lanco are some of the
prominent private sector players.
2.1.3 Nuclear Power Plants:
For strategic as well as environmental reasons, nuclear power has always been strongly endorsed
by Indian government. Today India has 6780 MW of installed nuclear power capacity in the
form of 22 plants across 8 locations. International trade in nuclear fuel is highly regulated and
India was not allowed to participate in it as it had refused to sign the Nuclear Non-Proliferation
Treaty. However the Civil Nuclear with the USA and the special India specific waiver of NSG in
2008 changed that significantly. Since then India has entered into bilateral civil nuclear
agreements with many countries including USA, UK, Canada, Japan, Kazakhastan, France,
Mongolia, Namibia, Russia and South Korea. The push in nuclear power is led by the
government which plans to source 25% of its total power from nuclear sources by 2050. In May-
2017 Government cleared 10 new units of indigenous PHWR of 700 MW each. The Nuclear
Power Corporation of India Ltd (NPCIL) is responsible for design, construction, commissioning
and operation of thermal nuclear power plants and will be leading the aforementioned project.
2.1.4 Renewable Energy Sources:
The renewable energy sector is the new constant within the Power sector. RES technologies are
fast becoming affordable and providing power cheaper than many conventional sources.
Additionally, concerns about energy security and the environment have caused the government
to make RES one of the central pillars of their power policy. Fig 13 gives some sense of the pace
at which RES capacity addition is being planned solar and wind domains.

Fig 15: Wind energy capacity addition [source NEP, 2016]
Fig 16: Solar energy capacity addition [source NEP, 2016]
Solar Energy:
Solar energy is genesis for all forms of energy. This energy can be made use of in two ways
the Thermal route i.e. using heat for drying, heating, cooking or generation of electricity or
through the Photovoltaic route which converts solar energy in to electricity that can be used for a
myriad purpose such as lighting, pumping and generation of electricity. With its pollution free
nature, virtually inexhaustible supply and global distribution- solar energy is very attractive
energy resource.
Solar for grid connected electricity:
Grid interactive solar energy is derived from solar photovoltaic cells and CSP Plants on a large
scale. The grid connection is chosen due to following reasons:
▪ Solar Energy is available throughout the day which is the peak load demand time
▪ Solar energy conversion equipment have longer life and need lesser maintenance and
hence provide higher energy infrastructure security
▪ Low running costs & grid tie-up capital returns (Net Metering)
▪ Unlike conventional thermal power generation from coal, they do not cause pollution and
generate clean power
▪ Abundance of free solar energy throughout all parts of world (although gradually
decreasing from equatorial, tropical, sub-tropical and polar regions). Can be utilized
almost everywhere.
Solar for off-grid solutions:
While, the areas with easier grid access are utilizing grid connectivity, the places where utility
power is scant or too expensive to bring, have no choice but to opt for their own generation.
They generate power from a diverse range of small local generators using both fossil fuels
(diesel, gas) and locally available renewable energy technologies (solar PV, wind, small hydro,
biomass, etc.) with or without its own storage (batteries). This is known as off-grid electricity.
Remote power systems are installed for the following reasons:
▪ Desire to use renewable - environmentally safe, pollution free
▪ Combining various generating options available- hybrid power generation
▪ Desire for independence from the unreliable, fault prone and interrupted grid connection
▪ Available storage and back-up options
▪ No overhead wires- no transmission loss
▪ Varied applications and products: Lighting, Communication Systems, Cooking, Heating,

Pumping, Small scale industry utilization etc.
India's Unique Proposition
▪ Economic Value: The generation of solar electricity coincides with the normal peak
demand during daylight hours in most places, thus mitigating peak energy costs, brings
total energy bills down, and obviates the need to build as much additional generation and
transmission capacity as would be the case without PV.
▪ Geographical Location: India being a tropical country receives adequate solar radiation
for 300 days, amounting to 3,000 hours of sunshine equivalent to over 5,000 trillion kWh.
Almost all the regions receive 4-7 kWh of solar radiation per sq mtrs with about 2,300–

3,200 sunshine hours/year, depending upon the location. Potential areas for setting up
solar power plant can be analyzed using Solar irradiation map of India.
▪ Power Shortage: Electricity losses in India during transmission and distribution have
been extremely high over the years and this reached a worst proportion of about 24.7%
during 2010-11. India is in a pressing need to tide over a peak power shortfall of 13% by
reducing losses due to theft. Theft of electricity, common in most parts of urban India,
amounts to 1.5% of India’s GDP. Due to shortage of electricity, power cuts are common
throughout India and this has adversely affected the country’s economic growth.
On May 12, 2017, India recorded its lowest-ever solar tariff of Rs 2.44/unit of electricity. That is
a 73% fall since 2010, and compares favorably with India’s cheapest power source–coal,
electricity from which now ranges between Rs 3/unit and Rs 5/unit.
The new low solar cost was announced at a reverse auction–in which the role of buyer and seller
is reversed and the seller with the lowest bid obtains the business–by the state-owned Solar
Energy Corporation of India Limited (SECI) at the Bhadla solar park in north-west Rajasthan.
This was mainly possible due to a drop in the cost of solar modules (largely due to technology
advances), the prices for which fell 29% in India in the first quarter of 2017 over the previous
year.
Renewable energy could generate 49% of electricity in India by 2040 because more efficient
batteries–to store electricity when the sun does not shine–will provide flexibility of use and boost
the reach of renewables, cutting the cost of solar energy by a further 66% over current costs,
according to the Bloomberg New Energy Outlook 2017 report.
Fig 17: Total Solar Capacity Installed [source NEP, 2017]
India sees decrease in power deficit from 2009 to 2016.

Fig 18 Source: NEP 2017
Wind Energy:
Winds are caused by the uneven heating of the atmosphere by the sun, the irregularities of the
earth's surface, and rotation of the earth. The earth’s surface is made of different types of land
and water. These surfaces absorb the sun’s heat at different rates, giving rise to the differences in
temperature and subsequently to winds. During the day, the air above the land heats up more
quickly than the air over water. The warm air over the land expands and rises, and the heavier,
cooler air rushes in to take its place, creating winds. At night, the winds are reversed because the
air cools more rapidly over land than over water. In the same way, the large atmospheric winds
that circle the earth are created because the land near the earth's equator is heated more by the
sun than the land near the North and South Poles. Humans use this wind flow for many purposes:
sailing boats, pumping water, grinding mills and also generating electricity. Wind turbines
convert the kinetic energy of the moving wind into electricity.
Wind Energy for power generation
Wind Energy, like solar is a free energy resource. But is much intermittent than solar. Wind
speeds may vary within minutes and affect the power generation and in cases of high speeds-
may result in overloading of generator. Energy from the wind can be tapped using turbines.

Setting up of these turbines needs little research before being established. Be it a small wind
turbine on a house, a commercial wind farm or any offshore installation, all of them, at first,
need the Wind Resource to be determined in the area of proposed site. The Wind Resource data
is an estimation of average and peak wind speeds at a location based on various meteorological.
The next step is to determine access to the transmission lines or nearest control centre where the
power generated from the turbines can be conditioned, refined, stored or transmitted. It is also
necessary to survey the impact of putting up wind turbines on the community and wildlife in the
locality. If sufficient wind resources are found, the developer will secure land leases from
property owners, obtain the necessary permits and financing; purchase and install wind turbines.
The completed facility is often sold to an independent operator called an independent power
producer (IPP) who generates electricity to sell to the local utility, although some utilities own
and operate wind farms directly. Wind mills can be set up ranging scales of:
▪ On-shore grid connected Wind Turbine systems
▪ Off-shore Wind turbine systems
▪ Small Wind and Hybrid Energy Decentralized systems (Floating)
▪ Advantages
▪ Can be used for both distributed generation or grid interactive power generation using
on-shore or off shore technologies.
▪ Ranges of power producing turbines are available. Micro-turbines are capable of

producing 300W to 1MW and large wind turbines have typical size of 35kW-3MW.
▪ Wind turbine is suitable to install in remote rural area, water pumping and grinding mills
▪ Average capacity factor can be close or higher than 30%
▪ Disadvantages
▪ The total cost can be cheaper than solar system but more expensive than hydro.
▪ Electricity production depends on- wind speed, location, season and air temperature.
Hence various monitoring systems are needed and may cost expensive.
▪ High percentage of the hardware cost (for large WT) is mostly spent on the tower
designed to support the turbine
India‘s Unique Proposition
▪ Geographic Location and Wind Potential: The potential is far from exhausted. It is
estimated that with the current level of technology, the ‘on-shore’ potential for utilization

of wind energy for electricity generation is of the order of 65,000 MW. India also is
blessed with 7517km of coastline and its territorial waters extend up to 12 nautical miles
into the sea. The unexploited resource availability has the potential to sustain the growth
of wind energy sector in India in the years to come.
▪ World Market Share: According to REN21- Global Status Report 2011 (GSR-2011),
Indian company Suzlon was among top ten manufacturers of Wind Turbine
manufacturer’s in the world with world market share of 6.7%. Also major world
companies are pouring into the fast evolving Wind Energy market in India: Vestas, GE
Wind, Enercon and Gamesa have already opened up their establishments across various
cities in India.
▪ Government Support and Policies: Several states have come up with renewable energy
policies like Karnataka, Tamil Nadu and Andhra Pradesh. More details of and summary
for such policies is available on this page.
▪ Installed Capacity: According to MNRE‘s achievement report, The cumulative

installed capacity of Grid Interactive Wind Energy in India by the end of September 2011
was 14989MW (of which 833MW was installed during 2011-2012 against a target of
2400MW). Aero generators and hybrid systems contributed 1.20MW during 2011-12 to
yield cumulative off-grid wind capacity of 15.55MW.
▪ India in the windy world: In 2008, India shared 6.58% of total wind energy installed
capacity around the world, according to World Wind Energy Report-2008. According to
GSR-2011, the world witnessed highest renewable energy installations through wind
energy. Total installed capacity of wind energy reached 198GW by the end of 2010. India
ranked third in the world in annual capacity additions and fifth in terms of total wind
energy installed capacity. India has been able to fast pace its growth in wind energy
installations and bring down costs of power production. The GSR 2011 reported on-shore
wind power (1.5-3.5MW; Rotor diameter 60-100m) at 5-9 cents/kWh and off shore wind
power (1.5-5MW; Rotor diameter 75-120m) at 10-20 cents/kWh. But India’s onshore
wind power cost reached 6-9cents/kWh in 2008 itself (Indian Renewable Energy Status
Report-2010).
▪ Clean Wind to overcome power shortage: Electricity losses in India during

transmission and distribution have been extremely high over the years and this reached a
worst proportion of about 24.7% during 2010-11. India is in a pressing need to tide over a
peak power shortfall of 13% by reducing losses due to theft. Theft of electricity, common
in most parts of urban India, amounts to 1.5% of India’s GDP. Due to shortage of
electricity, power cuts are common throughout India and this has adversely affected the
country’s economic growth. Hence a cheaper, non-polluting and environment friendly
solution to power rural India is needed.

▪ Wind energy as job generator: Wind energy utilization creates many more jobs than
centralized, non-renewable energy sources. Wind Energy companies have opened up
huge career options. Also, the ease and accessibility of manufacturing technology has
given entrepreneurs with new business options to venture in. The wind sector worldwide
has become a major job generator: Within only three years, the wind sector worldwide
almost doubled the number of jobs from 235,000 in 2005 to 440,000 in the year 2008.
These highly skilled employees are contributing to the generation of 260 TWh of
electricity.
2.2 Power Transmission

Transmission of electricity is defined as bulk transfer of power over a long distance at a high
voltage, generally of 33 KV and above. A transmission system primarily comprises of
transmission lines, substations, switching stations, and transformers. Transmission and sub-
transmission systems supply power to the distribution system, which, in turn, supply power to
end consumers.
The transmission and distribution system in India operates at several voltage levels:
• Extra high voltage (EHV): 765 kV, 400 kV and 220 kV
• High voltage: 132 kV and 66 kV
• Medium voltage: 33 kV, 11 kV, 6.6 kV and 3.3 kV

• Low voltage: 1.1 kV, 430 Volts, 220 volts and below
The country has been demarcated into five transmission regions viz. Northern, Eastern, Western,
Southern and North Eastern. As peak demand for power does not take place at the same time in
all states, it results in a surplus in one state and deficit in another. In order to optimize the
utilization of generation capacity through the exchange of power between the surplus and deficit
regions, and exploit the uneven distribution of hydroelectric potential across various regions, the
Central government in 1981 approved a plan for setting up a national grid. On 31st December
2013, Southern Region was connected to Central Grid in Synchronous mode with the
commissioning of 765kV Raichur-Solapur Transmission line thereby achieving 'One Nation –
One Grid’.
Northern region: Delhi, Haryana, Himachal Pradesh, Jammu and Kashmir, Punjab, Rajasthan,
Uttaranchal and Uttar Pradesh
Eastern region: Bihar, Jharkhand, Orissa, Sikkim and West Bengal
Western region: Dadra and Nagar Haveli, Daman and Diu, Chattisgarh, Goa, Gujarat, Madhya
Pradesh, and Maharashtra
Southern region: Andhra Pradesh, Karnataka, Kerala, Pondicherry and Tamil Nadu
North-eastern region: Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland

and Tripura
Fig 19: Major Milestones in National Grid [Source: CRISIL]
Electricity sector in India is growing at rapid pace. During the current year 2017-18 (Upto
31.07.2017), the Peak Demand is about 159.8 GW and the Installed Capacity is 330.1 GW with
generation mix of Thermal (66.8%), Hydro (13.5%), Renewable (17.7%) and Nuclear (2.1%).
The natural resources for electricity generation in India are unevenly dispersed and concentrated
in a few pockets. Hydro resources are located in the Himalayan foothills, North Eastern Region
(NER). Coal reserves are concentrated in Jharkhand, Odisha, West Bengal, Chhattisgarh, parts
of Madhya Pradesh, whereas lignite is located in Tamil Nadu and Gujarat. Also, lot of power
station, generating from Gas and renewable energy sources like Solar, Wind etc. have been
installed in various parts of country.
Power-grid Corporation of India Limited (POWERGRID), a Central Transmission Utilities

(CTU), is responsible for planning inter-state transmission system (ISTS). Similarly, there are
State Transmission Utilities (STU) (namely State Transco/ SEBs) responsible for the
development of Intra State-Transmission System.
An extensive network of Transmission lines has been developed over the years for evacuating
power produced by different electricity generating stations and distributing the same to the
consumers. Depending upon the quantum of power and the distance involved, lines of
appropriate voltages are laid. The nominal Extra High Voltage lines in vogue are ± 800 kV
HVDC & 765kV, 400 kV, 230/220 kV, 110 kV and 66kV AC lines. These have been installed
by all the SEBs, and by Generation, Transmission & Distribution utilities including those in
Central Sector.

Fig 20: Power Transmission Lines [Source: CEA]
During 2017-18 (April-July 2017), 8,366 circuit kilometers (ckm) of transmission lines have
been commissioned. This is 36.2% of the annual target of 23,086 ckm fixed for 2017-18.
Similarly, 30,050 MVA of transformation capacity of substations has been added during 2017-18
(April-July 2017) which constitutes 55.7% of the annual target of 53,978 MVA fixed for 2017-
18.The capacity of transmission system of 220 kV and above voltage levels, in the country as on
31st July 2017 was 3,76,217 ckm of transmission lines and 7,70,815 MVA of transformation
capacity of Substations. As on 31st July 2017, the total transmission capacity of the inter-
regional links is 75,700 MW.
Fig 21: Inter-Regional Power Transmission Capacity [Source: Ministry of Power]

The transmission lines are operated in accordance with Regulations/standards of Central

Electricity Authority (CEA) / Central Electricity Regulatory Commission (CERC) / State
Electricity Regulatory Commissions(SERC). However, in certain cases, the loading on
transmission lines may have to be restricted keeping in view the voltage stability, angular
stability, loop flows, load flow pattern and grid security. Power surplus States have been inter-
alia, able to supply their surplus power to power deficit State Utilities across the country except
for some congestion in supply of power to Southern Region.
Power System Operation Corporation Limited (POSOCO), is managing the National and
Regional grid from National Load Despatch Centre (NLDC) and its five Regional Load
Despatch Centres (RLDC) through state-of-the-art unified load dispatch &communication
facilities.
2.3 Distribution
Distribution is the final and critical link in the power sector value chain, reaching end consumers
such as residential, commercial, agricultural and industrial segments. Unbundling of State
Electricity Boards post Electricity Act 2003 has created separate entities for generation,
transmission and distribution at state level. Distribution is different from transmission as
distribution involves transmission of electricity from Substation to end consumer. The
distribution segment continues to carry electricity from the point where transmission leaves off,
that is, at the 66/33 kV level. The standard voltages on the distribution side are therefore 66kV,
33 kV, 22 kV, 11 kV and 400/230 volts, besides 6.6 kV, 3.3 kV and 2.2 kV. Depending upon the
quantum of power and the distance involved, lines of appropriate voltages are laid. The main
distribution equipment comprises HT (High Tension) and LT (Low Tension) lines, transformers,
substations, switchgears, capacitors, conductors and meters. HT (High Tension) lines supply
electricity to industrial consumers while LT lines carry it to residential and commercial
consumers.
Though distribution business was largely dominated by state government promoted distribution
companies, now there are also privately-owned companies that undertake distribution of power
in some states or cities (for e.g. NPCL, Torrent, Tata Power etc.)., with private participation
being marginal (~5- 7 per cent of the total).
Most states have set up State Electricity Regulatory Commissions (SERCs), which regulate the
electricity sector and determine the tariff for distribution and transmission companies as well as
the tariff of the generation plants which sell the power to the distribution companies in the state.
The Central Electricity Regulatory Authority (CERC) fulfils this responsibility for the central
power utilities. The Appellate Tribunal for Electricity is established to hear appeals against the
orders of the adjudicating officer, SERCs, JERC and CERC.

Average Cost of Supply has following components:
ACS
Power Purchase
Interest Cost Employee Expense Other Cost
Cost
(10%) (8%) (8%)
(74%)
Short Term Long Term

(10%) (90%)
Coal Lignite Gas Hydel Nuclear

(75%) (4%) (5%) (12%) (4%)
Fuel Cost
Fixed Cost
Fig. 22: Proportion of Different Components of ACS
Gap between ACS and ARR
Profitability of DISCOMs can be measured in terms the gap between ACS (Average cost of
supply) and ARR (Average Revenue Realized). The cost of supply is the cost incurred to
DISCOMs in purchasing the power from GENCOS and makes it available to the end consumers.
It comprises of power purchase cost, employee cost, metering cost, maintenance cost, Employee
cost etc. Average revenue realized can be calculated by multiplying “Energy Billed” to
“Collection Efficiency”. Energy billed by the DISCOMs may not be completely collected by the
DISCOMs due to electricity theft and hence collection efficiency is less than 100%.
Main reasons for AT & C Losses:
Technical Losses
▪ Overloading of existing lines and substation losses
▪ Absence of up-gradation of old lines and equipments
▪ Low HT:LT ratio
▪ Poor R & M of equipment

▪ Non-installation of capacitors
▪ Large scale rural electrification program
Commercial Losses
▪ Low metering / Billing / Collection efficiency
▪ Theft of electricity by illegal connection
▪ Tampering of metering system
▪ Corruption in electrical connections
▪ Absence of energy audit and accounting
Calculation of AT & C losses:
AT & C Losses (%) = (Energy Input – Energy Realized) * 100/ (Energy Input)
Where Energy realized = Energy Billed * Collection Efficiency
Collection Efficiency = (Amount Realized * 100) / (Amount Billed)
2.4 Trading
After the enactment of Electricity Act in 2003, the concept of Open Access and Power trading
were created. Since generation and consumption of Power is not evenly distributed in India, the
concept of Power trading enables surplus generation from one Region to flow to another Region
which is deficit in Power or within the same Region. Power trading fundamentally means that a
transaction where the price of power is negotiable and options exists about whom to trade with
and for what quantum. Traditionally, trading licensee has been viewed as seller of electricity who
fulfills the needs of the distribution companies (DISCOMs) by arranging electricity supply at the
DISCOMs desired delivery point. Trading licensee can provide customized contracts according
to the requirements of the buyers/sellers. Importantly, trading licensee act as risk absorbers
between generators and DISCOMs ensuring that generators are paid on time by bringing in their
finances in case there is a delay in payment by a buyer. It absorbs both liquidity risks as well as
credit risk of the DISCOMs and insulates the generator from the financial condition of a
DISCOM.
Trading also facilitates competition among generators by offering various options for buying
electricity to DISCOMs. In India, power trading is in an evolving stage and the volumes of
exchange are not huge. All ultimate consumers of electricity are largely served by their
respective SEB’s or their successor entities, Power Departments, private licencees etc. and their
relationship is primarily that of captive customers versus monopoly suppliers. In India, the

generators of electricity like Central Generating Stations (CGSs), Independent Power Producers
(IPPs) and State Electricity Boards (SEBs) have all their capacities tied up. Each SEB has an
allocated share in central sector/ jointly owned projects and is expected to draw its share without
much say about the price. In other words, the suppliers of electricity have little choice about
whom to sell the power and the buyers have no choice about whom to purchase their power
from.
The pricing has primarily been fixed/ controlled by the Central and State Governments which is
now being done by the Regulatory Commissions at the Centre and also in the States wherever
they are already functional. Power generation, transmissions are highly capital intensive and the
Fixed Charge component makes up a major part of tariff. India being a predominantly rural
economy, power demand is seasonal, weather sensitive and there exists substantial difference in
demand of power during different hours of the day with variations during peak hours and off-
peak hours. Further, the geographical spread of India is very large and different parts of the
country face different types of climate and different types of loads.
Power demand during the rainy seasons is low in the States of Karnataka and Andhra Pradesh
and high in Delhi and Punjab. Whereas many of the States face high demand during evening
peak hours, cities like Mumbai face high demand during office hours. The Eastern Region has a
significant surplus round the clock, and even normally power deficit states with very low
agricultural loads like Delhi have surpluses at night. This situation indicates enough
opportunities for trading of power. This would improve utilization of existing capacities and
reduce the average cost of power to power utilities and consumers.
In view of high fixed charges, average tariff becomes sensitive to PLF. Trading of power from
surplus State Utilities to deficit ones, through marginal investment in removing grid constraints,
could help in deferring or reducing investment for additional generation capacity, in increasing
PLF and reducing average cost of energy. Over and above this, the Scheduled exchange of power
will increase and un-scheduled exchange will reduce bringing in grid discipline, a familiar
problem.
Types of Trading
Fig. 23: Different Ways of Trading and Their Proportion Source: CEA
Bilateral transactions include transactions for exchange of energy between buyers and sellers
directly or through trading licensee. For example, trades between the state DISCOMs of Gujarat
and Tamil Nadu can be conducted directly or through a third party bilateral trader such as Tata
Power Trading, or Power Trading Corporation (PTC). Short-term power trades are also
conducted on power exchanges through anonymous bidding. As on September 2013, there are
two operational power exchanges in India – the Indian Energy Exchange (IEX) and Power
Exchange India Limited (PXIL). Based on the availability of power and grid frequency, utilities
are allowed to purchase short-term power through overdraw from the regional grid albeit at a
higher price. Such short-term purchase from the grid is called unscheduled interchange (UI). UI
is included in the definition of short-term trades on account of the short-term nature of
transactions; it is more of a balancing mechanism. On further tightening of grid frequency, we
believe the share of UI will decrease further.
Power distribution and power transmission is done by the hierarchy of load dispatch center.
1. NLDC (National Load Dispatch Centre)
2. RLDC (Regional Load Dispatch Centre)
3. SLDC (State Load Dispatch Centre)
(1) NLDC:
Function of NLDC includes
▪ Economy and Efficiency of National Grid
▪ Scheduling and dispatch of electricity over the inter-regional links
▪ Monitoring of operations and grid security of National Grid
▪ Restoration of synchronous operation of National Grid
▪ Trans-national exchange of power
▪ Feedback to CEA & CTU for national Grid Planning
▪ Dissemination of information
(2) RLDC
Function of RLDC includes
▪ Real time operation, control & contingency analysis
▪ Generation scheduling/ re-scheduling

