PTC India Ltd

PTC INDIA LIMITED ANNUAL REPORT 2009-2010 CHAIRMAN'S REPORT Dear Shareholders, members of PTC Board, Ladies and Gentlemen, On my behalf and on behalf of the Board of Directors I am pleased to extend you all, a warm welcome to this 11th Annual General Meeting of your company. I recall informing you last year, at the AGM, as to how your economy was facing the global recession with resilience. Today, all economic indicators including GDP growth point that those testing and trying times are firmly behind us. A rapidly recovering economy timed well with Government's thrust on infrastructure development has helped expand the power sector including your company. I am happy to report to you the good performance of your company for the year 2009-10. This is your company's 11th year of operations and it has all through remained a market leader. Many of the initiatives taken by the Company right from the beginning and in recent years, for achieving competitiveness and sustainable growth have begun yielding encouraging results. Conducive business environment also facilitated our efforts for creating better shareholder value. Your company has built its growth on the principles of capacity enhancement, diversification and increasing footprint, all of which have been supported by a slew of efficiency improvements, introduction of innovative products and significant investments in high caliber human capital. 'A small good step is better than the grandest good idea.' The traded volumes touched an all time high of 18,236 Million Units (MUs), a 32% rise as compared to 13,825 Million Units (MUs) of the previous year. With a turnover of Rs.78445 Million (including other income) as against Rs.66261 Million (including other income) in the financial year 2008-09, your company registered a Profit After Tax of Rs. 941 Million as against Rs.908 Million in the previous year The profit after tax would have been more but for the higher component of taxable income as compared to previous year. PTC has always maintained very high standards of physical and financial performance and thus is considered a credible and reliable player which will deliver with certainty and quality. 'Value has a value only if its value is valued.' DIVIDEND Given the good performance of the Company, the Board of Directors have recommended a dividend of 12% per equity share for the financial year 2009- 10. GROUP FINANCIAL PERFORMANCE Your company has two subsidiaries, namely PTC India Financial Services Ltd (77.6% owned) and PTC Energy Ltd. (wholly owned). The consolidated turnover of the group is Rs.79259 Million (including other income) for the current financial year as against Rs. 66378 Million (including other income) for the financial year 2008-09. Consolidated Profit After Tax for the Group stands at Rs.1073 Million for FY 2009-10 as compared to Rs.941 Million for the financial year 2008-09. PTC India Financial Services Limited has sanctioned debt of Rs.20811 Million (Net) with I disbursal of Rs.4487 Million which includes Mezzanine /Short-Term debt of Rs.3490 Million and has made equity commitments to various power projects of around Rs.5000 Million with a disbursal of Rs.3875 Million till 31st July 2010. This will help to create more than 11,000 MW of power generation capacity in the country. PFS has also raised Rs. 2000 Million during the year through issuance of NCDs. PFS started Carbon Financing transaction, the first of its kind of deal in the country, to provide Upfront Carbon Financing against forward purchase for Certified Emission Reduction (CER) to be generated by the projects. PTC Energy Ltd executed 107,000 MT of Spot Sale/Purchase of coal during 2009-10 and has tied up 700,000 MT per annum for a period of 5 years commencing from 2010-11. In addition, PEL has also executed 39,900 MT of Spot Sale/Purchase of Coal during FY 2010-11. REVIEW OF PERFORMANCE (QI-FY 10) I am sure that you would have come to know by now about the encouraging first quarter (FY 2010-11) performance of your company and the Group. Trading volume of your company stood at 5747 Million Units as compared to 4204 Miilion Units (MUs) during Q1 FY 2009-10 while Income from Operations was Rs.27576 Million as compared to Rs. 23717 Million. However, Profit After Tax was lower from Rs.333 Million to Rs.278 Million on account of higher taxable income as compared to the corresponding quarter of the previous year. CONTINUOUS REVIEW OF BUSINESS PORTFOLIO The Company is regularly reviewing its business portfolio so as to ensure focus on businesses, which are scalable and enjoy inherent competitive advantage. The business plan of the Company is being monitored using rigorous management procedures and through introduction of various boutique and customized solutions/products for its customers. It has consolidated its position further by introducing innovative products in the market as and when the market needs it despite stiff competition from trading majors. In the last AGM, I had informed you about the various initiatives being taken up by your company. I would like to share with you some of the important milestones achieved during the year. 