KSK ENERGY VENTURES LIMITED
ANNUAL REPORT 2011-2012
The Directors have the pleasure in presenting the Twelfth Annual Report
together with the audited statements of accounts for the year ended 31
STANDALONE FINANCIAL RESULTS
The standalone financials are briefly summarized below:
(Rs. in Million)
Income 687.55 1,064.00
Expenditure (266.05) (495.29)
Depreciation (32.57) (81.26)
Exceptional items (291.93) -
Profit before tax 97.00 487.45
Tax expense 91.63 152.46
Profit after tax 5.37 334.99
Surplus brought forward from previous year 3,616.92 3,328.45
Amount available for appropriations 3,622.29 3,663.44
Preference dividend and dividend tax thereon 93.17 46.52
Surplus carried over 3,529.12 3,616.92
Earnings/(loss) Per Share (Rs.) -
basic and diluted (0.24) 0.77
During the year under review, the turnover of the Company is Rs. 688
million as against Rs. 1,064 million in the previous year. The profit
before tax amounted to Rs. 97 million as against Rs. 487 million for the
previous year. The profit after tax is Rs. 5 million as against Rs. 335
million in the previous year. The decrease is mainly attributable to lower
project development fee, as substantial part of the development activity of
3600 MW Chhattisgarh project has been completed. Moving forward, the Group
performance would significantly be based on operational performance of the
underlying power projects.
CONSOLIDATED FINANCIAL RESULTS
During the year 2011 -12, the Group has achieved an overall consolidated
turnover of Rs. 20,593 million.
(Rs. in Million)
Income 20,592.79 11,592.64
Operating expenses (excluding
interest and depreciation) (12,821.19) (5,880.94)
Exceptional items 923.52 -
Earnings before interest, tax
and depreciation (EBITDA) 8,695.12 5,711.70
Finance cost (5,388.72) (2,560.55)
Depreciation (2,163.30) (1,223.81)
Profit before tax 1,143.10 1,927.34
Tax expense/(income) (359.97) (352.32)
Profit after tax 1,503.07 2,279.66
Minority interest 189.50 462.14
Profit for the year after
minority interest 1,313.57 1,817.52
Surplus brought forward
from previous year 5,919.35 4,148.35
Amount available for
appropriations 7,232.92 5,965.87
Preference Dividend including Tax 93.17 46.52
Surplus carried over 7.139.75 5,919.35
Earnings per share (Rs.) - basic and diluted 3.28 4.75
The consolidated income of the Group has increased to Rs. 20,593 million
from Rs.11,593 million registering a growth of 78%. The EBITDA amounted to
Rs. 8,695 million as against Rs.5,712 million for the previous year
registering a growth of around 52%. The profit after tax has decreased to
Rs.1,503 million from Rs. 2,280 million in the previous financial year. The
profit after tax is mainly decreased due to increase in financial costs as
against the previous year.
The members are aware that the Company is currently involved in
implementation of various projects and more specifically the 3600 MW power
project through its downstream subsidiary which is one of the largest
single location Greenfield project by private enterprise anywhere in India.
In order to meet the investment requirements for various ongoing projects,
which will contribute to the shareholders` wealth in the long term, the
Directors have not recommended any Dividend to the equity shareholders for
the financial year 2011-12.
As per the terms of issue and as approved by the shareholders, the Company
had paid dividend on 8% Cumulative Redeemable Preference Shares of Rs.10/-
each issued to L&T Infrastructure Finance Company Limited.
REVIEW OF OPERATIONS
KSK Energy Ventures Limited (KSK) is a power project development company in
India with experience in developing and operating multiple power plants
across India. KSK operates in the power generation business and is well
positioned with long-term fuel access to its power plants.
KSK presently has operational power plants capable of generating 881 MW of
power and further actively involved in construction of 3600 MW KSK Mahanadi
PRINCIPAL POWER ASSETS
KSK`s current principal power projects are as follows:-Operational power
- Arasmeta, a 86 MW coal based power plant in Chhattisgarh;
- Sai Regency, a 58 MW natural gas based power plant and 18.9 MW wind power
project in Tamilnadu;
- Sitapuram, a 43 MW coal based power plant in Andhra Pradesh;
- VS Lignite, a 135 MW lignite based power project in Rajasthan; and
- Wardha Warora, a 540 MW coal based power project in Maharashtra.
Power projects under construction
- KSK Mahanadi, a 3,600 MW coal based power project in Chhattisgarh.
REVIEW OF BUSINESS
Further, the operational and financial performance for the financial year
2011-12 of each of the various power plants has been outlined in the
section titled "Management Discussion and Analysis Report".
The Company`s Report on Corporate Governance is attached to and forms part
of this Report. Certificate from the Statutory Auditors of the Company M/s.
Umamaheshwara Rao & Co., Chartered Accountants confirming the compliance
with the conditions of Corporate Governance as stipulated under Clause 49
of the Listing Agreement is attached to this report.
The Company has taken adequate steps for strict compliance with the
Corporate Governance guidelines, as amended from time to time.
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
A separate Management Discussion and Analysis Report is also attached to
and forms part of this report.
The Company has not accepted any deposits within the meaning of Section 58A
of the Companies Act, 1956 and the rules made there under during the
financial year under review.
In accordance with the provisions of the Companies Act, 1956, and the
Company`s Articles.of Association, Mr. K Bapi Raju, Mr. Tanmay Das and
Mr.S.R.Iyer Directors retire by rotation at the forthcoming Annual General
Meeting and being eligible, offers themselves for re-appointment.