▪ Restoration
▪ Metering & data collection
▪ Compiling & furnishing of operation data
▪ Operation of ancillary services
▪ Operation of Regional UI pool Account. Reactive energy account and Congestion charge
account
(3) SLDC
Function of SLDC includes
▪ Optimum scheduling and dispatch
▪ Monitor grid operations
▪ Keep accounts of electricity transmitted
▪ Activities of Real-time operation
▪ exercise supervision and control
3 Current Scenario:
3.1 Electricity Act 2003:

The Electricity Act, 2003 mandates that Regulatory Commissions shall regulate tariff and issue
of licenses and that State Electricity Boards (SEBs) will no longer exist in the existing form and
will be restructured into separate generation, transmission and distribution entities. Regulatory
function has been taken away from the purview of the government.
The Electricity Act, 2003 mandates licensee-free thermal generation, non-discriminatory open
access of the transmission system and gradual implementation of open access in the distribution
system which will pave way for creation of power market in India.
The policy seeks to address the following issues:
▪ Rural Electrification
▪ Generation
▪ Transmission
▪ Distribution
▪ Recovery of Cost of services & Targeted Subsidies.
▪ Technology Development and Research and Development (R&D)
▪ Competition aimed at Consumer Benefits
▪ Financing Power Sector Programmes Including Private Sector Participation.
▪ Energy Conservation
▪ Environmental Issues
▪ Training and Human Resource Development
▪ Cogeneration and Non-Conventional Energy Sources
▪ Protection of Consumer interests and Quality Standards
The main features of the Electricity Act 2003 are as follows
(i) Generation has been de-licensed and captive generation freely permitted. Hydro projects
would, however, need concurrence from the Central Electricity Authority. No license required
for generation and distribution in rural area.
(ii) Transmission Utility at the Central as well as State level, to be a government company – with
responsibility for planned and coordinated development of the transmission network. Provisions
made for private licensees in transmission.
(iii) Open access in transmission with provision for surcharge for taking care of current level of
cross subsidy with the surcharge being gradually phased out.
(iv) Distribution licensees would be free to undertake generation, and generating companies
would be free to take up distribution.
(v) The State Governments are required to unbundle the SEBs. However, they may continue with
them as distribution licensees and State Transmission Utilities.
(vii) Setting up of the State Electricity Regulatory Commission (SERCs) made mandatory.
(vi) An Appellate Tribunal to hear appeals against the decision of the CERC and SERCs.
(vii) The SERCs are required to permit open access in distribution in phases with surcharge for
current level of cross subsidy to be gradually phased out along with cross subsidies and
obligation to supply.
(viii) Metering of electricity supplied, made mandatory.

(ix) Provisions relating to theft of electricity made more stringent.
(x) Trading as a distinct activity recognized with the safeguard of the Regulatory Commissions
being authorized to fix ceilings on trading margins, if necessary.
(xi) For rural and remote areas stand-alone systems for generation and distribution permitted.
(xii) Thrust to complete rural electrification and provide for management of rural distribution by
panchayats, cooperative societies, non-government organizations, franchisees, etc.
(xiii) The Central Government to prepare a National Electricity Policy and Tariff Policy.
(xiv) The Central Electricity Authority to prepare a National Electricity Plan.
3.2 National Tariff Policy (NTP) 2016:

The union government has amended the National Tariff Policy for Electricity on 20 January,
2016. The National Tariff Policy (NTP) 2016 focussed on renewable energy and sourcing of
power through competitive bidding. The amendments also aimed at achieving the objectives of
UDAY scheme. Power tariff policy is governed under the Electricity Act. The policy guides in
setting power rates, signing of power purchase agreements, sale and purchase of coal and power
(both conventional and renewable energy).
Major amendments and their impact

Electricity to all
▪ The policy envisages 24*7 power supply to all consumers by 2022. State Governments
and regulators will devise a power supply trajectory to achieve this.
▪ Power would be provided to remote unconnected villages through micro grids. Micro grids
are allowed to feed the electricity into the grid as and when the grid connection reaches
remote locations.
▪ The policy allows production of power from coal washery rejects {these are generated
during coal washing} to provide affordable power to people living near the coal mines.
Environment-friendly
▪ Procurement of power from waste-to-energy plants has been made compulsory. This will
help the Swachh Bharat Mission.
▪ To reduce the pollution of rivers, thermal plants within 50km of sewage treatment
facilities need to use treated sewage water.

Efficiency
▪ To increase efficiency through optimal utilisation of land and other resources, power
plants will be allowed to increase power production on the same project site to the extent
of 100 per cent capacity.
▪ This will remove the hassles of land acquisition, forest and environment clearance, etc.
This will also promote private investment.
Renewable Purchase Obligation (RPO)
▪ To promote renewable energy, it is proposed to increase solar RPO to 8% by 2022. Solar

RPO will not apply to power sourced from hydro power plants. Currently solar RPO is
below 1% in most states.Renewable Purchase Obligation is an obligation imposed by law on
some entities to either buy electricity generated by specified ‘green’ sources, or buy, in lieu of
that, ‘renewable energy certificates (RECs)’ from the market.
▪ Renewable generation obligations (RGOs) are introduced for new coal/lignite based
thermal plants that will need to establish or procure a certain percentage of renewable
energy to meet their RPO. The modalities of both the RPO and RGO will be determined
by the State electricity regulators.
▪ Inter-State transmission charges and losses for renewable power (wind/solar) have been
exempted. This will encourage inter-state power transmission but the exemption is
applicable only to wind and solar power, and not for other renewables like small hydro
and biomass.
Hydro power
▪ For the growth of hydropower generation capacity, hydro power projects will be awarded
under cost-plus basis and they are exempted from competitive bidding till 2022. A cost-
plus model promises assured returns over the investment made. For existing hydro power
projects, the power purchase agreement will have extended by 15 years beyond the
existing 35 years.
Other Changes
▪ Power plants are allowed to sell the surplus power generatedin spot market through
power exchanges. This is applicable when State electricity distribution utilities are not
buying the contracted capacity as per the power purchase agreements. This would
improve the PLFs of generating station which have to reduce the capacity when states
don’t buy the contracted power.

▪ Central regulator will decide tariff for composite schemes where more than 10% power is
sold outside State. This will give clarity on tariff setting authority for multi-State sales.
▪ To ensure faster completion at lower cost, transmission projects will be developed

through competitive bidding process. This will allow greater flow of private capital into
the lagging transmission sector.
▪ The policy removed market uncertainty by allowing pass through for impact of any
change in domestic duties, levies, cess and taxes in competitive bid projects.
▪ Smart meters are must be installed for consumers consuming 500 units by 2017 and 200
units by 2019.
1.3 Resources:
3.3.1 Coal:
Coal Thermal Power Plant generates major chunk of power in India (76% in 2016). Thus, coal is
the maximum utilized fuel for power generation. The source wise and category wise demarcation
for 2016 is given below.
Thermal Nuclear Hydro RE Total
Coal Gas Diesel Total
State 64.7 7.1 0.3 72 0 29.7 1.9 103
Central 74 10.6 0.4 85 0 3.2 56.3 144
Private 55.7 7.4 0.0 63 6.7 11.6 11.60.0 81
Total 194.4 25 0.7 220 6.7 44 58.3 330
[All data are in GW]
During 2013-17, coal based capacity accounts for 86% of the total capacity additions among the
thermal power plant. As of 2016-17, around 76 per cent of total installed thermal capacity was
based on coal as a fuel. According to the Geological Survey of India, as on April 2016, the total
coal reserve in India was estimated at approximately 308.8 billion tonnes (including the non-
recoverable reserves under riverbeds or urban areas). Out of this, proven reserves stood at about
138.1bnTones.
The majority of these coal reserves are concentrated in the country's eastern and south-eastern
regions. Jharkhand, Orissa, Madhya Pradesh, Chhattisgarh, West Bengal and Telangana account
for around 95 per cent of the country's total coal reserves. The power generation sector
(including captive power) continues to remain the largest end-user of coal in India accounting for
about 81 per cent of total coal consumption in 2015-16 as per the provisional coal statistics
report.
MoE&F has stipulated that all power plants situated 1,000 km away from the pit-head should
compulsorily use washed coal in order to bring down the ash content to less than 34 per cent.
India has around 52 coal washeries (including both coking and non-coking) with a capacity of
around 131 million tones (as on March 31, 2016). Of these, 17 washeries with a capacity of 41
million tones have been set up by CIL.
Coal fired thermal power plant CAPEX used to be Rs. 4 Crore/MW a few years back but with
more emissions controls and super critical boiler, the newer plants cost about Rs. 6 Crore/MW.
Lower grade of coal delivers lower GCV(Gross calorific Value) and hence more tones has to be
transported to the thermal power plants for the same units of output which increases its logistics
cost. Hence many GENCOs are using imported coals or coal washeries.
Fig. 24: Coal Reserves in Different Areas of India
Swapping of Coal Blocks: Government is working on an arrangement under which coal blocks
will supply fuel to the nearest power plants, under a swapping arrangement of coal linkages to

rationalize coal linkages. It is expected to save government’s Rs. 6000 crore and improve fuel
supplies to power plants.
SHAKTI Policy:
SHAKTI stands for “The Scheme to Harness AND Allocate Koyla Transparently in India”. The
CCEA cleared the New Coal Linkage Auction Policy which would provide coal linkages to
power plants which lacks FSAs or coal linkages. The policy will be named SHAKTI - Scheme
for Harnessing & Allocating Koyala Transparently in India. It is expected to revive 30GW of
power plants in the country, which are awaiting fuel supply.
Background
Coal linkages to the power sector were governed by provisions of the New Coal Distribution
Policy (NCDP, 2007). All coal consumers had to apply to the Standing Linkage Committee
(SLC) for coal linkages, which assured them 100% of its normative fuel requirement, if the LoA
is approved. The LoAs stated that the linkage would be converted into legally binding FSA once
consumer meets key milestones like achieving financial closure, obtaining clearances etc.
CIL and its subsidiaries had issued LoAs for 176 plants, aggregating approximately 108 GW till
2013. The CCEA then directed CIL to sign FSAs with TPPs of 78 GW (out of 108 GW,
including tapering linkage cases of 9.8 GW). Due to coal shortage, capacities of about 28 GW
(~13 GW of central and state sector plants and ~15 GW of private sector companies) were
unable to get FSAs despite having LoAs. Additionally, there were about 10 GW of operational/
under construction projects which did not have any linkages. Some of them procured coal at a
premium over the notified price of coal under MoU best effort basis. .
After 2015, there was no clear-cut government policy on long term coal linkages. Now, the
government has notified the new coal linkage policy, which aims at providing domestic coal to
all the power plants including those that do not have LoAs. This provides IPPs better clarity and
in turn aids in better planning.
The Key highlights of Policy are
▪ Thermal Power Plants (TPP) having LoA shall be eligible to sign FSA after ensuring that
the plants are commissioned, respective milestones met, all specified conditions of the
LoA fulfilled within specified timeframe and where nothing adverse is detected against
the LoA holders.
▪ TPPs (part of 78000 MW) that could not be commissioned by FY15 shall now be eligible
for coal drawl if the plants are commissioned before FY22.

▪ Future coal supplies to all TPPs shall be to the extent of long term PPAs or medium term
PPAs to be concluded in future.
▪ State, Central GENCOs and JVs to get linkage as per recommendation of the MoP.
▪ Coal linkage will be granted on auction basis for independent power producers with PPA
based on domestic coal and the IPPs participating in auction (existing PPA holders
without linkage) will bid for discount on the existing tariff. Linkages to the power plants
will be allotted to companies quoting higher discount to existing tariffs. The discount on
tariff would be adjusted from the gross amount of bill at the time of billing.
▪ Supply of coal to IPPs without PPA shall be on the basis of auction where bidding for
linkage shall be done over the Notified Price of Coal Company. The LoA shall be issued
to the successful bidders and FSA signed after meeting the terms of LoA.
▪ Linkages shall be earmarked to the States where any linkage quantity unutilized for two
years shall lapse. States may indicate the earmarked linkages to the DISCOMs/SDAs,
who may undertake tariff based competitive bidding on long-term and medium-term
PPAs and allot these linkages to the successful bidder
▪ Coal linkages, for IPPs having PPA based on imported coal, shall be made available
through a transparent bidding process and its methodology will be determined by the
MoC and MoP.
▪ Future medium term PPAs also to be eligible for coal linkage
Plants with PPA & LoAs to benefit the most:
The biggest beneficiaries of the policy will be those private sector developers who have long-
term PPAs as well as LoAs, as they would get linkages at the notified price. This would keep
their generation cost low and ensure increased plant availability with assured fuel supply. These
include Adani’s plants at Tiroda (Ph II) and Kawai (1.32 GW each) and Bajaj Hindustan’s
Lalitpur plant (1.32 GW). Some developers like Rattan India and Lanco (Vidarbha) who have
PPAs for partial capacities of their plants would also benefit from this policy.
Policy less favourable for plants without LoAs as discount on quoted tariff would hurt returns
The plants that had already entered into long-term PPAs with discoms and lost coal blocks after
the Supreme Court’s judgment on de-allocation of coal blocks in September 2014, can now bid
for long-term coal linkage. Some of the already commissioned private sector IPPs in this
category include GMR Kamalanga (0.55 GW), Adhunik (0.54 GW), Jharsuguda Sterlite (1 GW),
DB Power- Baradhara (0.6 GW), KSK Mahanadi (1.8 GW) etc. Under-construction plants such
as GVK’s Goindwal Sahib (0.54 GW) that are tied up for PPAs would also get the benefit of coal
linkage.

However, these plants will have to bid for certain minimum discount on their quoted PPA tariff.
Such discount on already quoted PPA tariff could adversely impact returns, as each 10 paise/kwh
decrease in tariff could lower their equity IRR by about 150-200 bps. However, the extent of
dent on IRR would depend on the competition/ aggression in bids and quantum of coal set aside
for such bidding. In fact, such projects would have already taken a financial hit in the past few
years on account of lower plant availability or procurement of coal under e-auctions at a
premium price. Thus, we believe that although the new coal linkage policy is expected to
improve the debt servicing ability of developers, project returns are not expected to improve
materially. Nevertheless, the reduced tariff is expected to benefit distribution companies / end
consumers through lower power purchase cost.
Policy to fix fuel supply bottleneck for projects without linkage, but, lack of PPAs still remain a
concern:
A large quantum of installed coal-based capacities (~13 GW) do not have long term PPAs. Coal
linkages under the new policy will be provided only to plants tying up for long / medium-term
PPAs within 2 years of being awarded the FSA (fuel supply agreement). As most states have
already tied up for excess capacities, we do not expect any major long-term PPAs to come up
until 2019-20. In fact, discoms are resorting to the short-term power market, where power is
expected to be available at low prices of ~Rs 3-3.5/unit over the medium term. Moreover,
declining tariffs of solar and wind-based plants along with their ‘must-run’ status are also adding
to the woes of coal-based developers. Thus, the benefit of the new coal linkage policy would be
available to the larger quantum of stressed power assets only when the power demand picks up.
Imported coal-based plants to be limited due to technical restrictions:
Plants based on imported coal can get coal linkages on forward e-auction basis. However, the
benefit would be limited for such plants, as many of them would have technical constraints for
blending domestic coal beyond 20% of total fuel requirement. Also, in certain cases, regulatory
constraints and environmental clearances could hinder the use of domestic coal.
In 2016-17, India’s coal imports were 83 MT, of which 48 MT of coal was used by plants which
are completely based on imported coal. This volume is not expected to be impacted due to this
policy. However, the remaining 35 MT- which was used for blending, would be reduced
substantially in 2017-18 on account of non-coastal plants switching to domestic coal through
new linkage policy.
The government is also planning to set up future UMPPs based on domestic coal instead of
imported coal and has recently announced new UMPPs to be set up under this move. This is
expected to benefit CIL in terms of coal production growth. However, pick-up in demand and
generation costs would be a key monitorable to decide whether new UMPPs like Cheyyur will
come up or not.

3.3.2 Natural Gas:
Natural gas-based power generation capacity accounted for around 9 per cent of the total
installed capacity as of March 2017. As per the provisional data reported by the petroleum
ministry, as of April 2016, the proven and recoverable reserves of natural gas in India were
estimated at 1227.2 billion cubic metres (bcm), of which around 61 per cent are located in
offshore region, in the Bombay High, Cambay Basin and KG Basin.
The production of natural gas during the year 2015-16 declined by 4.2 per cent to 32.2 Billion
Cubic Meters (BCM) from 33.6 BCM in 2014-15. This was mainly due to natural decline in
some of the fields, underperformance of wells, closure of wells for maintenance activities,
unplanned shutdown of GAIL gas line and less off-take by the consumers. A total of 7 wells in
D1 & D3 and 2 wells in MA field ceased to flow in 2015-16 due to water/sand ingress issues.
Production from remaining wells of KG-D6 also declined rapidly.
Fig. 25: Natural Gas Reserves, Production and Supply

3.4 Generation:
Base demand (sum of actual consumption and T&D losses) for power has grown at a CAGR of 4
per cent to 1,143 billion KWh in 2016-17 from 937 billion KWh in 2011-12. During the same
period, supply has increased to 1,135 billion KWh from 858 billion KWh at a CAGR of 5.8 per
cent. This has led to a reduction in base energy deficit to about 8 billion KWh in 2016-17 from
79 billion KWh in 2011-12 owing to higher capacity additions which have led to supply growth
outpacing demand growth. Moreover, demand growth has been subdued over the last few years
owing to slowdown in economic growth.
Fig. 26(i): Power Base Demand and Base Supply [Source: CEA]
Similarly, peak demand for energy increased at a CAGR of 4.2 per cent to 160 GW in 2016-17
from 130 GW in 2011-12 while peak supply grew at CAGR of 6.2 per cent during the same time
period. Consequently, peak shortage has declined over this period to 3 GW in 2016-17 from 14
GW in 2011-12.
Electricity consumption is estimated to have moderately risen to around 1032 billion units in
2015-16. Consumption growth has been fastest in the industrial segment growing at a CAGR of
11 per cent over 2010-11 to 2015-16 while domestic (household) and agricultural consumption
grew at a CAGR of 7 per cent each over the same period. Industrial sector continues to account
for the largest share of total consumption followed by domestic and agriculture sector
respectively.

Fig. 26(ii): Power Peak Demand and Supply [Source: CEA]
Fig. 27 Segment-Wise Electricity Consumption [Source: CRISIL]
Energy generation over the past five years has grown at CAGR of 5.8 per cent to 1,155 billion
KWh in 2016-17 from 872 billion KWh in 2011-12. The share of private sector in energy
generation has increased rapidly over the years to 32 per cent in 2016-17 from 16 per cent in

2011-12. The increase is predominantly due to significant capacity additions by the private
sector, which has seen their share in the total installed capacity rise to 32 per cent in 2016-17
from 19 per cent in 2011-12.
Of the conventional energy sources, coal continues to garner a share of around 84 per cent as fuel
for energy generation over the last five years, as it is the most widely available and cheapest
source of fuel. The share of hydro based capacities was 11 per cent in 2016-17 from 15 per cent
in 2011-12, primarily owing to slow growth in capacity additions due to land acquisition issues.
Fig 28: Segment-Wise Electricity Consumption [Source: CRISIL]
Fig 29: Fuel-Wise Electricity Consumption [Source: CRISIL]

Average thermal PLF has continuously fallen since 2011-12 when it was around 73.3 per cent to
59.9 per cent in 2016-17. Although over the years the primary reason for this drop was the
domestic coal production which did not keep pace with the coal based capacity additions which
led to coal shortage and consequently the decline. However, over the past two years despite the
situation improving in coal production the decline in PLF still persisted. Thus the reason can be
attributed to low demand by state DISCOMs reeling under debt and losses. Further, the rising
share in installed capacity by renewables which saw their share in total installed capacity rising
to about 18 per cent from about 12 per cent in 2011-12 has also impacted the thermal PLF.
Moreover, constraints in gas availability on account of decline in KG - D6 production has

resulted in sharp decline in gas based generation. As a result, gas based PLFs have declined to
~23 per cent in 2016-17 from ~60 per cent in 2011-12.
Fig. 30: Average PLF of Thermal Power Plant [Source: CEA]
Levelized Cost of Electricity by Source (LCOE)
The levelized cost of electricity (LCOE), also known as Levelized Energy Cost (LEC), is the net
present value of the unit-cost of electricity over the lifetime of a generating asset.
LCOE = (Total Life Cycle Cost)/(Total Life Time Energy Production) (in Rs./KWh)
This concept used to compare the relative cost of energy produced by different energy-
generating sources regardless of the project scale or operating time frame. It also used to
compare the cost of energy from new sources to the cost of energy from existing sources. Apart

from that, it used to determine performance or cost benchmarks that would need to be met in
order for technology to be competitive and adopted in the market. It can be used to identify areas
where cost-savings research could be most valuable.
Simple LCOE Concept
Fig 31(i): Simplified LCOE Calculation
Fig 31(ii): Simplified LCOE calculations

3.4.1 Ultra-Mega Power Projects (UMPPs)
For meeting the growing needs of the economy, generation capacity is to double itself in every
ten years in next three decades at least. As such there is need to develop large capacity projects at
the national level to meet the requirement of different States. Development of Ultra Mega Power
Projects (UMPPs) is one step in that direction. These are very large sized projects, approximately
4000 MW each involving an estimated investment of about 25,000 crores. The projects will
substantially reduce power shortages in the country. The Central Government has accordingly
taken the initiative for facilitating the development of a few Ultra Mega Power Projects of about
4,000 MW capacity each under tariff based competitive bidding route using super critical
technology on build, own and operate basis.
These projects will meet the power needs of a number of States/ distribution companies located
in these States, and are being developed on Design, Build, Finance, Operate and Transfer
(DBFOT) basis. In view of the fact that promotion of competition is one of the key objectives of
the Electricity Act, 2003, and of the legal provisions regarding procurement of electricity by
distribution companies, identification of the project developer for these projects is being done on
the basis of tariff based competitive bidding.
Salient features of the Plant and Choice of Technology
• The Ultra Mega Power Projects would use Super Critical Technology with a view to achieve
higher levels of fuel efficiency, which results in fuel saving and lower greenhouse gas emissions.
• Flexibility in unit size subject to adoption of specified minimum Supercritical parameters.
• Integrated power project with dedicated captive coal blocks for pithead projects.
• Coastal projects to use imported coal.
The Bidding Process
For these projects, as per the provisions of the competitive bidding guidelines, a two stage
selection process has been adopted. The first stage of bidding involves Request for Qualification
(RfQ) containing qualifying criteria for selection of bidders. The RfQ documents submitted by
the bidders are evaluated to identify those bidders who will be eligible to participate in the
second stage of the process. The second stage of the bidding process invites Request for
Proposals (RfP) from the bidders so qualified. After evaluation of the RfP documents, the
successful bidder is identified on the basis of the lowest levelized tariff.