'Great spirits have always found violent opposition from mediocrities. The latter cannot understand it when a man does not thoughtlessly submit to hereditary prejudices but honestly and courageously uses his intelligence.' Albert Einstein SHORT-TERM TRADE The mainstay of the business remains short-term bilateral trade including over Power Exchange. The market for the short-term power has grown substantially in the last one year. This has been mainly due to the overall growth and expansion of the short-term business as a share of the total electricity generated in the country. The total short-term market in the country in volume terms is more than 30 Billion Units (4.32% of the total electricity generated) and in monetary terms more than Rs. 15,000 Cr. The year saw your company's trading volumes touch a record high of 18.236 BU. Domestic business of the Company contributed significantly to this growth. This was possible as a result of the initiatives taken since the early days of your company and also due to the continued marketing efforts and the company's philosophy of being close to the customer and understanding their emerging needs. Your company entered into agreements with Chattisgarh and CPPs/IPPs for sale of their surplus power for a 1-3 year period. LONG-TERM TRADE As an aggregator of capacities, your company provides the benefits of credit and market risk mitigation, better price fixation for the benefit of the purchaser, better terms and conditions of supply as well as management of supply volatility. It is in this context that PTC has focused on the long-term market through facilitation of power projects being set up by Independent Power Producers (IPPs) with whom it enters into long-term PPAs and sells the electricity being generated in the plant to various utilities through long-term back-to-back PSAs. The total long-term agreements signed by your company as on March 31st, 2010 stand at 15765 MW, including cross border trade, on the purchase side and 4960 MW on the sale side. The cumulative MoUs (14677 MW) are under active negotiation for finalization of long-term PPAs. Some of the projects, with which the Company has long term pun purchase agreements, got commissioned during the year namely 20 MW Samal Hydro Electric Project, 3x150 MW Baglihar Hydro Electric Project (PTC's share 225 MW). Your company has started trading its share of power from those projects, This segment would gradually be contributing significantly to our total trading portfolio. Your company is actively participating in the bids invited by states such as Gujarat, Karnataka, Maharashtra, Punjab, and Bihar for long-term procurement of power through the Case-I competitive biding process. In total, PTC has qualified for about 2600 MW capacity. A major achievement in this regard has been your company's success in getting Letter of Award (LOA) from Karnataka for supply of 1300 MW capacity on long-term basis (25 years). A number of IPPs have looked up to PTC in terms of support and knowledge it carries to table their combined view on a number of key issues related to Case I Tariff Bidding Process to the Appropriate Regulatory Commissions and the Ministry of Power, Government of India. Industry and captive capacities are not yet in the mainstream of the power business. PTC is targeting this segment by encouraging large industries to generate reliable and quality power under group captive concept to meet their own requirements as well as generate to sell. 'The human mind has first to construct forms independently before we can find them in things.' Albert Einstein POWER EXCHANGE Your company is by far the most credible player in the bilateral market as well as on the power exchange. With its subsidiary PFS as co-promoter of the first power exchange (IEX), PTC continues to play a dominant role in the exchange as it has the biggest portfolio of State Utilities trading power on the exchange via traders. A number of captive power plants with huge power consumption are also trading on the exchange as clients of PTC. IEX had begun with only day-ahead product but now a number of new products such as the term-ahead, intra-day transaction, and contingency transactions have been launched. Further discussions are on to expand the power exchange market: introducing Renewable Energy Certificates (RECs). IEX has seen record number of transactions taking place with buy and sale bids having crossed 100 MUs. Per day transactions have already crossed 80 MUs and are growing by the day. There are close to 320 participants on the IEX till date. CHALLENGING REGULATORY ENVIRONMENT Regulatory environment in the power sector remains a challenge. Though the trading margins have been relaxed for the cost of energy higher than Rs.3 per kWh, trading margin of 4 paise per kWh continues as earlier for the cost of power at Rs. 3 per kWh or below. However certain initiatives such as development of power market through adequate grid augmentation, facilitating non-discriminatory open access to grid and ensuring grid discipline are having a positive impact on the power market and its growth. Comprehensive regulation have been brought on new transmission tariff design that is expected to be market- friendly and on renewable energy certificates, which hopefully will give a strong push towards bringing renewable energy sources into the mainstream. 