MD’s Message

THE PRINCIPAL MESSAGE THAT I WISH TO SEND OUT TO OUR STAKEHOLDERS IS THAT THE FUTURE HAS NEVER BEEN SO BRIGHTER FOR TECHNO ELECTRIC.

THIS OPTIMISM IS DERIVED FROM HOW THE GOVERNMENT IS ADDRESSING THE CHALLENGES OF THE SECTOR ON THE ONE HAND AND FASTTRACKING INITIATIVES ON THE OTHER.

"Transmission", the magic word For one, India invested aggressively in enhancing its power generation capacities over the last decade. Gradually what emerged was a skew which is being progressively corrected. The country now possesses a considerably larger generation capacity than the corresponding transmission infrastructure required to evacuate the power. The country has sizeable idling power generation capacity due to inadequate transmission capacity with its peak deficit estimated at 2.8%. (Source: CEA, February, 2015) Just as the 10th Five Year Plan was dominated by incremental generation capacity, the 11th Five Year Plan was driven by sizeable investments in transmission. The result is that transmission network density has grown in line with the country's growing power generation capacity. The growing network density warrants superior design capabilities needing to be delivered quicker. This growing sophistication has segregated product and project implementation partners, creating an attractive industry opportunity for specialised service providers like Techno Electric.

THE RENEWABLE ENERGY PUSH

Besides, there is a growing recognition that India, the seventh largest in the world by landmass and the second largest by population, pose one of the biggest threats to the environment. As reforms accelerate, incomes rise and the country's consumption patterns improve, India could emerge as one of the most significant perpetrators of global warming

India seized the chance to emphasise its responsible citizenship. The country commissioned 250 GW of aggregate power generation capacity in the first seven decades of its existence; the country now intends to replicate this very capacity across the next seven years through farsighted renewable energy generation.

The very nature of non-firm (renewable) energy will need diverse transmission competencies. Besides, the management of large quantities of this energy in a sophisticated manner poses to be a wholly different ball game. This sophistication will demand the reconciliation of efficient systemic design with cutting-edge electronic solutions and dynamic load management capabilities.

TECHNO ELECTRIC'S POSITIONING

Techno Electric is at the right place at the right time to capitalise on this emerging reality. The Company was the first to get the Rs 268 crore order for installation of STATCOM at Solapur, Satna and Aurangabad in association with the Chinese Company Rongxin. This was the first time that such an advanced solution is being attempted in India and Techno Electric's successful bagging of the order serves as a formidable prequalification credential for garnering bigger orders over the foreseeable future.

The excitement related to India's renewable energy sector is unprecedented, and one needs to act on it - here and now. The Indian Government has created green corridors in Rajasthan, Gujarat and Tamil Nadu in the first phase and will do so in Maharashtra, Andhra Pradesh and Madhya Pradesh in the second phase (funded by KFW, Germany). I am pleased to state that a proactive Techno Electric carved out Rs 370 crore worth of 765 kV AIS and 400 kV GIS solutions (deliverable by March, 2017).

EVOLVING ORDER BOOK

Three years ago, the Company's order book of Rs 950 crore was entirely drawn from conventional areas. Now, more than 25% of the Company's Rs 2,025 crore-order book as on March 31, 2015 was derived from niche areas.

So how will this evolution transform our prospects?

One, we expect that our hit rate related to project bidding will increase substantially because of our growing presence in frontier spaces where we have demonstrated our competence. Three years ago, the Company�s order hit rate was an estimated 5% of all projects bid for; today, the hit rate has increased to more than 10%.

Two,we expect our overall profitability to increase by a handsome margin from an average of 11% of our EBIDTA margins a year ago after the full impact of our new order book is reflected in our financials

Three, we expect to grow our revenues by 30% compounded annually over the next three years based on our existing order book and we have a reasonable visibility regarding the projects we have bid for.

Four,we expect to double our annuity income to reach Rs 200 crore over the next three years.

Five, we expect that our rapid evolution from an EPC solutions provider to an across-the-table network solutions provider will enhance our industry respect.

EMERGING OPPORTUNITIES

Even as much of our optimism is derived from changes that have already transpired on ground, there is an expectation that once the reform process accelerates, new opportunities will emerge faster.

For one, there is a growing recognition that every power consumer in the country should enjoy the right and flexibility to switch distribution vendors. This will be possible when the country segregates carriage from content. Besides, this scenario will attract a larger investment in the country's distribution infrastructure, which will moderate T&D losses and enhance revenue collection. As a provider of relevant solutions that ride a distribution network modernisation, Techno Electric is attractively placed to capitalise on the transformation.

The second transformation on the anvil is network privatisation (BOOT and BOOM). Techno Electric possesses the competence to address this emerging segment by completing projects quicker than the industry average and cheaper than legacy rates. This opportunity will do two things for Techno Electric: provide an opportunity to enter into EPC contracts (one-off income), the opportunity to invest in these projects for the long-term (annuity income) in addition to the flexibility to profitably divest BOOT/BOOM assets (lumpy one-time revenues).

OUTLOOK

If I say that Techno Electric has not achieved even 10% of its potential, then it is because the Company enjoys a market-leading competence in the transmission and renewable energy spaces, both of which are expected to graduate India into a clean and efficient energy consumer over the foreseeable future.

With warm regards

P. P. Gupta, Managing Director