Selection of Sites for Setting up of UMPPs
Originally nine such projects had been identified to be taken up, 4 at pithead and 5 at coastal
locations. Later few more sites were identified at the requests of various State Governments.
CEA and PFC examine the suitability of location in consultation with the sates for such projects.
Role of the Ministry of Power
The Ministry of Power is playing a crucial role for the development of the UMPPs by
coordinating between various concerned Ministries/Agencies of the Central Government, and
with various State Governments/Agencies. Some of the key areas requiring the Ministry of
Power’s intervention include
▪ Coordination with Central Ministries/Agencies for ensuring:
▪ Coal block allotment/coal linkage
▪ Environment/forest clearances
▪ Water linkage
▪ Required support from State Governments and their agencies.
▪ Working out allocation of power to different States from UMPPs in consultation with the
States.
▪ Facilitating PPA and proper payment security mechanism with State Governments/State
Utilities.
▪ Monitoring the progress of Shell companies with respect to predetermined timelines.
Concept of Special Purpose Vehicles (SPVs)
As mentioned above, competitive bidding guidelines have been issued under the Electricity Act
for procurement of power by distribution licensees. These guidelines permit the procurement of
electricity by more than one distribution licensee (also known as a procurer) through a combined
bid process, and in such a case the procurers shall have the option to conduct the bid process
through an authorized representative. The concept of “Authorized Representative” forms part of
the standard bidding documents (issued under the competitive bidding guidelines) and the
authorized representative is defined as the corporate body authorized by the procurers to carry
out the bid process for the selection of the successful bidder on their behalf.
Accordingly, PFC – the nodal agency for the development of these projects –sets up separate
Special Purpose Vehicles (SPVs) for each UMPPs to act as authorized representatives of the

procurers (distribution companies of the power procuring States). These SPVs are 100% owned
subsidiaries of the PFC.
The Boards of the SPVs are chaired by a Director of the PFC; their other members are officials
of the PFC, and representatives of the distribution companies of the major power procuring
States who are inducted on the Boards at the appropriate stage. On completion of the entire
process for selection of the project developer, the SPVs are to be transferred to the selected
bidders i.e. to the selected project developers.
Role of SPVs
The SPVs are responsible for carrying out various activities on behalf of the procurers.
Completion of these activities prior to award of the project is considered necessary to enhance
the investor’s confidence, reduce risk perception and get a good response to the competitive
bidding process. Some of the main activities undertaken by the SPVs are: -
▪ Appointment of Consultants to undertake preparation of Project Report, preparation of

Rapid Environment Impact Assessment Report etc.
▪ Appointment of Consultants for International Competitive Bidding (ICB), document

preparation & evaluation
▪ To carry out bidding process and award of project
▪ Initiation of land acquisition process for the project
▪ Allocation of Coal blocks for pit-head projects
▪ Getting clearance regarding allocation of water by the State Govt. for pithead locations
▪ Approval for use of sea water from Maritime Board/ other Govt. Agencies for coastal
locations
▪ Obtain clearance from the State Pollution Control Board, initiate forest clearance etc. as
are required for the project and for the coal mines, followed by environment and forest
clearances from the Central Government.
▪ Obtaining geological reports/ other related data from CMPDI for the coal blocks.
▪ Tie up the off-take/ sale of power
Role of States
States hosting the UMPPs and the other power procuring States are playing a proactive role. In
particular, some of the activities in which the concerned States play a decisive role include
implementation of the Rehabilitation & Resettlement Plan, provide authorization to the PFC/SPV
to carry out the bidding process on behalf of the distribution utilities, participate through its
representatives in various committees set up for undertaking the competitive bidding process,
facilitate signing of the Power Purchase Agreement, ensure proper payment security mechanism
with the distribution utilities etc.
Fig 32: UMPPs Awarded and Other UMPPs Identified, Source: PFC India
3.4.2 Jawaharlal Nehru National Solar Mission (JNNSM):
The Jawaharlal Nehru National Solar Mission was launched on the 11th January, 2010 by our
Prime Minister, Dr. Manmohan Singh. The Mission has set the ambitious target of deploying
20,000 MW of grid connected solar power by 2022 and aims at reducing the cost of solar power
generation in the country through (i) long term policy; (ii) large scale deployment goals; (iii)
aggressive R&D; and (iv) domestic production of critical raw materials, components and
products. It has been envisaged to achieve grid tariff parity by 2022. Revision of cumulative
targets under National Solar Mission from 20,000 MW by 2021-22 to 1,00,000 MW

The total investment in setting up 100 GW will be around Rs 6,00,000 cr. In the first phase, the
Government of India is providing Rs 15,050 crore as capital subsidy to promote solar capacity
addition in the country. This capital subsidy will be provided for Rooftop Solar projects in
various cities and towns, for Viability Gap Funding (VGF) based projects to be developed
through the Solar Energy Corporation of India (SECI) and for decentralized generation through
small solar projects. The Ministry of New and Renewable Energy (MNRE) intends to achieve
the target of 1,00,000 MW with targets under the three schemes of 19,200 MW.
Apart from this, solar power projects with investment of about Rs 90,000 crore would be
developed using Bundling mechanism with thermal power. Further investment will come from
large Public-Sector Undertakings and Independent Power Producers (IPPs). State Governments
have also come out with State specific solar policies to promote solar capacity addition.
Scaling up of Grid Connected Solar Power Projects from 20,000 MW by the year 2021-22, to
1,00,000 MW by the year 2021-22 under National Solar Mission.
Solar Energy Corporation of India Limited (SECI)
"Solar Energy Corporation of India ltd" (SECI) is a CPSU under the administrative control of the
Ministry of New and Renewable Energy (MNRE), set up on 20th Sept, 2011 to facilitate the
implementation of JNNSM and achievement of targets set therein. It is the only CPSU dedicated
to the solar energy sector. It was originally incorporated as a section-25 (not for profit) company
under the Companies Act, 1956.
However, through a Government of India decision, the company has recently been converted
into a Section-3 company under the Companies Act, 2013. The mandate of the company has also
been broadened to cover the entire renewable energy domain.
In the present outlook of the RE sector, especially solar energy, SECI has a major role to play in
the sector’s development. The company is responsible for implementation of a number of
schemes of MNRE, major ones being the VGF schemes for large-scale grid-connected projects
under JNNSM, solar park scheme and grid-connected solar rooftop scheme, along with a host of
other specialised schemes such as defence scheme, canal-top scheme, Indo-Pak border scheme
etc. In addition, SECI has ventured into solar project development on turnkey basis for several
PSUs. The company also has a power trading license and is active in this domain through trading
of solar power from projects set up under the schemes being implemented by it.
Solarization of Ports
The Ministry of Shipping (MoS) has undertaken an initiative to implement utility-scale Solar
Photovoltaic Power Plant projects at various major ports across the country. The Solar Energy
Corporation of India (SECI) has been appointed as the overall project management consultant for
these projects. An MoU has been signed in this regard between SECI and the Indian Ports

Association (IPA), on behalf of the individual port trusts, to implement the solar energy projects.
As part of this activity, installation of grid connected solar power plants in the following ports is
underway. In addition, installation of rooftop solar power projects at various ports is also
undertaken and the related processes has been started.
1. Visakhapatnam Port Trust, Visakhapatnam, Andhra Pradesh
2. Paradip Port Trust, Paradip, Odisha
3. Kolkata Port Trust, Kolkata and Haldia, West Bengal
4. Kamarajar Port Ltd., Chennai, Tamil Nadu
5. V. O. Chidambaranar Port Trust, Tuticorin, Tamil Nadu
6. New Mangalore Port Trust, Mangaluru, Karnataka
7. Jawaharlal Nehru Port Trust, Navi Mumbai, Maharashtra
Solar Parks
Ministry of New and renewable Energy (MNRE) has drawn a scheme to set up number of solar
parks across various states in the country, each with a capacity of Solar Projects generally above
500 MW. The Scheme proposes to provide financial support by Government of India to establish
solar parks with an aim to facilitate creation of infrastructure necessary for setting up new solar
power projects in terms of allocation of land, transmission and evacuation lines, access roads,
availability of water and others, in a focused manner.
Solar Energy Corporation of India (SECI), a central public-sector enterprise under MNRE, has
been implementing various schemes to develop solar sector in the country. As per the policy,
these solar parks will be developed in collaboration with the State Governments. The
implementation agency would be Solar Energy Corporation of India (SECI) on behalf of
Government of India (GOI). SECI will handle funds to be made available under the scheme on
behalf of GOI. The states shall designate a nodal agency for implementation of the solar park.
The Solar Park is a concentrated zone of development of solar power generation projects. As part
of Solar park development, land required for development of Solar Power Projects with
cumulative capacity generally 500 MW and above will be identified and acquired and various
infrastructure like transmission system, water, road connectivity and communication network
etc. will be developed. The parks will be characterized by well-developed proper infra-structure
where the risk & gestation period of the projects will be minimized. At the state level, the solar
park will enable the states to bring in significant investment from project developers in Solar
Power sector, to meet its Solar Purchase Obligation (SPO) mandates and provide employment

opportunities to local population. The state will also be able to reduce its carbon footprint by
avoiding emissions equivalent to the solar park’s generated capacity.
3.5 Transmission
The transmission segment plays a key role in transmitting power continuously to various
distribution entities across the country. Further, the transmission sector needs concomitant
capacity additions in line with the generation capacity additions to enable seamless flow of
power.
The government's focus on providing electricity to rural areas has led to the power T&D system
being extended to remote villages. The total length of transmission lines in the country has
increased from 257,481 circuit kilometers (ckm) in 2011-12 to around 367,851 ckm in 2016-17.
Fig. 33: Power Transmission Lines in India (in cKm) (220KV and Above)
Fig. 34: Addition in Transmission Line Capacity

Fig 35: Addition in Power Substations
There has been a strong growth in the transmission system at higher voltage levels and substation
capacities. This is as a result of increased requirement of the transmission network to carry bulk
power over longer distances and at the same time optimize right of way, minimize losses and
improve grid reliability.
In 2013, As regional grids inter-connected to make one national grid, the power deficit in various
regions started decreases.
3.6 Distribution:
Fig 36: AT & C Losses [Source: CEA]
Major DISCOMs are in loss right now and government came with new policies to take them out
of stress such as UDAY.Major reasons for DISCOMs loss are
▪ Irregular tariff hikes

▪ High AT & C losses
▪ Delay in subsidy payments by respective state governments
AT & C losses of distribution system decreased in 2016-17 due to government intervention.
Fig 37: Cost and Tariff data for DISCOMs
3.6.1 UDAY (Ujwal DISCOM Assurance Yojana)
Union Cabinet has approved a scheme “UDAY”(Ujwal DISCOM Assurance Yojna) for
turnaround of financially distressed DISCOM which helps resolve problem of aggravating SEB
debt. Effective implementation of the “UDAY” scheme is based on the 4 pillars of a) Reduction
in cost of power, b)Improving operational efficiency to reduce AT&C losses, c) Reducing
interest cost of DISCOMs and, d) Enforcing financial discipline through alignment with states.
Proposal to transfer 75% of DISCOM liabilities to states
▪ DISCOMs total debt of as on 31 March 2015 and 30 Sept 2015 was INR4.3tnand
INR4.8tn. Under the optional scheme “UDAY”, States shall take over 75% of DISCOM
debt as on 1HFY16 over two years - 50% in FY16 and 25% in FY17.Remaining 25% of
DISCOM debt can be funded by state guaranteed DISCOM bonds/loans at the prevailing
market rates which shall be equal to or less than bank base rate plus 0.1%. This can bring
down the cost of debt from as high as14-15% to 8-9%.
▪ State government Bonds will have non SLR status and will be priced at 10year G-
Sec+50bp+premium for non SLR status. Thus, it works out to be 8.25-8.5%

▪ Incremental future losses post FY17 will be taken over by states(5%/10%/25%/50% in

FY18/19/20/21respectively)
▪ States will issue non-SLR (including SDL) bonds, which will not be counted in the
states’ fiscal deficit for FY16 and FY17.
Focus on reducing AT&C losses and bridge the gap between ARR and ACS by FY19
▪ DISCOMs will be required to reduce the average AT&C loss from around 22% to15%
and eliminate the gap between Average Revenue Realized (ARR) & Average Cost of
Supply (ACS) by FY19.
▪ Improving operational efficiencies through compulsory smart metering (for 500+kwh

user), up-gradation of transformers, meters etc., energy efficiency measures like efficient
LED bulbs, agricultural pumps, fans & air-conditioners etc.
▪ In order to reduce the gap between ARR and ACS focus is on reduction of cost of power
by a) lower fuel cost b) Reduction in interest cost of DISCOMs (state government
guarantee and transfer of debt to reduce financial burden substantially).
Carrots: to get states on board
▪ States accepting UDAY and performing operational milestones will be given additional
funding under DDUGJY, IPDS, PSDF etc to strengthen the grid and distribution network.
▪ Govt of India (GoI) will support states with additional low cost coal from COAL and
power from NTPC etc.
▪ Increased supply of cheaper domestic coal, coal linkage rationalization, liberal coal
swaps from inefficient to efficient plants, coal price rationalization based on GCV, supply
of washed and crushed coal, and faster completion of transmission lines.
▪ NTPC alone is expected to save INR0.35 /kwh through higher supply of domestic coal
and rationalization/swapping of coal which will be passed on to DISCOMs / consumers.
Sticks: Closing the funding tap
▪ While the press release is silent about the additional loss funding to DISCOMs by banks;
Power minister in his media briefing indicated about advising banks to not fund
DISCOM losses and be prudent in lending. Majority of the SEB losses are funded
through state owned banks and entities.
▪ Non-performance will result in forfeiting of benefits under DDUGJY (INR756b) and

IPDS (INR326b).

Fig 38: Total Debt of DISCOMs over 2011-15
POWF/RECL to be negatively impacted; sustainable ROEs to come down
▪ With the expected improvement in DISCOM health, yield on loans are expected to
decline sharply. Further, as per CRISIL, DISCOM debt of these entities contributes
~30% of combined debt (INR1.4tr). Of the combined debt we assume 50% is for project
related/Capex purposes and of the rest given as a transitional finance/funding for cash
losses. Our back of the envelope calculation suggest that overall spreads are likely to
decline by ~70bps (assuming conversion to bonds and rest of the loans spreads to decline
to ~2%). Currently RECL/POWF are making a spread of ~3.7% which in our view can
come down to ~2.6% and NIMs can come
▪ Down to ~4% from ~5.2% on a sustainable basis (assuming 20% private loans with a
spread of ~3%). ROAs are likely to decline to ~2.3% and with a leverage of 7x ROEs can
be ~16% (down from ~20% currently).
Impact on Power Sector
NTPC and PGCIL key beneficiaries
▪ We believe that key reasons behind poor financials of DISCOMS is both high ACS, low
ARR (function of tariff, AT&C loss etc.) and debt due to accumulated financial losses.
▪ UDAY has laid down clear path for de-stressing balance sheet of DISCOMs. But, this
will not be enough to bridge the gap (ARR-ACS) for DISCOMs in Rajasthan, Tamil
Nadu, UP and MP among the larger states as evident from following exhibit.

▪ Success of UDAY lies in willingness on the part of States to reform. UDAY has right
combination of carrots and sticks.
▪ There is very little headroom to increase tariffs for high paying consumers without losing
them. As the banks stop lending further to fund losses, DISCOMs and States will be
compelled to improve ARR by reducing AT&C losses. States may find it difficult to
avoid benefits under DDUGJY and IPDS. There is very high probability that states are
likely to find themselves pushed into corner to accept UDAY.
NTPC and PWGR are likely beneficiary
If States do accept UDAY, we are likely to see efficient Gencos like NTPC (better PLF),
Transco’s like PWGR (more investment in long distance transmission lines bet” low cost fuel
and demand centers) and low cost coal supplier like COAL (Coal India) benefiting gradually.
Price rationalization based on GCV will ultimately benefit COAL as it will narrow the gap
between low grade and high-grade coal. Also, COAL will have to rationalize production between
low cost and high cost mining because inefficient subsidiaries/mines will report losses.
Among the private players, we expect pit head power plants e.g. Jindal power are better placed
and will be able to tie up their open capacities ahead of others.
Distribution sector losses bane for the sector:
High and non -sustainable distribution sector loses have been the primary reason behind subdued
demand for power from DISCOMs. This in turn has negatively affected capex plans of
generation, transmission and distribution utilities and in turn impacted demand for the entire
value chain of companies in the equipment supply/EPC in the Power generation and T&D sector.
A successful implementation of the ‘UDAY”’ program which intends to eliminate DISCOMs
losses by FY19 would help revive demand for the entire value chain. However, given the over-
capacity in generation and poor financial health of private IPP’s, we expect an improvement in
orders for power generation equipment suppliers to happen over the medium term.
Negative for Diesel Generator set suppliers:
A meaningful reduction in AT&C losses and an improvement in power supply would be a

negative for Diesel generator set suppliers as power deficits drop in the true sense – currently
deficits are low since SEB’s resort to power cuts as they lack funds to buy power and also restrict
supplies to areas where the cost recovery is low. Once AT&C losses reduced, the improved
reliability of power supply would result in a drop in diesel generator demand which is a medium-
term negative for players like Cummins India, Kirloskar Oil Engines.
3.6.2 IPDS (Integrated Power Development Scheme)

The “Integrated Power Development Scheme” (IPDS) was launched by Ministry of Power,
Government of India with the objectives of:
1. Strengthening of sub-transmission and distribution network in the urban areas;
2. Metering of distribution transformers /feeders / consumers in the urban areas.
3. IT enablement of distribution sector and strengthening of distribution network as per CCEA

approval dated 21.06.2013 for completion of targets laid down under Restructured
Accelerated Power Development and Reforms Program (R-APDRP) for 12th and 13th Plans
by carrying forward the approved outlay for R-APDRP to IPDS.
The scheme will help in reduction in AT&C losses; establishment of IT enabled energy
accounting / auditing system, improvement in billed energy based on metered consumption and
improvement in collection efficiency.
The estimated cost of the scheme with the components of strengthening of sub-transmission and
distribution networks, including metering of consumers in the urban areas is Rs. 32,612 crore
which includes the requirement of budgetary support from Government of India of Rs. 25,354
crore over the entire implementation period.
The component of IT enablement of distribution sector and strengthening of distribution network

approved by CCEA in June, 2013 in the form of R-APDRP for 12th and 13th Plans will get
subsumed in this scheme and CCEA-approved scheme outlay of Rs.44, 011 crore including a
budgetary support of Rs. 22,727 crore will be carried over to the scheme of IPDS.
The projects will be sanctioned by the IPDS Monitoring Committee. After sanction of projects,
contracts for execution of projects are to be awarded by States DISCOMs / Power Departments.
The projects are to be completed within 24 months from date of award.
Power Finance Corporation Limited (PFC) has been designated as the Nodal Agency for
operationalization and implementation of the scheme under the overall guidance of MoP. The
role of the Nodal agency is as below:
▪ Notify all the guidelines, formats, advisories, Best Practices required for implementation
of the project from time to time.
▪ Appraise the DPRs before putting up to the Monitoring Committee.
▪ Coordinate with the main stakeholders such as MoP, Monitoring Committee, Central
Electricity Authority, Utilities and consultants, if any
▪ Develop a dedicated web portal for submission of DPRs and for maintaining the MIS of
the projects

▪ Monitor physical and financial progress of the projects including quality of works.
▪ Nodal agency shall operate a separate Bank account (IPDS Account) for release of funds
by Ministry of Power and for onward release to the beneficiary Utilities /State
Governments.
▪ Administer the Grant Component.
▪ Nodal agency shall deploy Third Party services of outside agencies/manpower for
concurrent evaluation of project implementation.
Fig 39: IPDS Scheme Development Status [source: IPDS website]
3.6.3 DDUGJY (Dindayal Upadhyay Gram Jyoti Yojana)
It is one of the many rural development schemes started by the central government of India.
Under this scheme government will provide 24*7 power or electricity to the rural areas. It can be
called extension of Rajiv Gandhi Grameen vidhyutikaran yojana.
Government decided to electrify 597,464 villages out of which 594,253(99.4%) villages have
been electrified.
Major Components:
▪ Feeder Separation
▪ Strengthening of sub-transmission and distribution network
▪ Metering at all levels i.e. input points, feeders and distribution transformers.