'Let's take jargon out of words and let's uncomplicate things.' CROSS BORDER FOOTPRINT The Company in recent years has successfully done transactions I with Bhutan and Nepal. Your company has taken several significant initiatives to make its mark on the power market of the Indian subcontinent due to the tremendous potential that exists in this region. AN OUTLOOK FOR THE FUTURE The Company is optimistic about the business prospects and about its capabilities to leverage them for your benefit. Government's thrust on capacity expansion coupled with enthusiasm of the Independent Power Producers augers well for the power sector which will lead to over all growth of the sector. In this regard, your company has adopted a holistic approach of developing the power sector by staying at the helm of affairs. This can be seen by the various initiatives PTC has entered into. 'My grandfather once told me that there were two kinds of people: those who do the work and those who take the credit He told me to try to be in the first group; there was much less competition.' Indira Gandhi. RENEWABLE SOURCES OF ENERGY PTC recognizes the fact that fossil-based fuel would be under increasing pressure due to climate change issues. Prime Minister's National Action Plan for Climate Change offers tremendous opportunities for the market to develop renewable energy, particularly solar and also energy efficiency projects. This area of business we see as becoming very significant in the next few years. PTC, through its subsidiaries and affiliates, is exerting efforts to bring into its fold renewable and energy efficiency projects. PTC has joined hands with Bureau of Energy Efficiency (BEE) towards fulfillment of National Mission for enhanced energy efficiency by signing a MoU on Energy Efficiency Financing Platform (EEFP). The MoU will strengthen the platform that seeks to overcome barriers to financing energy efficiency projects through risk sharing strategies and capacity up-gradation of financial institutions. 'Work for a cause, not for applause; live life to express, not to impress. Don't strive to make your presence noticed, make your absence felt'. DIVERSIFICATIONS PFS PTC India Financial Services Ltd. (PFS), has been promoted by PTC India Ltd (PTC) as a company incorporated under the companies Act, 1956, and registered with RBI as a NBFC. It has been set up as a special purpose investment vehicle to provide total financing solutions to the energy value chain. Recently PFS has been accorded the status of Infrastructure Finance Company 'IFC' from Reserve Bank of India. This is a new category of NBFCs announced by RBI in February, 2010. Infrastructure Finance Companies are allowed to have higher exposure for lending and investment to a single borrower or a group of borrowers. PEL PTC Energy Ltd (PEL), has been mandated into the business of generation, distribution, transmission and deal in electricity and all form of energy including sale and purchase of energy, coal/fuels, conversion of coal/fuels into electricity through Power Tolling Arrangements, fuel linkages, as well as explore the scope in the energy efficiency arena. The fuel particularly coal linkages in the domestic market are fast becoming critical and thus PTC intends to arrange for fuel linkages on a king term basis with suitable tie-ups with overseas mining agencies for power projects being set up in the coastal regions of India based on imported coal and enhance our endeavour to promote power tolling as a vital area of activity. ASSET MANAGEMENT According to latest estimates the Indian power market needs funding of US$ 600bn over a seven year period, which provides a significant opportunity for private equity to lead the initial investments. Since PTC as a Group already has a deliverable pipeline, we are confident that we will be able to deploy capital quickly with the limited financing avenues available. Indian energy market, characterised by a lack of capital, rising demand and a strong and non-discriminatory regulatory framework, presents a compelling investment opportunity to the investor community worldwide. It is expected that India will become the 3rd largest electricity market globally by 2030. There is also a huge opportunity for private sector participation to bridge the significant deficits which currently exist in the market. Thus to realise this potential, your company has launched a close ended fund, the PTC Ashmore India Energy. Infrastructure Fund in joint venture with Ashmore (PTC: Ashmore:: 40:60 in the Asset Management Company). The Fund will provide equity financing to power projects across all energy related sectors in India. As a way of meeting the widening demand supply gap in India, the Fund will target the private sector to lead the initial investments and exit through strategic sales