▪ Micro grid and off-grid distribution network
▪ Rural electrification
Main Features:
▪ Agriculture feeder separation: Government will separate all technical infrastructure

associated with the agriculture consumers. It will make the non-agriculture components
independent and will have better electrification facilities. Efficient rural electrification under
DDUGJY can only be obtained via proper measures of feeder segregation because cutting
off of agriculture power supply will not result to cutting off of power supplies to home,
schools, commercial buildings etc. Hence, households will get ample amount of power
supply, even if agriculture power supply is interrupted.
▪ Modernisation of sub-transmission techniques: Sub-transmission is a very vital technique

which is implemented in power transmission system. The sub-transmission is a low voltage
power transmitting technique which is use because main transmission systems carry higher
voltages and it is not efficient to transmit it. Hence, sub-transmission system is used to
convey the power supply onto the semi-rural and rural areas. This scheme aims to regroup
and strengthen the sub-transmission system in a country so that, less loops in the power
transmission system can be obtained, resulting in efficient electrification of areas.
▪ Improving distribution network: Government want to improve distribution system across

the country under this scheme. A major chunk of the corpus allocation of DDUGJY will go
for financially strengthening the distribution network to achieve high electrification of both
rural and urban areas.
▪ Metering Consumers: Government will be metering all the consumers throughout the nation.
This will not only bring transparency but also will save government for further incurring
huge losses due to illegal power and electricity consumption. The commercial viability of
electrification of entire nation will be done through metering processes. All categories of
consumers must have metered power supply under the DDUGJY scheme.
Financial Provision:
The scheme will fetch Rs. 76000 Cr. For the implementation. Rs. 63000 Cr. Among this hefty
amount will be paid by central government as a grant. As of now, 14680 Cr. Has already been
approved by the central authority.
Benefits of Dindayal Upadhyay Gram Jyoti Yojana:
▪ After the full implementation of DDUGJY, the rural households will have uninterrupted
power supply. The rural consumers, specially the domestic households suffered frequent
load shedding, which can be stopped.

▪ This will imorove he services related to education, industrialisation, health, transportation

, banking etc.
▪ Apart from this, the feeder separation will also be achieved through the scheme.
▪ Metering of consumers will help proper fund utilization and brig transperancy.
▪ Sufficient electricity will bring up the amount of annual agriculture production. This will
lead to more business opportunities in the rural areas and more employment generation in
the grass root level.
▪ Schools, hospitals, health care centres and other commercial organisation will get
electricity under the scheme. This will enhance the education system, health care system,
banking and other commercial activities in the rural areas.
▪ Communication such as telephone, internet, radio, television and mobile phones will also
be accessible in rural areas. With this scheme, communication with parts of nation will be
easy for many.
▪ Along with social security, many other parts of rural areas will be developed with
implementation of this scheme. If major parts of the nation get sufficient power the
scenario of agriculture production will be more developed.
Rural Electrification Corporation Ltd is working as a nodal agency.
Role of REC is as below.
▪ Rural Electrification Corporation Limited (REC) shall be the Nodal Agency for
operationalization and implementation of the scheme under the overall guidance of MoP.
The Nodal Agency will be paid 0.5% of the project cost approved by Monitoring
Committee or award cost, whichever is lower, as their fee. The role of the Nodal agency
is as below:
▪ Notify all the guidelines and formats required for implementation of the project from
time to time.
▪ Appraise the DPRs before putting up to the Monitoring Committee.
▪ Conduct all works relating to holding of the Monitoring Committee meetings for
approvals.
▪ Administer the Grant Component.
▪ Develop a dedicated web portal for submission of DPRs and for maintaining the MIS of
the projects.

▪ Monitor physical and financial progress of the projects including quality of works.
▪ Nodal agency shall deploy Third Party services of outside agencies/manpower for
concurrent evaluation of project implementation.
3.6.4 Smart Grid:
The Smart Grid represents an unprecedented opportunity to move the energy industry into a new
era of reliability, availability, and efficiency that will contribute to our economic and
environmental health. During the transition period, it will be critical to carry out testing,
technology improvements, consumer education, development of standards and regulations, and
information sharing between projects to ensure that the benefits we envision from the Smart Grid
become a reality.
To better understand smart grids, we can look at the features:
▪ Fully automated power delivery network for monitors and controls electricity flows
▪ Two-way flows of electricity and information between the power plant and the point
consumption
▪ Lowered carbon footprint and reduced emissions; increased access to renewable energy
resources
▪ Use of digital technology to save energy, reduce cost and increase reliability
▪ Improved power quality as per the need of 21st century economy
▪ Reduced disruptions, improved efficiency and better asset utilization.
The benefits associated with the Smart Grid include:
▪ More efficient transmission of electricity
▪ Quicker restoration of electricity after power disturbances
▪ Reduced operations and management costs for utilities, and ultimately lower power costs
for consumers
▪ Reduced peak demand, which will also help lower electricity rates
▪ Increased integration of large-scale renewable energy systems
▪ Better integration of customer-owner power generation systems, including renewable

energy systems
▪ Improved security
Today, an electricity disruption such as a blackout can have a domino effect—a series of failures
that can affect banking, communications, traffic, and security. This is a particular threat in the
winter, when homeowners can be left without heat. A smarter grid will add resiliency to our
electric power System and make it better prepared to address emergencies such as severe storms,
earthquakes, large solar flares, and terrorist attacks. Because of its two-way interactive capacity,
the Smart Grid will allow for automatic rerouting when equipment fails or outages occur. This
will minimize outages and minimize the effects when they do happen. When a power outage
occurs, Smart Grid technologies will detect and isolate the outages, containing them before they
become large-scale blackouts. The new technologies will also help ensure that electricity
recovery resumes quickly and strategically after an emergency—routing electricity to emergency
services first, for example. In addition, the Smart Grid will take greater advantage of customer-
owned power generators to produce power when it is not available from utilities. By combining
these "distributed generation" resources, a community could keep its health centre, police
department, traffic lights, phone System, and grocery store operating during emergencies. In
addition, the Smart Grid is a way to address an aging energy infrastructure that needs to be
upgraded or replaced. It’s a way to address energy efficiency, to bring increased awareness to
consumers about the connection between electricity use and the environment. And it’s a way to
bring increased national security to our energy System—drawing on greater amounts of home-
grown electricity that is more resistant to natural disasters and attack.
3.6.4.1 National Smart Grid Mission
National Smart Grid Mission (NSGM) was established in the Indian Power sector to plan and
monitor the implementation of policies and programs related to Smart Grid activities in India.
It’s an institutional mechanism for planning, monitoring and implementation of policies and
programs related to Smart Grid activities. NSGM is housed under Ministry of Power (MoP)
considering the fact that most of the prominent stakeholders (DISCOMS. Regulators, Electrical
manufactures, Central Electricity Authority etc.) for Smart Grid are associated with MoP. Other
concerned Ministries like Ministry of New and Renewable Energy (MNRE), Ministry of Urban
Development (MoUD) and Ministry of Heavy Industry (MoHl) are also associated with the
Mission.
Objective of NSGM
National Smart Grid Mission was launched with an objective to address key issues of Smart Grid
Initiatives on a large scale in the country and to make the Indian Power infrastructure cost
effective, responsive and reliable. A 20-year perspective Plan for integrated inter-regional, inter-
state and intra-state transmission network for the country as whole has been formulated. This
will be a crucial backbone for the vision of 24x7 power for all homes in India.

Organisational Structure of NSGM:
NSGM consists of a 3-tier structure:
• At the apex level, NSGM is having a Governing Council headed by the Minister of
Power. The Governing Council have necessary functional and financial autonomy within
the overall budgetary allocation for meeting its objective of rolling out Smart
Grid operations in different parts of the country.
• At the second level, the NSGM has an Empowered Committee headed by Secretary
(Power). This level is responsible for the necessary budgetary and project approvals and
the recruitment of consultants related to the projects.
• There is a NSGM Technical Committee headed by Chairperson (CEA) which assumes a

supporting role. Technical Committee supports the Empowered Committee on technical
side and is responsible for on ground technology selection, standards development and
technical review of various projects, activities and documents.
3.6.5 Micro Grids:
A microgrid is a discrete energy system consisting of distributed energy sources (including

demand management, storage, and generation) and loads capable of operating in parallel with, or
independently from, the main power grid. The primary purpose is to ensure local, reliable, and
affordable energy security for urban and rural communities, while also providing solutions for
commercial, industrial, and federal government consumers. Benefits that extend to utilities and
the community at large include lowering greenhouse gas (GHG) emissions and lowering stress
on the transmission and distribution system.
In many respects, microgrids are smaller versions of the traditional power grid. Like current
electrical grids, they consist of power generation, distribution, and controls such as voltage
regulation and switch gears. However, microgrids differ from traditional electrical grids by
providing a closer proximity between power generation and power use, resulting in efficiency
increases and transmission reductions. Microgrids also integrate with renewable energy sources
such as solar, wind power, small hydro, geothermal, waste-to-energy, and combined heat and
power (CHP) systems.
Microgrids perform dynamic control over energy sources, enabling autonomous and automatic
self-healing operations. During normal or peak usage, or at times of the primary power grid
failure, a microgrid can operate independently of the larger grid and isolate it’s generation nodes
and power loads from disturbance without affecting the larger grid's integrity. Microgrids
interoperate with existing power systems, information systems, and network infrastructure, and
are capable of feeding power back to the larger grid during times of grid failure or power
outages.

Microgrid Benefits:
▪ Provides power quality, reliability, and security for end users and operators of the grid
▪ Enhances the integration of distributed and renewable energy sources
▪ Cost competitive and efficient
▪ Enables smart grid technology integration
▪ Locally controlled power quality
▪ Minimize carbon footprint and green-house gas emissions by maximizing clean local
energy generation
▪ Increased customer (end-use) participation
3.7 Impact Analysis:

3.7.1 Union Budget 2017-18
▪ Higher outlay toward rural electrification is expected to increase rural power demand and
lower distribution losses. This, in turn, would benefit the power generation segment.
▪ Higher budgetary allocation for renewable energy will also facilitate higher capacity
additions in the segment through higher disbursement under various viability gap funding
schemes and other central financial assistance. However, no extension of generation-
based incentive (Rs 0.5/unit) beyond March 2017 is expected to impact wind power
capacity additions adversely.
▪ The 10-year tax holiday will not be available beyond March 31, 2017 as it was not
extended. This could adversely impact private sector projects (5-6 GW in power
generation and 24 competitively bid inter-state transmission projects), which are expected
to be commissioned by FY20. In the absence of this extension, equity IRRs would be
lower if such projects have not considered this scenario in their competitive bids.
▪ Significant rise in allocation under M-SIPS scheme and EDF, which provides capital
subsidy of up to 25%, is expected to benefit major domestic solar cell and module
manufacturers, as well as foreign players planning to set up their manufacturing base in
India.
▪ While BCD on LNG has been reduced, it will not benefit the power sector as the duty is
waived off completely under the ‘scheme for utilisation of stranded gas based generation
capacity’. However, continuation of the scheme beyond March 31, 2017, would be a key
monitorable.

▪ Despite Government’s thrust on development of Hydro and Nuclear energy, there was no
provision/ announcement related to these segments in the budget.
Compensatory Tariff – SC Order
▪ Supreme Court (SC) clarifies that the ‘change in law’ clause can be applicable only to the
‘Indian’ laws and compensatory tariff cannot be granted on the basis of any changes in
international laws
▪ The judgement will have negative implications for the financials of Tata Power and
Adani Power as it will lead to a cumulative under-recovery of Rs 30 billion and Rs 36
billion respectively between 2014-16
▪ However, Adani Power could get some benefit, albeit marginal, on account of a shortfall
in domestic coal, due to the change in domestic coal policy in July 2013
▪ Also, the SC order puts restrictions on the regulatory powers of the commission to alter
the tariffs realized through competitive bidding. It has clarified that such powers can be
used only in a situation where no guidelines are framed or where the guidelines do not
deal with a given situation
▪ CRISIL Research believes the SC order would set a precedent for generation plants (like
Adani Power's Kawai and Tiroda projects) stranded / using imported coal due to non-
availability of domestic coal
4 Overall Sector Performance

2016 is seems to be good for Indian Power Sector. All the policy initiatives taken by the
government in the year 2014 and 2015 have been seen implemented in this year. Performance of
power sector on its different front is given below.
Record Installed Generation Capacity addition:
In the year 2016-17, approximately 26GWof generation capacity has been added in the country
and the total installed capacity has crossed the mark of 300 GW in 2016. While coal accounts for
approximately 60% of this capacity addition, renewables accounts for almost 35% of the same
which is highest for any calendar year and accounts for almost 23% of the total renewable power
installed in the country. This indicates the emphasize given to the renewable energy, primarily
solar and wind energy, by the present government and it is showing results on ground.
One of the highest transmission capacity addition:
Around 71000 MVAof substation capacity has been added in the FY 2016-17 which is highest
for any calendar year. This indicates the pace at which transmission network strengthening

activity is happening in the country. On the transmission line front, capacity addition has slightly
dipped in 2016. Capacity addition was 25,700 Circuit Kilometer in the last eleven months while
it was 29,466 CKm in 2015 and 22,282 CKm in 2014.
Distribution reforms underway – Lowest peak power deficit ever
For the first time in the Indian power sector’s history, energy deficit has fallen below the 1 per
cent mark which is a significant achievement. The deficit was 1.9 per cent in January 2016 and
has reduced to 0.6 per cent in October 2016. Between January 2016 and October 2016, energy
requirement was 962.1 Billion Units while availability was 952.5 BU – a deficit of around 1 per
cent which is the lowest ever energy deficit in the country. On the peak deficit front, for 2016,
peak demand recorded at 159,500 Mw during September 2016 and peak deficit in that month
was 1.6 per cent which is also the lowest for any calendar year. Consistent generation capacity
addition and almost a flat growth in power demand has helped this cause.
UDAY – yet to see the full impact of it on Distribution Utilities
The Ujwal Discom Assurance Yojana (UDAY) has been one of the most talked about schemes
related to the Indian power sector. The scheme has been designed in such a way so as to strike at
the heart of the issues bugging the whole sector – the inefficient operation of the power
distribution companies. As per the report from the ministry, of the 27 states which are part of the
scheme, at least eight have a lower gap between their average cost of electricity supply and
average cost of realisation and about 12 states have reduced their Aggregate Technocal &
Commercial (AT&C) loss levels. If successfully implemented, this policy can permanently solve
the long-standing issues of the distribution sector and revive energy demand of the country.
‘Power for All’ and 100 per cent Rural Electrification – going on full throttle and may
achieve targets sooner
Under Deen Dayal Upadhyay Gram Jyoti Yojana’s (DDUGJY) rural electrification package,
measures were taken up in mission mode starting August 2015 with a target to electrify un-
electrified villages of the country by May 2018, to fit into the grander plans of providing ’24×7
Power for All’ by 2019. As per GARV dashboard, of the 18,452 villages to be electrified,
electrification has already been done for 14,313 villages. Electrification needs to be carried out in
3,152 villages and the remaining 987 villages are uninhabited.Other than the above mentioned
mega policies, few other policies like New Tariff Policy, Wind Re-powering policy, Wind Solar
Hybrid Policy etc. were announced in 2016 which is going to help the sector in coming years.
Never seen before Transparency in the Power Sector
Every aspect of the power sector performance is now mostly available on a tap on a mobile
phone through various apps being developed by the Ministry. This is a far improved scenario in a
sector which was known for its bureaucratic and opaque functioning. Various apps have been

developed to bring in transparency and instant information dissemination. Some of these apps
include Garv, Vidyut Pravah, DEEP, Tarang, Ujjala etc
Energy efficiency in the forefront and creation of a Major PSU ‘Ratna’ in the making in
double quick time
Energy efficiency has been in the forefront since the last 2.5-3 years and a separate PSU named
EESL (Energy Efficiency Service Ltd) was formed with the task of creating the market for
Energy Efficiency through a business plan and not be dependent on Government subsidies. This
has taken a huge turn and we have nearly 180 million LED Bulbs and 1.5 million LED Street
Lights having been distributed already and many other energy efficiency products are on the way
to create self- sustaining and low-cost energy efficiency market in India.
Areas of concern
While there have been several steps forward, there is also a resultant back-force which is also
impacting the sector in a not-so-desired manner. That is in terms of the lack of Power demand –
which is bound to impact most of the positives of the sector in the next 2-3 years, if it is not
addressed immediately. Huge generation and transmission capacities have made sure power
supply is ramped up, while energy efficiency measures have made consumption smarter and
reduced. With the lack of industrial growth, the overall demand has not caught up with the
supply side and this is resulting in record low deficits and low Plant Load Factors for most power
plants.
Demonetisation, in most aspects has largely been a positive for the sector with 2 key immediate
impacts – most utilities having recovered at least some part of their customer payments which
were stuck over long periods. The increased liquidity in banks is likely to ease the funding
available to the sector (renewables specifically). However, cash disbursements to daily wage
labourers and transporters have also been impacted and solar developers have already indicated 3
– 4 months delay in commissioning of the projects.Other than that, there are some unintended
effects as well – the reduced cash flow has impacted most SMEs in their factory outputs and the
service sector is also stagnating. These two sectors will further push down power consumption,
further adding to the overall lack of power demand.
Overall, the year paves way for some major expectations during the coming years.
While there has been tremendous progress in generation and transmission capacity addition in
the country, energy and power demand have largely remained stagnant. The primary reason for
the same can be attributed to the poor financial health of the DISCOMs. While UDAY has been
considered a landmark policy for distribution sector reform, its effect has to be felt very soon.
Utilization of the generation assets (popularly known as PLF) is on decline which is a worrying
factor for the developers. So, the power demand rejuvenation is the key for the sector going
forward. This is a new challenge for the policy makers and the utilities as they have never
confronted this situation before and will, therefore, need some out-of-the-box ideas. The
industrial sector, which is one of the largest power consumers, may not be able to ramp up fully
immediately. Therefore, policy makers should focus on the commercial and residential sectors
and make sure that the last mile pipes are not choked for power and carry out various initiatives
to drive power consumption in these large user base. Further, driving the increase in the usage of
Power for agricultural use will also act as a key driver for power demand and also impact our
agriculture sector in a positive way.
While almost all the sectors have received adequate attention from the government, hydro is one
sector which was never in the limelight. The sector has tremendous potential and we expect a
comprehensive growth policy and road map for the hydro sector in 2017.
While the government has taken initiative to install 100,000 Mw of solar power by 2022, our
domestic solar panel manufacturing industry is not competitive and the sector does not have
adequate capacity to meet the demand of the sector. As a result, majority of the solar panels are
imported from countries like China which is against ‘Make in India’ policy of the government.
While the government is working to boost the solar panel manufacturing sector, we expect more
actions on this front in 2017 so that Indian companies get benefited from the growth of the solar
sector.
Also, it has long been discussed that smart electricity infrastructure or smart grid is the future
and this will drastically help to reduce AT&C loss of the DISCOMs. However, smart grid pilots,
which were conceptualized in 2012, are yet to see the light of the day and the development of a
low-cost smart meter which can be distributed to the masses is yet to become a reality. We
understand that Smart Meter is at the heart of a Smart Grid and it is important that we start mass
roll-out of these smart meters at the earliest. We expect to see a major development in this front,
too, in 2017.
Fig 40: S&P BSE Power vs SENSEX for the FY 2016-17 [Source: Google Finance]
Finally, solar and wind power are intermittent in nature and not available throughout the day and
year. Hence, higher injection of these intermittent powers in the grid can cause grid instability.
Battery storage is one of the possible solutions to this problem. However, all the grid-level solar
projects awarded till date are without a storage facility or infrastructure. We have to examine the
grid parity of a solar project with battery storage. We expect the government to come up with a
storage policy in coming days, develop economical storage solutions and make storage an
integral part of the grid level solar projects.
5 Company profile:
5.1 Power Grid Corporation of India Limited (PGCIL):
Business:
Power Grid Corporation of India Ltd is India's principal electric power transmission company.
The company is engaged in the transmission of bulk power across different states of India. They
own and operate more than 95% of India's interstate and inter-regional electric power
transmission system.
The company's business segments are Transmission, Consultancy, Telecom and ULDC/ RLDC.
They have around 75,290 circuit kilometers of transmission network and 124 numbers of extra
high-voltage alternating current and high-voltage direct current sub-stations with a total
transformation capacity of 83,100 megavolt ampere. They have diversified into telecom business
to utilize spare telecommunication capacity of their unified load dispatch center (ULDC)
schemes, using their country-wide transmission infrastructure.
Presently, transmission projects of about Rs 93,000 crore are under various stages of
implementation and are progressing well matching with commissioning schedule of generation
projects in the country. This includes 25 new transmission projects approved by the company in
financial year 2010-11 at an estimated cost of about Rs 21,150 crore comprising of about 8,000
ckm of transmission lines & 5200 Km of fibre optic network, 23 nos. sub-stations and
transformation capacity of about 32,000 MVA.
The major ongoing projects are, Transmission System associated with generation projects like
Subansiri & Kameng HEPs (which includes 2000 km, 1800 kV HVDC bipole link), DVC &
Maithon Right Bank project, Sasan, Mundra & Krishnapatnam Ultra Mega Power Projects,
Pallatana GBPP, Bongaigaon TPS, Transmission system for transfer of power from Bhutan to
NR/WR, Interconnection between Indian & Bangladesh power grids, Development of High
Capacity Transmission corridor for phase-I IPPs in the State of Odisha, Transmission system for
IPP Generation Projects in the State of Sikkim & Chhattisgarh, etc. and System Strengthening
schemes in Northern, Eastern, Western & Southern Regions etc.
Overall, for the 12 months ended Mar 17, total capex incurred by the company stood at Rs 24429
crore while total assets capitalized during this period stood at Rs 32000 crore. This is the highest
ever capex and capitalization value ever incurred by Power Grid in the past. Management
expects the growth momentum of capex and capitalization will continue to remain in FY'18 as
well.
The company has achieved all the 12th 5-year plan targets in every year and is entering 13th 5-
year plan and despite base getting higher, management is confident of reasonable growth going
forward as well.
FY 17 was the year where around Rs. 30200 crore worth of ordering took place which was the
highest ever in any year of 5-year plans.
The company also won the largest project in Tariff based competitive bidding (TBCB) scheme in
FY 17.
As on Mar 17, the company has 139709 ckm of Transmission lines, 292543 MVA of substation
capacities and Availability rate of about 99.76%. Overall, around 45933 ckm of transmission
lines and 40700 MVA of substation capacities were added in 12th 5 year plan by Power Grid.
Book value of the company as on Mar 17 stood at Rs 95.20 and Capital WIP stood at Rs 38942
crore as compared to Rs 46815 crore for Mar 16. Management aims to reduce the WIP further.
As on Mar'17, total outstanding debtors stood at around Rs 2771 crore which translates to around
39 receivable days.
Total capitalization in 12th plan stood at Rs 117000 crore as against target plan of Rs 110000
crore.
Overall for 13th 5-year plan a total of around Rs 260000 crore is envisaged for power sector
which includes around 106000 ckm of transmission lines and 292000 MVA of substation
capacities.
Of the Rs 260000 crore of investments, government aims direct investment of around Rs 100000
crore from Power Grid and rest through TBCB schemes where Power Grid will play an
important role along with other private players.
As on Mar 17, the company has ongoing projects of around Rs 105000 crore and new projects of
around Rs 5000 crore and TBCB project of Rs 25000 crore as its total work in hand. Total
expenditure done is around Rs 39000 crore till Mar'17. Thus, Power Grid needs to do an
investment of around Rs 90000 crore in next 3-3.5 years.
While Power Grid continued to keep its thrust on transmission segment, it is continuously
working on the emerging opportunities which include intrastate transmission, telecom,
opportunities in international market, railway electrification, smart cities etc. Railways present a
significant opportunity to Power Grid, as railways intent to electrify 90% of its tracks in next 5
years i.e. in 13th 5-year plan which envisages an opportunity of around 13000r km.

Company has raised around Rs 2500 crore in debt market in FY 17 and there are no plans to
raise any fresh equity in near future.
Overall, the growth momentum is expected to continue to remain in 13th 5-year plan as well.
During Mar 17 quarter, margins were lower due to higher wage hike provisions of around Rs 100
crore and CSR expenditure of around Rs 70 crore which was booked in Mar 17 quarter and
related to entire FY 17. All these expenditures are a pass through and hence margins will not get
impacted going forward.
In FY 17, the company has increased its dividend pay-out ratio from 20% to 30%.

5.2 National Thermal Power Corporation Limited (NTPC):
NTPC Ltd is the largest power generating company in India both in terms of installed capacity
and generated output. The company is engaged in the business of generation and sale of bulk
power. The company has two segments: generation and other business. Their other business
includes providing consultancy, project management and supervision, oil and gas exploration,
and coal mining. The company contributed 28.6% of the total power generation of India. They
were ranked 317th in the '2009, Forbes Global 2000' ranking of the World's biggest companies.
The company operates their stations at a level of efficiency that exceeds the average in India,
based upon availability factor and average plant load factor (PLF). They have developed a long -
term technology roadmap for the induction of high efficiency equipment, including supercritical
and ultra-supercritical machines at their new plants. Their subsidiaries include NTPC Electric
Supply Company Ltd, NTPC Hydro Ltd, NTPC Vidyut Vyapar Nigam Ltd, Pipavav Power
Development Company Ltd, Kanti Bijlee Utpadan Nigam Ltd and Bhartiya Rail Bijlee Company
Ltd.
NTPC, the public-sector power major has registered 4% growth in standalone sales to Rs
19879.32 crore for the quarter ended June 2017. However, a 170 bps contraction in operating
profit margin has dragged the operating profit down by 3% to Rs 5040.10 crore. But gained by
higher other income, lower interest cost and higher regulatory income, the PBT was up by 14%
to Rs 3465.38 crore. The tax provision was up by 21% to Rs 928.55 crore and thus, the PAT was
up by 12% to Rs 2618.17 crore. The other comprehensive expense was at Rs 22.92 crore
compared to an income of Rs 1.38 crore in the corresponding previous period. Thus, the total
comprehensive income was up by 11% to Rs 2595.25 crore.
▪ Sale was up by 4% to Rs 19879.32 crore. The aggregate of prior period sales, IT payable
to beneficiaries and deferred tax to be recovered from beneficiary was Rs 61.46 crore
compared to -22.87 crore in the corresponding previous period. Prior period sales were
Rs 43.97 crore compared to write back of Rs 35.18 crore in the corresponding previous

period. The IT payable was nil for the quarter as well as corresponding previous period.
The deferred tax to be recovered from beneficiary was up by 42% to Rs 17.49 crore.
▪ Operating profit margin contracted by 170 bps to 25.4% as all cost heads barring fuel cost
stand increased. The fuel cost was down by 90 bps to 60.1%. The staff cost was up by 10
bps to 5.4%. The cost of electricity purchased was up by 70 bps to 0.7%. Similarly the
other expense was up by 190 bps to 8.5%.
▪ Other income jumped up by 320% to Rs 662.61 crore. The interest cost was down by 1%
to Rs 895.60 crore and the depreciation was up by 13% to Rs 1570.0 crore. Thus the PBT
before EO and regulatory income was up by 7% to Rs 3237.11 crore.
▪ The regulatory income was Rs 228.27 crore compared to a mere Rs 3.31 crore in the
corresponding previous period. Thus the PBT before EO after RI was up by 14% to Rs
3465.38 crore. EO was nil for the quarter as well as corresponding previous period. Thus
the PBT after EO & Regulatory income was up by 14% to Rs 3465.38 crore.
▪ The taxation was up by 21% to Rs 847.21 crore and thus the PAT was up by 12% to Rs
2618.17 crore.
Yearly performance
Sales was up by 10% to Rs 78273.44 crore and the operating profit was up by 19% to Rs
21284.27 crore facilitated by higher sales and 200 bps expansion in OPM. After accounting for
lower other income, higher interest and depreciation cost the PBT before EO and RI was up by
21% to Rs 12835.11 crore. The Regulatory income was higher at Rs 335.74 crore compared to
modest Rs 12.09 crore in the corresponding previous period. Thus the PBT after RI was up by
24% to Rs 13170.85 crore in the corresponding previous period. EO was up at Rs 782.95 crore
compared to nil in the corresponding previous period. Thus the PBT after EO was up by 17% to
Rs 12387.90 crore. The taxation was a provision of Rs 3002.64 crore compared to a write back
of Rs 173.83 crore in the corresponding previous period. Thus the PAT was down by 13% to Rs
9385.26 crore.
Consolidated sales were up by 12% to Rs 82080.82 crore and the operating profit was up by 20%
to Rs 21495.79 crore facilitated by higher sales and 180 bps in OPM to 26.2%. Eventually the
PAT was down by 1% to Rs 10713.94 crore. After accounting for profit attributable to owners
and other comprehensive income attributable to owners, the total comprehensive income
attributable to owners was down by 2% to Rs 10506.79 crore.

5.3 Coal India Ltd
Coal India Ltd is a 'Maharatna' Public Sector Undertaking under Ministry of Coal, Government
of India with headquarters at Kolkata, West Bengal. The company is the largest coal producing
company in the world based on their raw coal production. Also, they are the largest coal reserve
holder in the world based on their reserve base. The company produces non-coking coal and
coking coal of various grades for diverse applications. Most of their coal production is from open
cast mines.
The company sells substantially all of the raw coal their produce in the Indian market. Their
customers include large thermal power generation companies, steel and cement producers and

other industrial companies in the public and private sector. Most of their coal is used in the
thermal power sector in India.
The company has nine direct subsidiaries and two indirect subsidiaries. The direct subsidiaries
are Bharat Coking Coal Ltd, Central Coalfields Ltd, Central Mine Planning and Design Institute
Ltd, Eastern Coalfields Ltd, Mahanadi Coalfields Ltd, Northern Coalfields Ltd, South Eastern
Coalfields Ltd, Western Coalfields Ltd and Coal India Africana Limitada. Mahanadi Coalfields
Ltd has two subsidiaries, namely MJSJ Coal Ltd and MNH Shakti Ltd, which are the two
indirect subsidiaries of the company.
The company's coal production operations are primarily carried out through seven of their
wholly-owned Subsidiaries in India. In addition, another wholly owned subsidiary, CMPDIL,
carries out exploration activities for their subsidiaries and provides technical and consultancy
services for their operations as well as to third-party clients for coal exploration, mining,
processing and related activities. They have also established a wholly-owned subsidiary in
Mozambique, Coal India Africana Limitada (CIAL), to pursue coal mining opportunities in
Mozambique and have acquired prospecting licenses for two coal blocks in Mozambique.
Coal India (CIL) has posted 23% drop in consolidated net profit at Rs 2351.21 crore in spite of
4% gain in total income to Rs 20567.81 crore for the first quarter ended June 2017. The surge in
employee benefit costs and contractual expenses resulted in the drop in operating margin (OPM)
by 460 bps to 17.1%. Thus, OP declined 18% at Rs 3521.98 crore. CIL employees benefit cost
was at Rs 8071.57 crore during the quarter, higher by 6% from Rs 7646.52 crore registered in the
corresponding quarter of the previous fiscal. Coal India's production declined by 5.4% at 118.84
million tonnes (MT) during quarter, meanwhile Offtake raised by 3.1% to 137.42 MT. CIL's
average realizations was up 0.9% to Rs 1442 per tonne.
Performance for quarter ended June 2017
Coal India (CIL) total income from operation inclined 4% to Rs 20567.81 crore for the first
quarter ended June 2017, due to rise in both sales volume and realization. Coal India's production
declined by 5.4% at 118.84 million tonnes (MT) during quarter. Offtake raised by 3.1% to
137.42 MT. CIL's average realizations was up 0.9% to Rs 1442 per tonne.
OPM declined by 460 bps to 17.1%. The decrement in OPM seems largely on account of 10%
rise in operating costs at Rs 17045.83 crore as compared to 4% sales revenue growth. The bulk
of the operating expenses were on employee benefits cost, which grew by 6% to Rs 8071.57
crore due to ad-hoc provisions towards salary and wages of the employees of the company.
Employee benefit expenses for the quarter included an adhoc provision of Rs 688.94 crore
towards salary and wages of the non-executive employees of the company (Pay revision due
w.e.f. 01.07.2016) and Rs 89.34 crore towards salary and wages of the executive employees of
the company (Pay revision due w.e.f. 01.01.2017).

As a %age of sales and net of stock adjustments, employee benefits cost rose 220 bps to 41% and
contractual cost went up 150 bps to 15.7%. As a result, the operating profit declined by 18% at
Rs 3521.98 crore.
Other income was up 10% to Rs 1206.61 crore, thus, the PBIDT declined 12% to Rs 4728.59
crore. The Company interest cost grew 36% to Rs 120.98 crore, while depreciation cost flat at Rs
669.93 crore. Thus, the Profit before Tax (PBT) dropped 15% to Rs 3937.68 crore.
The net Tax Expense for the quarter declined by 1% to Rs 1585.95 crore. The effective tax rate
for the quarter increased 650 bps to 40.3%. Thus, PAT before EO and minority interest slid 23%
to Rs 2351.73 crore. After accounting loss of Rs 0.51 crore in shares in JV's/associates, Net
Profit was down 23% to Rs 2351.21 crore.
Annual Financial Performance
For the financial year ended March 2017 (FY 2017), Coal India (CIL) total income from
operation was flat at Rs 83808.13 crore. Coal India's production up 2.9% at 554.14 MT,
meanwhile Off-take grew 1.7% to 543.32 MT. CIL's average realizations declined by 1.6% to Rs
1492 per tonne.
OPM contracted by 780 bps to 14.6%. The decrement in OPM seems largely on account of 10%
rise in operating costs at Rs 71568.22 crore. Employee benefit expenses for the year included an
ad-hoc provision of Rs 2101.39 crore towards salary and wages of the non-executive employees
of the company (pay revision due w.e.f. 01-07-2016) and Rs 95.10 crore towards salary and
wages of the executive employees of the company (pay revision w.e.f. 01-01-2017). As a result,
the operating profit declined by 35% at Rs 12239.91 crore.
Other income was down 7% to Rs 5515.60 crore, thus, the PBIDT declined 28% to Rs 17755.51
crore. The Company interest charges was up 7% to Rs 411.73 crore, while depreciation cost
inclined 3% to Rs 2910.07 crore. Thus, the Profit before Tax (PBT) dropped 33% to Rs 14433.71
crore.
The net Tax Expense declined by 28% to Rs 5165.96 crore. The effective tax rate increased 230
bps to 35.8%. Thus, PAT before minority interest and extraordinary item slid 35% to Rs 9267.75
crore. After accounting loss at Minority interest of Rs 0.01 crore and loss of shares in
JV's/associates at Rs 1.76 crore, Net Profit was down 35% to Rs 9265.98 crore.
The scrip hovered around Rs 237.05 (16 August 2017) on the BSE.

5.4 PTC India Limited
PTC India Limited (PTC), the leading provider of power trading solutions in India, is a
Government of India initiated Public-Private Partnership, whose primary focus is to develop a
commercially vibrant power market in the country. PTC was born on 16th April 1999 out of the
need for an institution which would provide credit risk mitigation to private power project
developers. At a point in time when no private player was willing to venture into this arena, the
Government initiated the inception of the company. The trading activities undertaken by PTC

include long term trading of power generated from large power projects as well as short term
trading arising as a result of supply and demand mismatches, which inevitably arise in various
regions of the country. Today, the company is not just the leading power trader in the country,
but has also diversified into the unique role of being a Complete Energy Solutions Provider.
PTC India reported a 21% YoY growth in standalone net sales for June 17 quarter to Rs 4401.77
crore. OPM was flat at 2.0% which resulted in 21% growth in OP Rs 88.77 crore. Other income
was higher by 8% to Rs 42.85 crore for Mar 17 quarter. Interest costs was higher by 15% to Rs
35.18 crore and depreciation was down by 12% to Rs 0.68 crore. Thus, PBT was higher by 17%
to Rs 95.76 crore. After providing total tax of Rs 30.41 crore up by 21%, PAT for the June 17
quarter stood at Rs 65.35 crore, up by 16% YoY.
Performance for the 12 months ended Mar 17
For the 12 months ended Mar 17, net sales were up by 11% to Rs 14074.83 crore. OPM was
lower by 20 bps at 2.2% which resulted in OP of Rs 308.34 crore, up by 2%. Other income was
higher by 29% to Rs 237.99 crore. Interest cost was higher by 31% to Rs 134.59 crore.
Depreciation was lower by 23% which resulted in a PBT growth of 7% YoY to Rs 409.03 crore.
There was an EO loss of Rs 37.52 crore for FY 16 relating to provision for diminution in the
value of investments. Total tax stood at Rs 118.14 crore, up by 8% which resulted in a PAT
growth of 24% to Rs 290.89 crore, for the 12 months ended Mar 17.
Other updates
Total volumes traded in June 17 quarter stood at 14.18 Billion Units (BU), up by 16% YoY.
Long term volumes stood at 41% of total volumes and grew by 24% in June 17 quarter on YoY
basis.
PTC has won the tender for managing the exchange portfolio for PSPCL (Punjab State Power
Corporation Limited) for FY 2017-18.
Supply of entire quantum of 390 MW of power from TRN Energy started in the month of May to
UPPCL on long term basis.
PTC has executed agreements for supply of 400 MW wind power to the States of Bihar and
Jharkhand under MNRE scheme.
Agreement for Cross Border Trade with Chukha HEP in Bhutan extended for further period; also
extended agreement for cross border trade with Bangladesh
PTC India hosted a conference call on August 11, 2017. In the conference call the company was
represented by Deepak Amitabh, Chairman and Managing Director; Arun Kumar, Director
Finance & CFO and Rajiv Malhotra, Executive Director & Group Chief Risk Officer.

Key takeaways of the call
▪ Volume for Q1FY18 stood at 14.18 billion units, an increase of 16% compared to
12.22% growth in the corresponding previous period. Of the volume about 55% (or 7787
million units) is short term trade including that trade in power exchanges, 4% (or 622
million units) is medium term trade and 41% (or 5769 million units) is long term trades.
While the shorter trade grew by 14%yoy in Q1FY18, the long-term trade was up by 24%.
But the medium term trade was down by 14%.
▪ Exchange credit volume in Q1FY18 5098 million units up from about 4664 million units
in Q1FY17.
▪ Margin per unit (Rs/Unit) in Q1FY18 was Rs 0.072 compared to 0.070 in corresponding
previous period. The margin per unit without rebate and surcharge was Rs 0.044 in
Q1FY18 compared to Rs 0.053 in the corresponding previous period.
▪ Net rebate and net surcharge in Q1FY18 was higher at Rs 14.50 crore and Rs 24.56 crore
respectively compared to Rs 14.29 crore and Rs 6.56 crore in the corresponding previous
period.
▪ Supply of entire quantum of 390 MW of power from TRN Energy started in the month of
May to UPPCL on long term basis.
▪ PTC has won the tender for managing the exchange portfolio for PSPCL (Punjab State
Power Corporation Limited) for FY 2017-18.
▪ PTC has executed agreements for supply of 400 MW wind power to the States of Bihar
and Jharkhand under MNRE scheme.
▪ Agreement for Cross Border Trade with Chukha HEP in Bhutan extended for further
period; also extended agreement for cross border trade with Bangladesh
▪ Under the MNRE and SECI scheme for conducting competitive bidding for procurement
of 1000 MW power from wind power projects, PTC was selected as a trader. PTC has got
the consent from State Discoms and Utilities for the entire quantum. The agreements will
be signed in the first week of May in the presence of Hon'ble Minister. PTC was given a
time of six months, however PTC completed the sale in 1 month time. PPA signed for
this and the company sees this operational in next 17-18 months.
▪ The average margin sustainable is about 4.4 paisa per unit. Short term margin continue to
fluctuate. The company spends upto Rs 1.25 paisa per unit to earn this margin.
▪ Consultancy income part of other operating income was Rs 4.31 crore in Q1FY18 up
from Rs 1.29 crore in Q1FY17.

▪ Other expenses comprise Rs 1.65 crore in consultancy expenses in proportion to

consultancy income. There was also another Rs 1.25 crore unusual expenses towards
divestment and advertisement etc.
▪ Lower margin is largely due to lower margin of Bangladesh cross border trade, tolling
and medium term trade. This together accounted for Rs 10 crore.
▪ Bangladesh was originally a medium term and once that expired, and since then it is
extended by six months pending finalization/formulation of cross border
policy/guidelines. The current agreement is upto January 2018. The net margin when it
was medium term contract was 9 paisa but now it is 4.9 paisa.
▪ The company has no alarming outstanding debtors as of now. The debtors as end of June
30, 2017 was Rs 3600 crore. Cash as end of Q1FY18 was Rs 649 crore.
▪ The company continues to focus on cross border. Trade continues with Bhutan and
Bangladesh. Cross border guidelines has also come in recently.
▪ Q4FY17 witnessed operationalisation of long term capacity of 240 MW. If a

medium/long-term capacity operationalized that will give a boost to the top line.


6. Capital Goods Sector in India

Capital goods sector a strategic sector National development and self reliance and also for the
manufacturing sector. It is crucial for the development of the country's economy. It facilitates
growth of other industries by providing critical inputs like machinery and other equipments
necessary for manufacturing and acts as a multiplier of overall growth of the economy. Hence,
development of domestic capabilities in this sector is essential from a national self-reliance,
security and strategic perspective. This sector is a key driver for the growth of the overall
industry. However, the condition of the sector within the Indian industry and measured against
overall industry benchmarks is not very promising. Before we talk about that however, we must
define what capital goods are. There exist a variety of definitions that define the term. The
definition mentioned in CST Laws, VAT Laws, I-T Laws and in the Foreign Trade Policy (FTP)
are all different. With the coming of GST and separate treatment of all goods under GST
legislation we will ignore the varying definitions of older tax laws and consider the definition
provided by Chapter 9 of FTP as our definition for capital goods.
“The term ‘Capital Goods’ means any plant, machinery, equipment or accessories required for
manufacture or production, either directly or indirectly, of goods or for rendering services,
including those required for replacement, modernization, technological up-gradation or
expansion. It includes packaging machinery and equipment, refrigeration equipment, power
generating sets, machine tools, equipment and instruments for testing, research and development,
quality and pollution control. Capital goods may be for use in manufacturing, mining,
agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry,
sericulture and viticulture as well as for use in services sector” – Foreign trade policy, chapter 9.
Another issue is the recognition of the sub sectors of the Capitals Goods sector, which in itself is
too broad and diverse to meaningfully cover as a whole. Although various sources define various
sub sectors of capital goods, we will be following the classification defined by National Capital
Goods Policy, 2016:
i. Heavy Electrical Equipment
ii. Machine Tools
iii. Textile Machinery
iv. Earthmoving and Mining Machinery
v. Plastic Processing Machinery
vi. Process Plant Equipment
vii. Dies, Moulds and Press Tools

viii. Printing Machinery
ix. Metallurgical Machinery
x. Food Processing Machinery
Fig 41: Capital goods market size 2014-15 [Source: National Capital Goods Policy, 2016]
Fig 42: Capital goods total production 2014-15 [Source: National Capital Goods Policy, 2016]

Fig 43: Capital goods Exports2014-15 [Source: National Capital Goods Policy, 2016]
Fig 44: Capital goods Exports2014-15 [Source: National Capital Goods Policy, 2016]

Fig 45(i): India is a net importer in all sectors 2014-15 [Source: National Capital Goods Policy, 2016]
Fig 45(ii): Contribution of imports across sectors 2014-15 [Source: National Capital Goods Policy, 2016]
Various other sources recognize other sectors as well. For example the Capital Goods bucket of
the IIP includes Railway equipment, Aerospace equipment, Medical equipment, Agricultural
machinery, Tires for HMV and Tractor, Shipbuilding etc. In this report we will limit ourselves to
the sectors listed above. However to have further clarity on the same, readers are encouraged to
read up on changes made to IIP measurement by CSO w.e.f. from May-2017. It should be noted

that IIP series treats commercial vehicles as capital goods – we will exclude them in our
discussion as the automotive sector is tracked separately.
Capital Goods is a large sector with a market size of ~ Rs. 282,000 Cr and total production of
~Rs. 230,000 Cr in 2014-15. The updated IIP shows a modest recovery in the capital goods
sector. From -3.6% in 2013-14, output growth in the sector improved to 1.9% in 2016-
17.Currently the Capital Goods sector contributes ~12% of total manufacturing which translates
to ~2% of GDP. Capital Goods sector is also a major employment driver, directly employing
~1.4 million people across various sub-sectors and creating indirect employment for ~7 million
people. The lack of positive bias towards domestic value addition in public procurement policies,
difficult contract conditions, persistent import and use of second-hand machinery with no
incentive for replacement, zero duty import under 'Project Imports' and delays in project
implementation are the key factors limiting domestic demand. Key challenges faced by Indian
capital goods exporters are the inadequate availability of competitive short and long-term
financing, non-tariff barriers in export markets denying market access and limited understanding
of international market requirements especially by smaller players. India also needs to align its
trade policy to the shift in India's export map towards developing regions. More trade agreements
are needed with developing countries where India has a comparative advantage. Significant
challenges and gaps exist in high-end, heavy-duty, high-productivity and high precision
technologies across sub-sectors. Contributors to these gaps include low end user acceptance of
new Indian technology, lack of skill availability, weak support infrastructure and low Indian
participation in developing international standards. Further, patent processing takes very long
and fiscal incentives for R&D are still inadequate.
7. National Capital Goods Policy, 2016

A boost to this sector is envisaged through this National Capital Goods Policy by providing for
an enabling ecosystem for capital goods growth and ensuring sustained incentive for domestic
manufacturers to service domestic as well as export market demand. The policy envisages
increasing production of capital goods from ~Rs. 230,000 Cr in 2014-15 to Rs. 750,000 Cr in
2025 and raising direct and indirect employment from the current 8.4 million to ~30 million. It
envisages increasing exports from the current 27% to 40% of production while increasing share
of domestic production in India's demand from 60% to 80%, thus making India a net exporter of
capital goods. The policy also aims to facilitate improvement in technology depth across sub-
sectors, increase skill availability, ensure mandatory standards and promote growth and capacity
building of MSMEs. The policy proposes a comprehensive policy agenda to achieve these goals,
as summarized below:
▪ Make in India initiative: To integrate major capital goods sub-sectors like machine
tools, textile machinery, earthmoving and mining machinery, heavy electrical equipment,
plastic machinery, process plant equipment, dies, moulds and press tools, printing and

packaging machinery and food processing machinery as priority sectors to be envisaged

under 'Make in India' initiative.
▪ To create an enabling scheme as a pilot for 'Heavy Industry Export & Market
Development Assistance Scheme (HIEMDA)' with a view to enhance the export of
Indian made capital goods. This will also require developing a comprehensive branding
plan for the CG sector with the support of India Brand Equity Foundation (IBEF) and
such like organizations.
▪ Strengthen existing capital goods scheme: The policy recommends increasing the
budgetary allocation & scope of the present 'Scheme on Enhancement of
Competitiveness of Capital Goods' which include setting up of Centers of Excellence,
Common Engineering Facility Centers, Integrated Industrial Infrastructure Park and
Technology Acquisition Fund Programme.
▪ The policy recommends increasing the scope of the present 'Scheme on Enhancement of
Competitiveness of Capital Goods' by adding a set of components including technology,
skills & capacity building, user promotional activities, green engineering and energy,
advanced manufacturing and cluster development
▪ To launch a Technology Development Fund under PPP model to fund technology

acquisition, transfer of technology, purchase of IPRs, designs & drawings as well as for
commercialization of such technologies of capital goods.
▪ To create a 'Start-up Center for Capital Goods Sector' shared by DHI and CG
industry/industry association in 80:20 ratio to provide an array of technical, business and
financial support resources and services to promising start-ups in both the manufacturing
and services space. These services should focus on Pre-incubation, Incubation and Post-
Incubation phases of a start-up's growth to ensure that a robust foundation is established.
▪ Mandatory Standardization which includes, inter alia, defining minimum acceptable

standards for the industry and adoption of International Organization for Standardization
(ISO) standards in the absence of other standards, to institute formal development
program for promoting and framing Standards with Standards Developing Organizations
(SDOs) including Bureau of Indian Standards (BIS), international standard bodies, test /
research institutions and concerned industry/ industry associations.
▪ To upgrade development, testing and certification infrastructure such as Central

Power Research Institute (CPRI), and set up 10 more CMTI like institutes to meet the
requirements of all sub-sectors of capital goods.