and public markets once assets mature. In order to secure various exit channels the portfolio will contain an optimum mix of holding and asset companies. HUMAN CAPITAL Your company has invested and nurtured human capital as it believes that the success of the company is ascribed to the quality of its human capital. Being the market leader in the power trading sector has also put us in an envious position. PTC has also recognized the aspirations of many youngsters who want to work for India's leading power trading company in the area of energy management. Thus over the years, PTC has institutionalized the process of 'Campus to Corporate' where talent is sourced from leading B-Schools across India. These young professionals are given a chance to exhibit their potential and contribute towards growth of the Company. The foremost challenge facing us all the time is of attracting good talent and retaining them. Your company has launched many initiatives like a robust career progression, accelerated career progression for star employees, compensation reviews, strengthening of performance review processes, high focus on development of organizational competencies, developing potential through training and development programs. These professionals are also exposed to leadership programs such as awakening of self where they are able to identify their own potential. However, retaining them with PTC given the kind of compensation package that the Company offers remains a big challenge over the years, your company has indeed suffered on account of really good and motivated employees leaving as they were not well compensated. It is a matter of pride for me to lead this highly motivated and talented team of young professionals who are exploring and bringing in fresh and new ideas which challenge the way things are normally done. 'Six essential qualities that are the key to success. Sincerity, personal integrity, humility, courtesy, wisdom and charity.' Amidst wide spread corporatization, your company has always proactively tried to fulfil its obligation towards society in the same vein as it has worked towards enhancing shareholder value. Your company has gained) the deputation of a humane company. It continues to pursue efforts and initiative to contribute to the society with same enthusiasm with which it conducts its business. The Company attempts to address issues related to environment, education, health facilities, victims of natural disasters etc.; The employees of your company responded to the pain and distress of the victims of the Leh Flash floods recently by contributing to the Prime Ministers National Relief Fund. Transparency and accuracy are the hallmarks of good corporate, governance. We at PTC have strong commitment towards both. We are continuously working at providing true and fair picture of the business and the practices being followed in the company. The same is reflected through our effort to provide quality disclosures. Annual Reports have been not just a window but a door to enter and see the working of our company. During the year, on several occasions, I and my colleagues had the chance to meet the members of the investor community, press y and other stakeholders and have provided them with maximum information on your company's plans, businesses, goals and values. All information about your company is regularly updated on its portal www.ptcindia.com I would like to encourage all of you to visit the site regularly to update yourself with the latest development of your company. CONCLUSION The buoyancy in the market especially the power sector promises to bring in more opportunities for us to demonstrate our capabilities the way we have done in the past. This will not be possible however without the encouragement and support of all. Thus before I conclude, I would like to express my sincere appreciation to our employees who deliver the value experience to our customers and stakeholders each day. Their sincere dedication and the hard work are invaluable contribution to your company's performance. The Company's pursuit towards demonstrating its unique advantage would not be possible without the support of my colleagues, customers, business associates, shareholders, members of the Board. I take this opportunity to express my sincere appreciation and thanks to the members of the Board of Directors, to the Ministry of Power and the Ministry of External Affairs, Government of India, our original promoters, NTPC, POWERGRID, NHPC, PFC, the financial institutions and banks and to our valued customers for their invaluable support and co-operation in the year gone by and I do look forward to the same in the years to come. I am grateful for their continued confidence in the management and expect to receive their full support and patronage to achieve our business objectives. I would now like to thank you all for your continued support and for finding time to be with us at this moment. Place: New Delhi Shri. Tantra Narayan Thakur Date : September 23, 2010 Chairman and Managing Director Source at: The Financial Express Date : September 24, 2010.