▪ Skill development: To develop a comprehensive skill development plan/scheme with

Capital Goods Skill Council and to upgrade existing training centers and set up 5 regional
State-of-the-Art Greenfield Centers of Excellence for skill development of CG sector.
▪ Cluster approach: To provide schemes for enhancing competitiveness through a cluster

approach, especially for CG manufacturing SMEs. Thrust to be on critical components of
competitiveness such as Quality management, Plant maintenance management, Energy
management, Cost management, Human Resource management and prevention of
corrosion with the Government support to the extent of 80% of the cost.
▪ To modernize the existing CG manufacturing units, especially SMEs by replacing the

modern, computer controlled and energy efficient machineries across capital goods sub-
sectors, there is need to create a scheme based on capital subsidy to promote the
manufacturing of quality products.
▪ Support services: A robust mechanism for reporting data of production, export and
import for all capital goods sub-sectors with minimal time lag to facilitate continuous
monitoring of policy effectiveness and timely actions is proposed.
8. Export Promotion of Capital Goods Scheme

The objective of the EPCG Scheme is to facilitate import of capital goods for producing quality
goods and services to enhance India’s export competitiveness. EPCG Export Promotion Capital
Goods (EPCG) scheme allows import of capital goods including spares for pre production,
production and post production at zero duty subject to an export obligation of 6 times of duty
saved on capital goods imported under EPCG scheme, to be fulfilled in 6 years reckoned from
Authorization issue date.
EPCG scheme covers manufacturer exporters with or without supporting manufacturer(s)/

vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers. The
Scheme also covers a service provider who is designated / certified as a Common Service
Provider (CSP).
EPCG authorization holder can export either directly or through third party (s). Export proceeds
are to be realized in freely convertible currency except for deemed exports. Import of capital
goods imported under the EPCG scheme shall be subject to Actual User condition till export
obligation is completed.
Export Obligation under EPCG scheme is required to be fulfilled by export of goods

manufactured/services rendered by the applicant. There are two types of export obligation that
are mandatory. First, Annual Average in which export obligation is over and above, the average
level of exports achieved by the authorization holder in the preceding three licensing years for
the same and similar products within the overall export obligation period including extended
period, if any. Such average would be the arithmetic mean of export performance in the last three
years for the same and similar products. Secondly, Specific Average which is 6 times the duty
saved amount in which the Authorization holder shall also fulfill a minimum of 50% export
obligation in each block of years - the first block being of 4 years and the second block is of 2
years.
Royalty payments received in freely convertible currency and foreign exchange received for
R&D services shall also be counted for discharge under EPCG.
EPCG Authorization holder may also source capital goods from a domestic manufacturer. Such
domestic manufacturer shall be eligible for deemed export benefit under FTP. EPCG
Authorization holders can opt for Technological Up-gradation of existing capital goods imported
under EPCG Authorization. Import of second hand capital goods is not permitted under the
EPCG scheme.
To incentivize fast track companies to accelerate exports, there is a provision for early
redemption and in cases where Authorization holder has fulfilled 75% or more of specific export
obligation and 100% of Average Export Obligation till date, if any, in half or less than half the
original export obligation period specified, remaining export obligation shall be condoned.
Authorization holder is required to submit to RA concerned by 30th April of every year, report
on fulfillment of export obligation.
The scheme allows one or more requests for grant of extension in export obligation period, on
payment of composition fee equal to 2% of proportionate duty saved amount on unfulfilled
export obligation or an enhancement in export obligation imposed to the extent of 10% of total
export obligation imposed under authorization, as the case may be, at the choice of exporter, for
each year of extension sought. Such first extension in EO period can be for a maximum period of
2 years.
Extension in EO period beyond two years’ period may be considered, for a further extension up
to 2 years with a condition that 50% of duty payable in proportion to the unfulfilled export
obligation is paid by authorization holder to Custom authorities before an endorsement of
extension is made on EPCG authorization by RA concerned. In such cases, no composition fee is
to be paid or additional EO is to be imposed. In case the firm is still not able to complete the
export obligation, duty already deposited will be deducted from total duty plus interest to be paid
for EO default.
In case, EPCG authorization holder fails to fulfill prescribed export obligation, he shall pay
duties of Customs plus interest as prescribed by Customs authority. This facility can also be
availed by EPCG authorization holder to exit at his option.

The EPCG Scheme provides for in addition, a specific EO of 75% of normal Export Obligation
for export of Green Technology Products. The scheme also provides for Post Export EPCG duty
credit scrip(s) which are available to exporters who intend to import capital goods on full
payment of applicable duties in cash and choose to opt for this scheme. Further, for units located
in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and
Jammu &Kashmir, specific EO shall be 25% of the EO.
9. Sub-Sector Analysis
9.1. Power and Electrical Equipment
India’s power and electrical equipment industry comprises of two segment – generation
equipment (boilers, turbines, generators) and transmission & distribution (T&D) and allied
equipment like transformers, cables, transmission lines, switchgears, capacitors, energy meters,
instrument transformers, surge arrestors, stamping and lamination, insulators, insulating material,
industrial electronics, indicating instruments, winding wires, etc. The T&D equipment sector
comprises 85% of the industry whereas generation equipment sector is 15%.
Some of the key highlights of this sub sector are:
▪ Industry Production (Estimated) for 2016-17: INR 1,52,000crores; Exports: INR

39,280crores (approx. 6USD Billion)
▪ Imports: INR 55,290crores (approx. US$ 8.5 Billion)
▪ 8% of manufacturing sector is terms of value and 1.3% of India’s GDP
▪ Direct employment to 5 lakh persons, indirect to 10 lakhs, and over 50 lakhs across the
entire value chain
▪ Diversified, matured and strong manufacturing base, with robust supply chain
▪ Rugged performance design of equipment to meet tough network demand
▪ Presence of major foreign players, either directly or through technical collaborations with
Indian manufacturers
▪ State-of-art technology in most sub-sectors at par with global standards
▪ Major Export Markets: United States of America, United Arab Emirates, Germany,
United Kingdom, Nigeria, Saudi Arabia, Australia, Brazil, Canada, France.
▪ Major Export Products:, Switchgear and Controlgear, Transformers & Parts, Industrial
Electronics, Cables, Transmission Line Towers, Conductors, Rotating Machines (Motors,
AC Generators, Generating Sets) & Parts
▪ For the rapid development of the domestic electrical equipment industry, encompassing
the complete value chain in power generation, transmission and distribution, a holistic
Mission Plan launched by the Department of Heavy Industry (DHI), Government of
India, with support from IEEMA
▪ The Mission Plan lays down a clear roadmap for enhancing the competitiveness of the
domestic electrical equipment industry
▪ Vision 2022: To make India the country of choice for the production of electrical
equipment and reach an output of US$100 billion by balancing exports and imports
Key players
Power Conductors and Cables: Apar Industries, Sterlite Technologies, Hindusthan Urban
Infrastructure Limited (HUIL), Gupta Power Infrastructure Limited
Transformers: Crompton Greaves, BHEL, ABB, Transformers and Rectifiers India Limited
Transmission Towers: KEC International Ltd, Kalpataru Power Transmission Ltd, Jyoti
Structures Ltd, Larsen & Toubro Ltd
Boiler, Turbine and Generator: BHEL, L&T – Mitsubishi, BGR Energy – Hitachi, Bharat Forge
– GE Energy, Thermax – Babcock Wilcox, Triveni Turbines etc.
9.2. Machine Tools

India stands 13th in production and 10th in the consumption of machine tools in the world as per
the 2016 Gardner Business Media survey. The country is set to become a key player in the global
machine tools industry and is likely to see substantial high-end machine tool manufacturing, with
emphasis on Make in India and manufacturing growth, for which the machine tools sector serves
as the mother industry.
The Indian Machine tool Industry has around 1000 units in the production of machine tools,
accessories/attachments, subsystems and parts. Of these, around 25 in the large scale sector
account for about 70 percent of the turnover and the rest are in the MSME sector of the industry.
Approximately, 75 percent of the Indian machine tool producers are ISO certified. While the
large organized players cater to India’s heavy and medium industries, the small-scale sector
meets the demand of ancillary and other units. Many machine tool manufacturers have also
obtained CE Marking certification, in keeping with the requirements of the European markets.
Machine tools production in India increased to Rs 4727cr during 2015-16 from Rs 4230 Cr in
2014-15, registering annual growth of 12 percent. Production of metal cutting machines reached
Rs.4220 Cr during 2015-16 compared to Rs.3780 during 2014-15 registering annual growth of
11.6%.Production of metal forming machines reached Rs. 507 Cr during 2015-16 compared to

Rs. 450 Cr in 2014-15 registering a growth of 13 percent. Machine tools exports from India
reached Rs.296 Cr during 2015-16 compared to Rs.281 Cr during 2014-15 registering a annual
growth rate of 5%.Metal cutting machine exports from India has reached Rs.262 Cr during 2015-
16 compared to Rs.238 Cr during 2014-15 registering a Y-O-Y growth of 10%. Metal forming
machine exports from India has decreased to Rs 34 Cr during 2015-16 compared to Rs.43 Cr
during 2014-15 registering a YOY decline of 20 percent. Machine tools imports to India reached
Rs.5945 Crores during 2015-16 compared to Rs. 5318 Crores during 2014-15 registering a
growth of 12%.Metal cutting machine imports to India reached Rs 4213 Cr during 2015-16
compared to Rs.4367 Cr during 2014-15 registering a YOY decline of 3 percent. Metal forming
machine imports to India reached Rs 1732 crores during 2015-16 compared to Rs.950 crores
during 2014-15 registering a YOY decline of 82 percent.
Estimated production globally of Machine Tools amounted to USD 80.1 Billion during 2015 a
decline of 12.4 percent from revised USD 91.4 Billion during 2014. India's Production now
occupies 13th position in the world compared to 14th position during 2014. Top five countries
are China (27.6%), Japan (16.8%), Germany (15.5%), Italy (6.6%), & Korea (5.9%). Top 3
countries account for 61 percent of the global output. India accounts for 0.9 percent of global
machine tool production during 2015. India’s production has increased by 1.1 percent in USD
terms during 2015.
Key players: ACE Micromatic, Bharat Fritz Werner (BFW), HMT Machine Tools, Jyoti CNC
Automation, Lokesh Machines, Kennametal India Limited, Esskay Tools
9.3. Textile Machinery

Textile Machinery Industry is a significant component of the capital goods industry. This
industry comprises of over 1446 machinery and components manufacturing units with over 600
units producing complete machinery and other units are mainly into the production of parts and
accessories of textile machinery. The textile machinery includes sorting machinery, carding
machinery, processing machinery of yarns/fabrics, weaving machinery, etc.
There are technology gaps in areas like weaving, processing, special purpose finishing machines,
knitting and garmenting machineries and critical components such as auto-coner and rotor
spinning machine with automation, wider width processing machines, etc. There is insufficient
in-house R&D in this industry as well as absence of large foreign/domestic players in weaving
and processing machineries.
The machinery manufacturing operation takes place both in the organized and the unorganized
sectors. In the organized sector, in addition to the public limited companies, machinery
manufacturing is done in independent units, which have collaborative joint ventures with the
foreign entities. In the decentralized sector, there are small-scale industrial units as well as tiny

units engaged in the production of accessories pertaining to the textile machinery. Textile
Engineering Goods Industry classified as follows:
▪ Ginning & pressing machines
▪ Spinning & allied machines
▪ Synthetic filament yarn machines
▪ Weaving and allied machines
▪ Processing machines
▪ Hosiery/RMG machines
▪ Textile testing equipment
▪ Multiple segments (combination of the above)
▪ Accessories and parts
▪ Others
Key players: Veejay Lakshmi, Ttuetzschler India, Rieter India, StovecIndia, InspirOn,
HimsonEngineering Industries, Harish textile engineers, Lakshmi Machine Works
9.4. Construction & Mining machinery

Currently 20 large & global manufacturers and nearly 200 small & medium manufacturers of
earthmoving & mining machinery are present in India. The product range comprises of Backhoe
Loaders, Compactors, Mobile Cranes, Pavers, Batching Plants, Crawler Crane, Transit Mixer,
Concrete Pump, Tower Cranes, Hydraulic Excavators, Dumpers, Mining Shovel, Walking
Draglines, Dozers, Wheel Loaders, Graders, Drilling Equipment, etc.
In India open cast mining is much more popular than underground mining. Hence, the equipment
required for the open cast mining like Dumpers, Dozers, Shovels, Draglines and Excavators are
manufactured in India.
Based on the Industry forecast for the next 20 years, there is a need to develop indigenous
capability in respect of Electric Dump Trucks ~ 190 ton - 240 ton, Rope shovels ~ 42 cum,
Walking Draglines ~ 72 m - 33 Cum; 150m - 50 cum, Hybrid Drive Loaders ~ l0 cum bucket,
2500 HP Electronically Controlled Emission Compliant Engine, Long Wall Mining Systems and
Continuous Miners for underground mines, etc to be able to meet the market demand, bulk of
which is currently imported.

Telematics System for CEMM Equipments is a key technology gap affecting the construction
equipment sector. These are Electronic Control and instrumentation systems for
communication/data transfer to track & record equipment status. Such equipment could improve
equipment productivity and efficiency, equipment availability, operator comfort and
convenience, troubleshooting failure analysis and resolution. They could also help to centrally
track and record equipment usage and production across sites and improve fleet tracking &
management by customers.
Indian construction equipment market is projectedto grow more than threefold from 2015 to
2020. Construction equipment market, worldwide, isexpected to reach US$ 22.7 billion by
FY2020.
Key players: JCB India, BEML, Tata Hitachi, Caterpillar, Case Construction Equipment, L&T
Construction Equipment
9.5. Plastic Processing Machinery

There are 11 major manufacturers of machinery in the organized sector and nearly 200 small &
medium manufacturers. Major plastic machineries include Injection Moulding Machine, Blow
Moulding Machine and Extrusion Moulding Machine.
Domestic manufacturers meet 95% of processing industry needs on technology and product
range. World leading technologies have manufacturing presence in the country through wholly
owned subsidiaries or technology license arrangements.. Product technology remains at par with
leading brands of developed world. However, machinery import from China and Far East
countries enters the Indian market due to price considerations.Imports are mainly from Far East
on account of low price and shorter delivery. To serve the growing demand for machinery all the
major machinery manufacturers have undertaken capacity expansion with high investment in
plant & machinery and up gradation in technology. Further investments are necessary to raise the
production volumes and technology to global scales as volumes will give price competitiveness.
Duty reductions to 5% for Extrusion and Zero for Injection Moulding Machines (IMM) in FTAs
with South Korea and ASEAN have put domestic machinery at disadvantage on price. IMM
imports below 1000T from China were stopped by imposing anti dumping duty since May 2009.
Nowmanufacturers from China are routing the machines through ASEAN. The biggest
manufacturer of China has set up plant in Vietnam to find legitimate route to export machinery to
India. This is detrimental to Indian manufacturing industry.
9.6. Process Plant Equipment

There are over 200 units engaged in the manufacture of process plant machinery in the country
out of which 65% are small & medium manufacturers. Major process plant machineries which
include tanks, pressure vessels, evaporators, stirrers, heat exchangers, towers & columns,
crystallizer, furnace, etc. are used in energy sector, gas, oil, refinery, chemical & petrochemical,
fertilizer, paper & pulp, sugar, cement, dairy industry, etc.
The sector today is equipped with state of the art processes to engineer and fabricate complex
process equipment across different materials of construction. The plant sizes of these companies
have also increased and at times are comparable or even larger than global companies.
However, domestic industry lacks know-how on process technology, owing to which, sector is
dependent on Overseas Process Licensors. However, China, on the other hand has attempted to
get the knowhow on process technology, by setting up research institutes and labs, and acquiring
such expertise from other regions. At operational level, Welding, Forming, Machining
technologies could be improved to enhance the productivity. Target technologies to be developed
are Sub Sea Equipment, Oil well drilling, Process gas Boilers for Ethylene and Gas Crackers,
etc.
9.7. Dies, Moulds and Press Tools

Indian Tool Room Industry is very fragmented and consists of more than 500 commercial tool
makers engaged in design, development and manufacturing of tooling in the country. In addition
to commercial tool makers, 18 Government Tool Rooms cum Training Centres are also operating
in the country. The key commercial Tool Room locations are Mumbai, Bengaluru, Chennai,
Pune, Hyderabad and NCR.
The sector faces the following challenges:
▪ Frequent technology obsolescence: Technology gets frequently outdated in the sector

creating the want for better return on investment. Lead time also needs to be reduced by
adding equipment of latest technology. New technology is required not just for the
operational aspect but also for overall general management system.
▪ Need to improve quality of services such as committed delivery period, assistance in

component design and development.
▪ Lack of skill availability for changing industry: Skill set of manpower needs to be
enhanced by training as the requirements of the tool room industry keep changing.
▪ Need to upgrade manufacturing set up to improve quality and costs.
9.8. Printing Machinery

As of 2014-15, market size for plastic machinery sub-sector was Rs 3,620 Cr. The sector had
been struggling over last 3 years with negative growth rate of 0.8% p.a. Production, at Rs 2,950
Cr had grown by 5.8% p.a. Imports constituted 37% of total demand; also 23% of total
production was exported.

The most significant gap is in Digital Printing Technology & Pre- Press Computer to Plate (CTP)
technology. These are currently 99.99% imported, with no local manufacturing despite bright
future prospects of the technology.
Challenges faced by the industry are:
▪ Import of sub-standard machinery: Import of second hand printing, packaging and

allied machinery under OGL Scheme without even proper verification and restriction on
the age of machinery. The CIF price of the machinery is also under-invoiced and shown
much less than its existing value in the overseas market.
▪ Need for better infrastructure:Need ready to move Infrastructure for Promoting SMEs,
Research & Development Centre and Testing Labs for Printing and Packaging Sector.
9.9. Metallurgical Machinery

As of 2014-15, market size for metallurgical machinery sub-sector was Rs. 2,750 Cr. The sector
had been struggling over the last 3 years with negative growth rate of 12.3% p.a. Production, at
Rs 1,260 Cr had reduced by 1% p.a. Imports constituted a very significant portion of total
demand at 94%; also 88% of total production was exported.
Challenges faced by the industry are:
▪ High cost of capital: A substantial amount of Working Capital is required by a

Machinery Manufacturer as the cycle time is long, running sometimes into a few years.
The Indian Capital Goods industry suffers a major disadvantage on interest rates when
compared with foreign manufacturers. In addition, foreign manufacturers are offered
deferred LC payments of 1-2 years placing Indian manufacturers at a major disadvantage.
▪ Condition of "evidence of previous supply" imposed by customers inhibits indigenous

development of new machinery. Domestic manufacturers are not inclined to develop new
machinery with additional features as they will not even be eligible to quote for the new
product because of this clause by customer.
▪ Foreign Competition Factor: Markets like China, Malaysia protect local industry.
Korean and Chinese component manufacturers preferentially support capital goods
manufacturers in Korea and China. There is also a tendency of foreign process licensors /
EPC contractors to source equipment from their country. European market is also getting
to be protective due to lack of growth in their countries.
▪ Lack of research & development
▪ Technology gaps and obsolescence

▪ Skill gaps and shortage of skilled manpower for manufacturing sector and R&D
▪ Lack of coordination between Metallurgical machinery and user sector on payment

terms, demand outlook and technology up gradation
9.10. Food Processing Machinery

As of 2014-15 market size for food processing machinery subsector was Rs. 15,600 Cr. The
sector had grown at 4.4% p.a. over the last 3 years. Production, at Rs 12,180 Cr had also grown
by 5.4% p.a. Imports constituted 35% of total demand. Only 17% of total production was
exported.
Challenges faced by this industry are:
▪ Need for incubation center: There is an acute need of an incubation center for food
processing and packaging machinery in India which will provide a platform for the
Indian manufacturers to innovate, experiment and discover better technologies.
▪ High import duties on components: Some of the critical equipments are not
manufactured in India and machinery manufacturers need to import them. In some cases
duties on these vital equipments reach upto 30%.
▪ Direct financial help for export promotionis needed for participation in global events.
▪ Infrastructure related disabilities: Infrastructure related hurdles in roads, airports,

railways, power, skilled man power, etc increase cost of the production by at least 10
percent for several sectors, including food processing.
10. Company Analysis

10.1. Apar Industries
Business
Founded in 1958, Apar Industries Ltd is engaged in manufacturing power transmission

conductors, transformer oils, speciality oils, automotive lubricants, power cables and telecom
cables. The company is headquartered in Mumbai, with production facilities spread across
Rabale (Maharashtra), Silvassa (Union Territory of Dadra & Nagar Haveli) Athola, Umbergaon
and Khatalwada (Gujarat). Apar’s Market Share in revenue terms: (i) Conductors – 23% (ii)
Speciality Oils – 45% (iii) Cables – 4%. Segment wise contribution to total revenue: Cables -
17%; Conductors - 45%; Specialty Oils - 35%; Auto Lubes - 3%.

Key Highlights
▪ One of the only two players to offer HTLS Conductors – other is Sterlite Power.
HTLS conductor is used for high voltage transmission lines to eliminate right of way
challenges. The XIII plan has begun and a total of 1,05,580 CKM, including 4,280 ckm
of HVDC, 27,300 ckm (765 kV), 46,000 ckm (400 KV) and 28,000 ckm (200 KV) would
be added – meaning almost 30% of total ckm to be laid will require HTLS. HTLS also
has higher margins compared to other conductors where margins are further pushed due
to more competitors.
▪ One of the only two players with Transformer Oils for 765 and 800 kV segment – the
other is Savita oils. Apar, in anticipation of future demand is already undergoing testing
for the 1200 kV segment. It has already increased capacity for the Power transformer Oils
segment (400 kV and above).
▪ High value product focus in Cables segment as well – Apar’s management is targeting
to outpace competition by using a product mix that requires more R&D and technical
expertise. In cables, after acquiring Uniflex in 2008, they have significantly grown their
business – revenue growth for FY17 was 28%. Crucially, they have focused on the
speciality segment and varied their product mix. Ordinary power cables, which were 70%
of revenue in 2014, have reduced to 40% and their place has been taken by specialty
cables for Solar and Wind power plants, Optical fibres and Elastomeric cables with the E-
beam technology. Of the total 5 E-beam facilities in India, Apar owns two and also the
highest rated one at 3 MeV.
▪ Strategic Investments – The plant in Jharsuguda Orissa has close proximity to Al

smelters and is expected to increase profit margins by lowering logistics costs. Vedanta
Alumina and Utkal Alumina have plans to set up plants there and Orissa state is looking
to develop it further as an industrial hub. Likewise, Apar operationalized port based
Hamriyah (Sharjah) plant in Jan-17. It is closer to Apar’s export customers and opens up
capacities in India for domestic market. Khatalwad plant for cables has been further
developed and equipped with latest technology including the E-beam technology. A look
at Apar’s R&D list in annual report suggests Apar is positioning itself for renewable
Energy, defence, maritime applications and railways segments offering technically
superior products.
▪ Healthy mix of Export and Domestic revenue – Apar generated almost 35% revenues
from Exports for the Conductor business. It exports Oil to more than 100 countries.
Overall this mix is beneficial for Apar as growth is expected even in the global
Transmission and Distribution market. Oils being a consumable will always be in
demand.

▪ Management’s agility – Through the above points it can be seen that the Management is
agile and focused and able to sense opportunities. If you read the concall of Q4FY17, it
will also show that Apar is following a long term profitability strategy. Apar management
has indicated that it will not participate in tenders by sacrificing profitability as it
considers the business model to be evolving and would prefer to be somewhat risk averse.
It is also targeting the expansion of its high value products across segments.
Financial Performance
Fig 46(i): Financial summary (consolidated) [Source: Nirmal Bang Institutional Equities Research]
Fig 46(ii): Segment wise snapshot of business [source: Nirmal Bang Institutional Equities Research]

10.2. Triveni Turbines
Business
Triveni Turbine Limited (TTL) is one of the leading manufacturers of Steam Turbines in India
with a diverse product portfolio. TTL is a market leader with a share of over 60% in the sub-30
MW segment. It also has a joint venture with GE Turbines wherein GE leverages Triveni’s
expertise in steam turbines and Triveni benefits from GE’s leadership in gas turbines and the JV
is able to participate in the combined cycles turbines market. TTL has two manufacturing
facilities, both in Bengaluru; one in Peenya and the other, recently operationalized one, in
Somapur.
Highlights of Q4FY2017 Conference call transcript
▪ Strong pipeline of enquiry
▪ Sector wise contribution to revenue: Sugar-44%, Metal – 21%, Others – 35%.
▪ Sugar is the key growth driver, more growth expected from metals, steel and cement.
▪ Export order booking below expectations
▪ Increase in market share in all export locations
▪ Management targeting export markets, expanding offices and support staff presence
▪ Oil and Gas sector in Dubai performed better than expectations
▪ Slowdown in Europe, Turkey and LATAM; revival expected by management
▪ New plant in Somapur functional – can meet orders of upto 100-120 MW
▪ Somapur plant capability demonstrated by delivery of 80 MW order for Argentina
▪ If deemed exports removed, then exports YoY are reduced.
The company management stressed that they are competing on higher quality and better lifetime
support as opposed to price and are confident that their value proposition is competitive. They
reiterated that they have not lost any orders due to pricing. This indicates a long term strategy for
higher margins as well as creating robust revenue stream through after sales support. The
company’s margins declined somewhat, compared to the previous fiscal; however the
management has attributed those to the increased expenditure on sales personnel and customer
relationship activities in foreign countries where TTL hopes to establish a long term presence.

Financial Performance
Fig 47: Profitability ratios of TTL (cons) [Source: HDFC Securities]
Fig 48: Efficiency ratios of TTL (cons) [Source: HDFC Securities]
Fig 49(i): Quarterly revenues [source: HDFC securities] Fig 49(ii): EBITDA margins [source: HDFC securities]

10.3. AIA Engineering
Business:
AIA Engineering (AIAE) specializes in design, development, manufacture, installation and

servicing of high chromium wear, corrosion and abrasion resistant parts viz. grinding media,
liners, diaphragms, vertical mill parts (collectively referred as mill internals). These products
find application in grinding mills mainly in the cement, mining and thermal power generation
industries. The company has been the pioneer in introducing high chromium technology to the
Indian cement industry resulting in reduced power cost for cement players. AIAE had a
technical-cum-financial collaboration from 1991 to 2000 with M/s Magotteaux of Belgium and
presently has technical collaboration with SouthWestern Corporation of UK. The company is a
supplier to all major mining and cement players in India. In the global markets, the company is
strong in the cement sector and has supply contracts with global cement players like Holcim,
Lafarge, Cemex through its overseas subsidiaries.
Strengths:
1. The company supplies its products to all major cement companies and original equipment
manufacturers (OEM). It also has supply contracts for mill internals with BHEL in the
thermal power segment. With the proposed expansion, the company looks forward to
increase commercial contracts with major OEMs in its business segment and increase
presence amongst global cement players.
2. With the growth in the economy, the user industries (viz. cement, thermal power and
mining) are expected to be on a sustained growth path.
Weaknesses:
1. The product is low value and the industry is characterised by many small and few major
players operating at all levels of the value chain from the unorganised sector as well as
globally. This brings down the bargaining power of the company. AIAE is not the sole
supplier of mill internals to any of its clients.
2. After the termination of the technical-cum-financial collaboration in the year 2000, M/s
Magotteaux of Belgium (manufacturer of high chrome metallurgy based wear & impact
resistant cast component) set up its 100% subsidiary in India in the year 2003, which has
a manufacturing capacity of around 6,000 tonnes presently catering to the requirements
of mill internals for vertical mills only in which it enjoys a good market share. M/s
Magotteaux has a worldwide presence and might consider entry into the Indian markets
in a bigger way covering other parts of mill internals as well. M/s Magotteaux is
technically more competent and has a bigger global image.

3. The profit margins of AIAE had dipped in FY 2005 and hence there was no growth in net
profit. Its 3-year CAGR in PBT is just 15%
The Company is in the initial stage of setting up of a Captive Power Plant and a Ferro Chromium
plant for capitive consumption and backward integration respectively. Also the company plans to
set up a high Chrome Mill Internals unit of capacity 100000 TPA . From February 2008, PCCL
has become a 100% Subsidiary of the company.
AIA Engineering has registered 19% growth in its consolidated net sales for the quarter ended
June 2017 to Rs 591.52 crore. But a 670 bps contraction in operating profit margin has dragged
operating profit down by 9% to Rs 129.85 crore. Hit further by lower other income, higher
interest and depreciation cost as proportion to operating profit, the PBT was down by 16% to Rs
129.19 crore. With tax rate stand higher the PAT was down by 19% to Rs 88.70 crore. The non-
controlling interest was up by 370% to Rs 0.20 crore, thus leaving the net profit attributable to
owners down by 19% to Rs 88.49 crore. With other comprehensive income down by 85% to Rs
0.92 crore, the total comprehensive income was eventually down by 22% to Rs 89.41 crore.
▪ Operating income excluding other operating income was up by 19% to Rs 576.39 crore.
Strong sales growth in high teen was largely due to higher volume and marginal increase
in realisation. Sales volume for the quarter was up by 17% to Rs 556.80 crore and the
realisation per MT was up by 2%.
▪ The value of production for the quarter was higher by 13% to Rs 589.16 crore and the
sales for the quarter was 2.2% lower than value of production. In comparison, the sales in
corresponding previous period was 7.1% lower than value of production. The inventory
built up will get liquidated going forward.
▪ Other operating income comprising fully of export incentive was up by 36% to Rs 15.13
crore and thus the total operating income was up by 19% to Rs 576.39 crore.
▪ Sharp 670 bps contraction in OPM to 22% was largely due to higher material cost.
Material cost as proportion to sales (net of excise and stocks) was up by 720 bps to
41.5%. Though the staff and OE were lower by 30 bps (to 4.7%) and 160 bps (to 31.5%)
respectively that could not fully offset the rise in material cost leading to sharp
contraction in OPM. Thus, hit by lower OPM, the operating profit was down by 9% to Rs
129.85 crore irrespective 19% growth in sales.
▪ Other income was down by 39% to Rs 18.50 crore. The interest cost up by 18% to Rs
1.40 crore and the depreciation was up by 2% to Rs 17.76 crore. Thus the PBT was down
by 16% to Rs 129.19 crore.

▪ Taxation was up by 10% to Rs 40.49 crore but the tax rate was higher 31.3% for the
quarter compared to 29.2% in corresponding previous period. And thus the de-growth at
PAT was 19% to Rs 88.70 crore.
Yearly Performance
Sales was up by 7% to Rs 2320.34 crore but with 70 bps contraction in OPM, the growth at
operating profit restricted to 4% (to Rs 634.57 crore). After accounting for higher other income,
lower interest cost and higher depreciation, the PBT was up by 3% to Rs 662.04 crore. The
taxation was up by 11% to Rs 204.83 crore and thus the PAT was flat at Rs 457.21 crore.
Eventually the total comprehensive income was down by 5% to Rs 438.91 crore hit largely by
higher other comprehensive expenses which was Rs 17.88 crore for the period compared to an
income of RS 3.80 crore.
Order book as at July 1, 2017 was Rs 536 crore.
AIA Engineering held a conference call on May 25, 2016 to discuss the performance of the
company for the quarter and fiscal ended March 2016.
▪ Production in Q4FY16 and FY16 stood at 46399 MT (down from 51324 MT in Q4FY15)
and 189449 MT (down from 200215 MT in FY15).
▪ Sales in Q4FY16 stood at 53502 MT (of which 28594 is mining volume) compared to
50626 MT (of which 25326 is mining volume) in corresponding previous period. The
sales volume for FY16 was 185844 MT (mining volume is 100684 MT) compared to
186656 MT (mining volume of 106056 MT) in FY15.
▪ Marginally lower sales volume in FY2016 can primarily attributable to certain strategic
and conscious decisions i.e. restricting sales to Ukraine, reduction in South African
market volume owing to currency uncertainties, and volume reduction owing to closure
of one particular iron ore mine in Brazil.
▪ Expects decent volume growth in FY17. The confidence for volume growth for current
fiscal comes from happening of new opportunities. Developmental activities of new
mines in several key locations in full swing. The company target an incremental volume
growth of 120000 MT over next 3 years.
▪ Greenfield expansion at GIDC Kerala, Phase II that envisage a capacity addition of

100000 TPA taking the total installed capacity of the company to 440000 TPA is
expected to be commissioned by Oct 2017. The total capex cost is Rs 350 crore.

▪ Capex incurred during FY2016 is Rs 178 crore and capex estimated to be incurred in
FY2016-17 is Rs 150 crore.
▪ Order book as at April 1, 2016 was Rs 534 crore.
▪ The opportunity landscape over medium to long term horizon remaining unchanged with
the total addressable annual mining replacement market estimated at around 3 million
TPA coupled with a very low penetration of high chrome consumable wear parts in
mining. Bulk of future growth is expected to come from outside India and that too mainly
in mining segment.
▪ Apart from significant cost reduction due to much lower wear rates, high chrome
solutions also bring about benefits like improved process efficiencies, reduction in other
consumables (other than high chrome consumables), improved environmental benefits,
etc. which are other key growth drivers.
▪ Outstanding foreign currency forward contracts as of March 31, 2016 stand at USD 26.25
million, Euro 4.75 million.
▪ Cement sector outlook continues to remain flat with no near term signs of recovery
visible either in India or outside India.
▪ The supplies of high chrome mill internals to Indian thermal power plants, although flat
as of now, are expected to pick up from this fiscal, but the growth rate will be pegged to
the growth rate achieved by thermal power segment in India.
▪ For the time being, AIA has a limited presence in China limited to the VSMS high
chrome mill internal parts.

10.4. KEC International
Business:
KEC International Limited is one of the largest Power Transmission Engineering-Procurement-

Construction (EPC) companies in the world, which was incorporated in 18th March of the year
2005. The flagship company in the transmission sector of the RPG Group, KEC strengths its
presence in the areas of Design, Manufacture, Supply and Construction of Turnkey Projects of
Power Transmission lines of voltages upto 800 KV and in the execution of Railway
Electrification projects, setting up Sub-stations and Power Distribution Networks, Optical Fibre
Cable (OPGW) installations, Turnkey Telecom Infrastructure Services and maintenance of
Power Transmission Lines. The Company has an increasingly strong presence in the Middle
East, the Pacific Rim countries and Africa. The heart of any manufacturing facility is its
infrastructure. KEC has three manufacturing plants at Jaipur, Nagpur and Jabalpur in India. In
these three plants, KEC can manufacture 1, 10,000 tons of towers annually, both the three plants
are certified as per ISO 9001 and 14001 for Quality and Environmental Standards. Also KEC has
two of Asia's most sophisticated Tower Testing stations, capable of testing towers of upto 1000
KV Transmission Line.
KEC International has registered 131% jump in its consolidated net profit (after minority interest
but before other comprehensive income) to Rs 65.04 crore for the quarter ended Sep 2016.
Strong jump at bottom-line come on just an marginal 3% growth in sales (to Rs 2121.37 crore)
and that can be attributed to 140 bps expansion in operating profit margin to 8.7%, higher other
income, lower interest cost and lower tax incidence.
However the standalone net profit (before other comprehensive income) was down by 4% to Rs
48.89 crore on a sale of Rs 1842.87 crore, a fall of marginal 1%. Fall at bottom-line is largely
due to weak operating performance where the operating profit declined by 9% (to Rs 145.49
crore) hit by lower sales as well as 70 bps contraction in operating profit margin.
Given subdued standalone performance, the strong consolidated performance is attributed to

strong show by subsidiaries. The sale of subsidiaries was up by 37% to Rs 278.5 crore on
deducting standalone financials from consolidated financials. With OPM turn positive to 14.3%
compared to negative 4.3% in the corresponding previous period, it was a profit of Rs 39.8 crore
at operating level compared to a loss of Rs 8.7 crore in the corresponding previous period. Thus,
the PAT was profit of Rs 16.1 crore compared to a loss of Rs 22.9 crore in the corresponding
previous period.
▪ Consolidated operating income was up by just 3% to Rs 2121.37 crore as hurt by flat

revenue from non-SAE T&D business, lower revenue from cables and water. The non-
SAE T&D business revenue was flat at Rs 1529 crore and that of SAE was up by 29.9%
to Rs 261 crore thus leaving the overall T&D business revenue up by 3% to Rs 1790
crore. Strong execution of growing railway order book has resulted in 94% jump in
revenue from railways to Rs 66 crore. The cable business was down by 19% to Rs 228
crore and that of water was down by 10% to Rs 19 crore. The revenue of solar stood at Rs
26 crore from just 0.5 crore in the corresponding previous period.
▪ Irrespective of modest sales growth, the operating profit was up by 22% to Rs 185.33
crore as the operating profit margin (OPM) expands by 140 bps to 8.7%. Expansion in
OPM is attributed to lower material cost and OE. Material cost as proportion of sales net
of stocks and excise was lower by 170 bps to 49.14%. The OE was down by 200 bps to
11.5%. However, the erection/subcontract expense was up by 100 bps and staff cost was
up by 110 bps.

▪ Other income was down by 49% to Rs 5.50 crore. The interest was down by 13% to Rs
59.61 crore. Depreciation was up by 9% to Rs 30.97 crore. Thus the PBT (before EO)
was up by 73% to Rs 100.25 crore.
▪ EO income for the quarter as well as corresponding previous period was nil. Thus the
PBT (after EO) was up by 73% to Rs 100.25 crore. The current tax was higher by 18% to
Rs 35.21 crore but the tax rate stood lower at 35.1% compared to 51.5% in the
corresponding previous period. Thus the PAT more than doubled (up 131%) to Rs 65.04
crore. The share of profit from associate was nil compared to a loss of RS 0.01 crore in
the corresponding previous period. Thus the net profit was up by 131% to Rs 65.04 crore.
The other comprehensive income was down by 72% to Rs 7.07 crore. Thus on high base
the total comprehensive income was up by 35% to Rs 72.11 crore.
Half Yearly performance
Consolidated sale was down by 2% to Rs 3906.10 crore. The OPM was up by 130 bps to 8.6%
and thus the operating profit was up by 15% to Rs 334.91 crore. After accounting for higher
other income, lower interest and higher depreciation the PBT (before EO) was up by 51% to Rs
153.79 crore. EO income for the quarter and corresponding previous period was nil. Thus the
PBT (after EO) was up by 51% to Rs 153.79 crore. Taxation was up by 1% to Rs 57.81 crore and
thus the PAT more than doubled (up by 113%) to Rs 95.98 crore. Share of loss from associate
was up by 200% to Rs 0.03 crore and thus the net profit was eventually up by 113% to Rs 95.95
crore.
Order book
The order book as end of Sep 30, 2016 stood at Rs 10785 crore. Order intake for H1FY17 was
5928 crore, a growth of 29%.
Management comment
Vimal Kejriwal, MD & CEO, KEC International commenting on Q3FY16 performance quoted
'We have consistently delivered healthy margins with our sustained focus on profitability. We
continue to maintain our leadership position in the T&D Industry despite muted global business
scenario. We have significantly scaled our Substation Business portfolio and building upon our
success in the domestic market, we are steadily expanding our presence in the International
Substation arena. SAE continues to witness significantly improved growth momentum. Railways
Business is also on a high growth trajectory on the back of consistent order inflows, increase in
capital outlay and enhanced client focus on execution. We are confident of maintaining our
growth targets on the back of our robust order book and substantial L1 positions.
KEC International held a conference call on August 1, 2017. In the conference call the company
was represented by Vimal Kejriwal, CEO and Rajiv Agarwal, CFO.

▪ Order book as end of June 30, 2017 stood at Rs 13532 crore and of which 73% was T&D
order excluding SAE, SAE about 9%, civil 3%, railways 10%, solar 3% and cables 2%.
Of the order book about 54% is from domestic market and balance 46% from
international market.
▪ In addition the company is L1 for order worth about Rs 4500 crore as on date. About 95%
of L1 order book is T&D and mostly of international order book.
▪ Order intake in Q1FY18 was about Rs 2790 crore and of which about 75% is from T&D
excluding SAE and SAE 5%, civil 8%, and cables 12%. Majority of the order inflow
during the quarter was from domestic market with its share at 94% and balance 6% from
international. Given GST confusion no order inflows for solar business.
▪ GST disturbance was there in June 2017 and continued in July 2017. Expect August 2017
to have the impact as well. By start of September 2017 the things will get clear, and to the
best the supplies can shift from Q2FY18 to Q3FY18.
▪ On Railway front with RVUNL ramp up execution, projects are executed by other PSUs
such as IRCON, RITES and PowerGrid. The company start bidding for railway orders
from these PSUs and the ticket size of these orders were in the range of 200 crore.
▪ SAE revenue was below expectation in Q1FY18. Two large projects executed by SAE
were put on hold due to clearance issues but the company continues to manufacture for
these two projects. SAE is L1 for one large project in Brazil. The company expects ramp-
up in revenue from Brazil from Q1 of next fiscal. Hopefully there will be improvement in
profit this fiscal for SAE.
▪ No change in annual guidance of 15% growth in FY18 revenue. The company still holds
to its earlier EBITDA margin guidance of 9-9.5% despite 9.3% margin clocked in
Q1FY18. The company will revise the margin after seeing how the impact of GST pans
out.
▪ In June 2017, many supplies that will be normally in transit was deferred to Q2FY18.
Loss of revenue in Q1FY18 will not be more than Rs 100 crore due to GST and mostly in
cables, substation equipment.
▪ Solar could see lull for next quarters and then pick up in domestic market given the
concern on GST as well as off-take. But the company is looking for solar orders from
overseas markets such as Middle East and Africa etc.
▪ Not seeing major risk elements apart from PGCIL not ramping up ordering despite
talking about ordering of about Rs 20000 crore per annum. The company is getting orders

from TBCB orders, state utilities and overseas market. Order and revenue from Saudi
Arabia are not much.
▪ T&D will account for about 75% of the revenue going forward and the share of
substation of the total T&D revenue will be in the range of 20%-30%.
▪ The orders entered before July 2017 has a clause for adjustment of taxes. So the company
will not get impacted.
▪ Some tenders from states are held back for GST but not expected that segment to
slowdown. L1 order book of the company has about 3-4 project from state utilities.
▪ Of the T&D OI of Rs 2000 crore in Q1FY18 about Rs 700 crore come from states.
▪ One or two large projects in TBCB which are not awarded till will get awarded during
Q2FY18. TBCB order bagged by KPTCL JV will not available in the market as it will be
placed with KPTCL captive.
▪ Civil construction part – not doing large orders. So far have Rs 225 crore of orders and
bided for quite few more orders.
▪ In substation, each client has difference PQ criteria. The company has

completed/executing 750 kva orders as well.
▪ Post change in Government the company start bidding in UP after 10 years. Expects UP
to come with few large projects.
▪ PGCIL signed an MOU with Indian Railways agreeing to undertake quantum of projects
taken up by them.
▪ EBITDA margin in Q3FY18 improved to 9.3% compared to 8.4% in corresponding

previous period.
Gross receivables were Rs 5587 crore as end of June 30, 2017 compared to Rs 5546 crore as end
of March 2017 and Rs 5788 crore as end of June 2016. Gross receivables include accounting
long term receivables of the company's BOT project as per Ind AS provisions amounting Rs 182
crore as on 30.6.2017 & Rs 165 crore as on 31.3.2017.

10.5. Solar Industries
Business:
Solar Industries India Ltd is a leader in the specialized industry of explosives. The company is
engaged in the manufacturing of complete range of industrial explosives and explosive initiating
devi9.5. ces. They manufacture various types of packaged emulsion explosives, bulk explosives

and explosive initiating systems. Its bulk explosives are used for large open cast projects. Their
product range includes cartridge explosives, bulk explosives, detonators and detonating fuse etc.
The packaged explosives are available in different diameters ranging from 25 millimeter to 200
millimeter. The packaged explosives are used for tunneling, underground metal-ferrous mines,
civil construction projects and shaft sinking. SIIL's cast booster is used for priming insensitive
explosives like ammonium nitrate and fuel oil (ANFO), slurries and emulsion.
The company has collaborated with local players in the African region to set up manufacturing
plants in Zambia, Tanzania and Nigeria. In April 2010, the company commenced a plant at
Zambia to manufacture bulk explosives under the 65% subsidiary Solar Explochem Zambia Ltd.
The company proposes to set up a plant at Tanzania, which is expected to commence operations
during the financial year 2010-11. Also, the plant in Nigeria is expected to be operational during
the financial year 2010-11.
Solar Industries India is one of the largest comprehensive explosives and initiating devices
manufacturing company in India. It has come out with financial results for the quarter and year
ended March 11 and held a conference call on May 20, 2011 to discuss the financial performance
and business prospects of the company. Manish Nuwal – Executive Director and Nilesh
Panpaliya CFO addressed the call.
Key takeaways of the conference call:
▪ On a consolidated basis, Solar Explosives as registered robust 81% jump in the Net Profit
at Rs 26.43 crore on 31% rise in the sales at Rs 201.96 crore in the quarter ended March
2011.
▪ On a consolidated basis, the company has reported 22% increase in the sales at Rs 679.45
crore and 29% increase in Net Profit at Rs 75.60 crore in the year ended March 2011.
Company has acquired stake in Nigachem Nigeria in Nigeria, which contributed 10% of
Net sales in the FY'11.
▪ The Company has passed on increase in Ammonium nitrate prices, which accounts for
74% of raw material cost for explosives to their customers and protected their margins.
▪ It has expanded horizons in overseas markets like Zambia, Nigeria and Tanzania. The
company has added 10000 metric tonne of capacity in Zambia market in June 2010.
Turnover of Rs 14 crore from Zambia market and Rs 71 crore from Nigeria market has
been attained during the last financial year'11. With additional capacities at Zambia, the
company expects to quadruple its revenues from these markets in coming years. Besides
the above, company is also looking forward to identify new markets and launch products
in terms of Electric Detonators and Specialty chemicals.

▪ Company is expecting about 8 to 10% of growth in Explosives for the FY'12. Anticipates
good sales in the coming future as it expects India to enter its fastest infrastructure
investment phase ever.
▪ The management noted that its market share of Explosions business in India is around
23% in terms of value and 19-25% in terms of volume.
▪ Capex for FY11 stood at Rs 95 crore, of which Rs 51crore was for domestic market and
remaining Rs 44 crore for overseas (Zambia, Nigeria and Tanzania) markets.
▪ It plans to invest around Rs 200 crore during the FY'12 and FY'13 for further capacity
expansions out of which two third of amount will be invested in domestic and remaining
one third of amount to overseas markets.
▪ Company maintains contracts with the clients either yearly or on half-year basis.
▪ For sale of explosives to Coal India (CIL), the prices are updated on quarterly basis
factoring in the increase in prices of diesel and Ammonium Nitrate. This has helped Solar
Industries margins to stabilize.
▪ EBITDA margins stood at 22% in the year ended FY'11. Company expects to sustain the
margins and it also expects growth in the exports in the FY'12.
▪ Their cash balance stood at Rs 67 crore and Debt at Rs161.68 crore respectively at end of
March 11.
▪ The company has no plans to raise capital for 3- 4 years.
▪ Solar is holding two coal blocks in Chhattisgarh through subsidiaries and JV. Coal block
in Midnapore is going to be operational before the year-end of FY'12 and the other coal
block will take nearly 2 years to become operational
Solar Explosives (SEL) is one of the largest comprehensive explosives and explosive initiating
devices manufacturing companies in India with its superior quality products finding ready
markets in South East Asia, Middle East and various African countries. SEL has a licensed
capacity of 1,75,000 tonnes of explosives, which include bulk and cartridge explosives, 140
million detonators, 20 million meters of detonating cord, 250 tonnes of PETN and 60 tonnes of
cast boosters.

10.6. ABB India Ltd
Business:
ABB (formerly Asea Brown Boveri), a 52% subsidiary of ABB, Switzerland, is a major player in
power transmission and distribution (T&D) equipment and industrial automation. ABB India
serves utility and industry customers with a complete range of offerings. The company has a vast
installed base, extensive local manufacturing at eight units and a countrywide marketing and

service presence. It has a national channel partner network, which ensures geographical reach
and penetration of its products and services.
Parent ABB is a global product, systems and solutions leader in its two core areas of operation
— power and automation technologies — enabling utility and industry customers to improve
their performance while lowering environmental impact. The ABB group of companies operates
in around 100 countries and employs about 105,000 people.
ABB India Ltd is one of the world's leading engineering companies, which helps customers to
use electrical power effectively and to increase industrial productivity in a sustainable way. The
company is a leader in power and automation technologies that enable utility and industry
customers to improve performance while lowering environmental impact. They have served
utility and industry customers for over 50 years with the complete range of engineering,
products, solutions and services in areas in Automation and Power technology. They are having
their operations in 14 manufacturing facilities in India and serving their customers through an
extensive countrywide presence with more than 18 marketing offices, 8 service centers, 3
logistics warehouses and a network of over 800 channel partners.
The company segments includes: power systems, which offers turnkey systems and services for
transmission and distributions for power grid and power plants, instrumentation, control and
balance of power plants; power products, which manufactures, engineers, supplies key
components to transmit and distribute electricity, and also produces transformers, high and
medium voltage switchgears, circuit breakers, capacitors, distribution relays; process automation,
which provides integrated solutions and served oil and gas, power, chemicals and
pharmaceuticals, pulps and paper, metals and minerals, marine and turbo charging industries;
automation products, which provides motors, variable speed drives, low voltage products,
instrumentation and power electronics; Others consists of robotics systems.
ABB India, the power T&D equipment and automation major has registered 6% increase in its
sales for the quarter ended June 2017 to Rs 2361.50 crore. Facilitated by both higher sales and
110 bps expansion in operating profit margin, the operating profit was up by sharp 30% to Rs
147.32 crore. Eventually its PAT was up by 35% to Rs 88.17 crore.
▪ Sales were higher by 6% to Rs 2361.50 crore. Upside in revenue is largely due to growth
in strong double digit growth in electrification products. The segment revenue of
electrification products was higher by 20% (to Rs 644.59 crore or 27% of sales). The
segment revenue of Power Grids was flat (up 0%) at Rs 960.08 crore (or 40% of sales).
Similarly the segment revenue of robotics & motions was flat at Rs 458.79 crore (or 19%
of sales). But that of Industrial automation was down by 1% (to Rs 353.45 crore or 15%
of sales).

▪ EBIT was up by 37% to Rs 196.45 crore and strong upside at EBIT despite mid single
digit growth in sales is largely due to strong double digit growth in profit of all segments.
Segment profit of Robotics & Motions jumped by 172% to Rs 30.71 crore despite flat
growth in sales was largely due to 420 bps expansion in segment margin to 6.7%.
Similarly the segment profit of Power Grid was up by 55% to Rs 69.58 crore. Despite flat
growth strong growth in segment profit of power grid was due to 250 bps expansion in
segment margin to 7.2%. Facilitated by 80 bps expansion in segment margin the segment
profit of Industrial Automation was up by 10% to Rs 31.59 crore even its sales was down
by marginal 1%. However despite sales growth in early twenties, the segment profit of
electrical products was up by 11% to Rs 64.57 crore moderated by 80 bps contraction in
segment margin.
▪ Operating margin (OPM) for the quarter expanded by 110 bps to 6.2% and that can be
attributed to fall in all cost heads barring cost of traded goods. Material cost as proportion
to sales net of stocks and excise was lower by 20 bps to 53.1%. Similarly the cost of sub
contract, staff and other expenses was down by 40 bps, 20 bps and 50 bps respectively to
6.3%, 9.7% and 19.6%. However the cost of traded goods was up by 30 bps to 4.7%.
▪ Other income stood higher by 9% to Rs 32.58 crore. Operational EBITA excluding

certain non-recurring items such as amortization expense on intangibles arising upon
acquisitions (acquisition related amortisation), restructuring and restructuring related
expenses, non-operational pension cost, changes in pre-acquisition estimates, gains and
losses from sale of businesses, acquisition related cost and certain non-operational items
as well as foreign exchange/commodity timing difference in income from operations
consisting of unrealized gain/loss on derivatives, commodities, embedded derivatives and
unrealized forex etc., was lower by 7% to Rs 94 crore with adjusted EBITA margin stand
lower by 60 bps to 4.2%.
▪ The interest cost was higher by 17% to Rs 23.06 crore and depreciation was higher by
7% to Rs 38.32 crore. Thus the growth at PBT was 35% to Rs 118.52 crore. The taxation
was up by 34% to Rs 43.46 crore in absolute numbers and the tax rate at 36.7% stood
marginally lower compared to 36.8% in corresponding previous period. Thus the PAT
was higher by 35% to Rs 75.06 crore.
▪ Other comprehensive expense net of tax was nil compared to Rs 3.88 crore in the
corresponding previous period. Thus on deflated base the total comprehensive income
was up by 45% to Rs 75.06 crore.
Half yearly Performance
Sales was up by 8% to Rs 4677.79 crore and with OPM stay flat at 6.6% the operating profit was
up by 8% to Rs 308.21 crore. The other income was up by 44% to Rs 64.42 crore. The interest

cost was up by 5% to Rs 44.24 crore and the depreciation was up by 6% to Rs 75.93 crore. Thus
the PBT was up by 16% to Rs 252.46 crore. The taxation was up by 14% to Rs 87.42 crore and
the PAT was up by 17% to Rs 165.04 crore.
Other comprehensive income net of tax was Rs 3.67 crore compared to an expense of Rs 3.72
crore in the corresponding previous period. Thus the total comprehensive income was up by 23%
to Rs 137.38 crore.
Order book
Order book of the company as end of June 30, 2017 stood at Rs 12094 crore and the order intake
for Q2Y2017 was Rs 2301 crore, a growth of 13% compared to corresponding previous period.
Management Comments
Sanjeev Sharma, CEO and Managing Director, ABB India quoted, 'ABB India Limited delivered
another quarter of all-round growth in a time of multiple transitions. Advanced preparation with
a robust team ensured that we are well prepared to manage positive yet disruptive structural
changes in India's eco system. We delivered into projects of national importance during the
quarter with our best in class, future ready technologies made in India,'. He further said 'Our
close partnerships with customers have enabled us to better understand their business needs in
the current macro environment. An effective deployment of ABB technologies will deliver new
age digital productivity solutions that will catalyze the next level of growth opportunities,'. 'Our
technology solutions are set to play a significant role for a nation riding the wave of development
across utilities, industry, infrastructure and transportation' he added.
Stock hovers around Rs 1458.70.
ABB India held a conference call on July 20, 2017 to discuss the performance of the company
for the quarter and half ended June 2017. In the conference call the company was represented by
Sanjeev Sharma, CEO & Managing Director and TK Sridhar, CFO.
Key takeaways of the conference call
▪ Order intake for the quarter and half year ended June 2017 was up by 13% (to Rs 2301
crore) and 20% (to Rs 4644 crore) respectively. Q2CY2017 order intake is 100% base
orders.
▪ The order backlog as end of June 2017 was higher at Rs 12094 crore, a rise of 56% over
Rs 7752 crore as end of corresponding previous period.
▪ Performance of the company for second quarter and half year ended June 2017 was
overall balanced.

▪ The company continues its focus on utilities, industries, transportation and infrastructure
and this is paying dividend there by resulting in good base orders.
▪ Utility segment of market place continues to see growth with traction in renewable. Off-
late there is tariff competitiveness in renewable both wind and solar. The company
registered a growth of 28% in renewable. Investments are taking place in foods &
beverages, irrigation and water, railways and metro etc. The cement sector is witnessing
consolidation and efficiency improvement projects are taken up in the sector.
▪ Order book at 1.5 times of annual sales gives strong revenue visibility for the company.
See opportunity open up with increased demand for products and services as GST
stabilize in next 3 months.
▪ Transmission sector expected to see shift in investment profile going forward with about
61% of project and investments are to come from state governments. The investment are
to be in both inter and intra state transmission systems as well as green corridors. Expect
a capex of about Rs 260000 crore in Indian transmission sector and of which about 61%
is expected to be made by state government.
▪ One off exp relating to development of new products is accounted during this quarter.
The company does not want to quantify the amount of one off.
▪ Pre-GST impact – momentary impact with channel partners reluctant to take delivery.
But now that reluctance has disappeared.
▪ HVDC project progress – The North East - Agra project is in advanced completion stage.
The recent order of Raigarh to Pugalur is advanced stage of commencement of work.
▪ ABB India is hub or expertise centre for Micro Grids for ABB Group. Traction of micro
grids linked to fall in battery prices. Once battery price declines good traction is expected
in the country. Right now running some pilot projects in the country as part of CSR etc.
▪ Export and services are one of fastest growing with exports grew by 20% and services
grew by about 15-16%.
▪ AV charging Technologies is widely in usage in Europe for charging electric vehicles.

Next 2-3 years are the crucial period for growth in electric cars. India will copy from
west and adopt on its own.
▪ Of the company's focus areas, while there is fresh capex is witnessed in utilities,
transportation and infrastructure sectors the industrial sector is witnessed only opex.

▪ With no great growth in heavy industries the lighter industries such as F&B, plastics etc
are witness to capital investment and the company has aligned its business accordingly.
This has given flip to revenue of Robotics and motion in first half.
▪ Industrial Automation: No large green field projects in Heavy Industries but the company
registered double digit growth on sequential basis in second quarter ended June 2017 and
that is largely as some of core customers started investment in productivity improvement
and energy efficiency projects.
▪ Currently the company's exposure in the transportation sector is restricted to

electrification of metro rail and propulsion systems for railway locomotives.
▪ Higher personnel exp is due to yearly increment and performance bonus payments which
kicked in during this quarter.

11. Overall Sector Performance
Measuring sector performance from IIP Data
The performance of the Capital Goods Sector in terms of Index of Industrial Production has only
been marginally better as compared to previous years. The big growth that was expected in the
sector has not yet started and the sector suffers from major bottlenecks that have been discussed
in the report.
Fig 50: Capital Goods sector IIP from 2012-2017 – new IIP series with FY2012 as base year
Fig 51: Capital Goods sector IIP from 2012-2017 – new IIP series with FY2012 as base year
Needless to say the performance of the sector has belied expectations. Amongst all sectors
monitored by IIP, performance of the Capital Goods sector has been the lowest and by a
significant margin. This has not always been the case and reflects the general outlook of the
economy of reduced investments and lack of capacity addition.
Fig 51: Capital Goods vs. other sectors of IIP data – FY2017
Impact of GST on the Sector
GST has caused disruption for the exporters of Engineering and Capital Goods as supply of
goods to the export oriented units (EoU) from domestic tariff area are not considered as "deemed
exports" in the GST regime, shippers are not allowed to import the inputs without payment of
duty under Advance Authorisation. Moreover, exporters will have to pay the basic customs duty,
cesses and IGST for imported inputs to be used for supplies to EoU. They are entitled to input
tax credit of only IGST. Basic customs duty and cesses are thereon a cost to them.
Impact of Scheme for Enhancement of Competitiveness of the Capital Goods Sector
There has been some Government led activity in terms of support infrastructure. Under the
Scheme for Enhancement of Competitiveness of the Capital Goods Sector Rs 100 crore had been
disbursed till end of CY2016. Fourteen proposals had been approved. Out of these four pertained
to Centres of Excellence for technology development by eminent Institutions like Central
Manufacturing Technology Institute (CMTI), Indian Institute of Technology (IIT), Madras, PSG
College of Technology, Coimbatore, Scientific and Industrial Testing and Research Centre
(Si’Tarc), Coimbatore. Four proposals had been approved for Common Engineering Facility
Centre which includes two Training Centres at HMT Machine Tools at Bangalore and at HEC
Limited, Ranchi and two common engineering facilities in Chakan, Maharashtra and Bardoli,
Gujarat. Further a Project for setting up an Integrated Machine Tool Park at Tumkur had also
been approved. Apart from the above, five projects have been approved under Technology
Acquisition Fund program component of the scheme.

In addition to the above, the projects pertaining to Capital Goods Industry under Uchchatar
Avishkar Yojana and Impacting Research Innovation and Technology (IMPRINT) Schemes of
the Ministry of Human Resource Development are also being supported partly by the
Department of Heavy Industry. As of 25 July, 2017, there was no work on HIEMDA, which was
one of the key features of the scheme to promote development of Capital Goods.
Infrastructure investments to drive growth
Government led investments in the infrastructure space to continue to drive growth of the capital
goods sector. Some of the key points are:
▪ In the highways sector, over 26,000 km of 4 or 6 lane national highways have been built
in FY17
▪ In the railway's sector, 953 km of new lines were laid in 2016-17, as against the target of
400 km. Track electrification of over 2000 km and gauge conversion of over 1000 km
was achieved in the same period
▪ In the ports sector, under the Sagarmala project, 415 projects have been identified with an
investment of Rs 8 lakh crore, and projects worth 1.37 lakh crore rupees have been taken
up for implementation
▪ In the digital infrastructure sector, 2187 mobile towers have been installed in districts
affected by Left Wing Extremists, in 2016-17
▪ In the coal sector, rationalization of coal linkages and movement yielded an annual
saving of over Rs 2500 crore in 2016-17
Fig 52: BSE-CG vs INDEXBOM:SENSEX – Capital goods stocks have done better than the market on the whole
It is due to the positive sentiment thus created that the Capital Goods stocks have performed
reasonably well. Most major players have a healthy build up of enquiries and/or orders which
they are looking to convert to business activity once the disruption dust settles a bit. We are
hopeful that the sector will make a full recovery and rebound in FY2018.

11. References
1. Ministry of Power, Government of India (www.powermin.nic.in)
2. Central Electricity Authority (www.cea.nic.in)
3. UDAY Website (www.uday.gov.in)
4. Indian Brand Equity Foundation (IBEF) (www.ibef.org)
5. Department of Heavy Industry (www.dhi.nic.in)
6. CRISIL Research Database (www.crisilresearch.com)
7. CAPITALINE Databases (www.capitaline.com)
8. Bloomberg (www.bloomberg.in)
9. Ministry of Statistics and Programme Implementation, Government of

India(www.mospi.nic.in)
10. Export-Import Bank of India (www.eximbankindia.in)
11. Annual Reports 2016-17 of Companies

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UNNATI INVESTMENT MANAGEMENT AND RESEARCH GROUP

Jay Bakhda| Mayank Pandey

I Introduction to Technical Terms 4

1 Power Sector in India 6

2 Value Chain of Power Sector 7

2.1 Power Generation 9

2.2 Power Transmission 21

2.3 Power Distribution 24

2.4 Power Trading 26

3.1 Electricity Act, 2003 29

3.2 National Tariff Policy, 2016 31

3.7 Impact Analysis 63

4 Overall Sector Performance 64

5.1 Power Grid Corporation of India Limited 68

5.2 National Thermal Power Corporation Limited 71

5.3 Coal India Limited (CIL) 73

Unnati Sector Report 2017-18 | 1

5.4 PTC India Limited 76

6 Capital Goods Sector in India 81

7 National Capital Goods Policy, 2016 85

8 Export Promotion of Capital Goods Scheme 87

9.1 Power & Electrical Equipment 89

9.2 Machine tools 90

9.3 Textile Machinery 91

9.4 Construction and Mining Machinery 92

9.5 Plastic Processing Machinery 93

9.6 Process Plant Equipment 93

9.7 Dies, Moulds and Process Tools 94

9.8 Printing Machinery 94

9.9 Metallurgical Machinery 95

9.10 Food Processing Machinery 96

10.1 Apar Industries 96

10.2 Triveni Turbines 99

10.3 AIA Engineering 101

10.4 K.E.C International Ltd 105

10.5 Solar Industries Ltd 110

10.6 ABB India Ltd 113

11 Overall Sector Performance 119

Unnati Sector Report 2017-18 | 2

Unnati Sector Report 2017-18 | 3

Introduction to technical terms used in Power sector

Unnati Sector Report 2017-18 | 4

Total wheeling fee (TAC) = Wc ($/MWh) * Pw (MW) * t (h)

The fee associated with wheeling is referred to as a "wheeling charge.

Unnati Sector Report 2017-18 | 5

1. Power sector in India

Unnati Sector Report 2017-18 | 6

2. Value chain of the Power Sector

Fig 1: Power sector value chain

Fig 2: The Power sector landscape

Unnati Sector Report 2017-18 | 7

Fig 3 Power Supply Value Chain

We will now talk about each of these sub sectors in detail.

Unnati Sector Report 2017-18 | 8

2.1 Power Generation

The total electricity generated in FY-2017 was 1236.4 BU.

Fig 5: Total Electricity generate in India in BU [Source: CEA data]

Unnati Sector Report 2017-18 | 9

2.1.1 Thermal Power Plants:

Fig 9: Worldwide distribution of recoverable coal deposits

Unnati Sector Report 2017-18 | 10

Unnati Sector Report 2017-18 | 11

Unnati Sector Report 2017-18 | 12