As at the end of the year, the Company had the following subsidiaries:
1. KSK Electricity Financing India Private Limited;
2. Arasmeta Captive Power Company Private Limited;
3. Sai Regency Power Corporation Private Limited;
4. VS Lignite Power Private Limited;
5. Wardha Power Company Limited;
6. KSK Wardha Infrastructure Private Limited;
7. KSK Wind Energy Private Limited;
8. KSK Vidarbha Power Company Private Limited;
9. Sai Maithili Power Company Private Limited;
10. KSK Narmada Power Company Private Limited;
11. KSK Dibbin Hydro Power Private Limited;
12. Kameng Dam Hydro Power Private Limited;
13. JR Power Gen Private Limited;
14. KSK Mahanadi Power Company Limited;
15. KSK Upper Subansiri Hydro Energy Private Limited;
16. Field Mining and Ispats Limited;
17. KSK Dinchang Power Company Private Limited;
18. KSKJameri Hydro Power Private Limited;
19. Tila Karnali Hydro Electric Company Private Limited
CONSOLIDATED FINANCIAL STATEMENTS
Vide General Circular No.: 2/20 dated February 8,2011, the Ministry of
Corporate Affairs, Government of India has granted a general exemption to
companies from attaching the Balance Sheet, Profit and Loss Statement and
other documents referred to in Section 212(1) of the Act in respect of its
subsidiary companies, subject to fulfillment of the conditions mentioned
therein. Accordingly, the said documents are not being attached with the
Balance Sheet of the Company. A gist of the financial performance of the
subsidiary companies is contained in the report. The Annual Accounts of the
subsidiary companies are open for inspection by any member / investor and
the Company will make available these documents / details upon request by
any Member of the Company on to any investor of its subsidiary companies
who may be interested in obtaining the same. Further, the Annual Accounts
of the subsidiary companies will be kept open for inspection by any
investor atthe Company`s Head Office.
In terms of Clause 32 of the Listing Agreement with the Stock Exchanges and
as prescribed by Accounting Standard 21 notified by the Government of India
under Section 211 (3C) of the Companies Act, 1956, the Audited Consolidated
Financial Statements duly audited by Statutory Auditors are annexed.
M/s. Umamaheswara Rao & Co, Chartered Accountants, Hyderabad, Auditors of
the Company will retire at the forthcoming Annual General Meeting of the
Company and being eligible, offer themselves for re-appointment. As regards
the accounts and notes thereof, the same are self explanatory and do not
require further explanation.
Pursuant to Section 233B of the Companies Act, 1956 read with the Order
dated 2nd May, 2011 issued by Cost Audit Branch, Ministry of Corporate
Affairs, the Company has appointed M/s. S.S. Zanwar & Associates, Cost
Accountants, as Cost Auditors to audit the cost accounts in respect of
financial year 2011-12. The due date of filing of Cost Audit Report by the
Cost Auditors is 180 days from the closing of respective financial year.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS
a) Conservation of Energy: Not applicable
b) Technology Absorption: Not Applicable
c) Foreign Exchange Earnings and Outgo:
Foreign Exchange earnings - -
Foreign Exchange Outgo 0.62 4.97
PERSONNEL & INDUSTRIAL RELATIONS
Relations between employees and the management continued to be cordial
during the year. The Human Resource Department is committed in its quest to
improve and maintain employee morale and satisfaction at all levels.
Particulars of Employees: The particulars of employees as required to be
disclosed pursuant to the provisions of Section 217(2A) of the Companies
Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 as
amended, forms part of this Report. However, as per the provisions of
Section 219(1)(b)(iv) of the Companies Act, 1956, the report and the
accounts are being sent to all the shareholders excluding the aforesaid
information. Any shareholder desirous of obtaining such particulars may
write to the Company Secretary at the Registered Office of the Company.
DIRECTORS` RESPONSIBILITY STATEMENT
In terms of Section 217 (2AA) of the Companies Act, 1956, your Directors
hereby confirm that:
- in the preparation of the Annual Accounts, the applicable accounting
standards have been followed;
- appropriate accounting policies have been applied consistently. Judgment
and estimates which are reasonable and prudent have been made so as to give
true and fair view of the state of affairs of the Company as at the end of
the financial year and of the profit of the Company for the period;
- proper and sufficient care has been taken for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act,
1956 for safeguarding the assets of the Company and for preventing and
detecting fraud and other irregularities;
- the annual accounts have been prepared on a going concern basis.
Your Directors would like to express their grateful appreciation for the
assistance and co-operation received from the Financial Institutions,
Banks, Government Authorities, Customers, Vendors and Members during the
year under review. Your Directors also wish to place on record their deep
sense of appreciation for the excellent services of the executives, staff
and the workers of the Company.
On behalf of the Board of Directors of
KSK Energy Ventures Limited
Place: Hyderabad T.L. Sankar
Date : 5th May2012 Chairman
MANAGEMENT DISCUSSION AND ANALYSIS
The Indian economy has experienced unprecedented economic growth during the
last decade albeit slowing down. Sustained growth in economy comes with
growth from all sectors, among which, growth in infrastructure sector is a
key requirement for growth both in manufacturing and service sectors.
Within infrastructure, growth in power sector is one of the most important
requirements for sustained growth for a developing economy like India.
INDUSTRY STRUCTURE AND DEVELOPMENT
The economic growth of the nation depends upon the power as the energy
being the prime mover of economic growth. Annual per capita power
consumption in India is about 813.3 kilo watt hours (kWh)*. Per capita
power consumption in China is around 1200 kWh and around 13300 kWh in USA.
It is still very low in India and required to grow manifold to provide
reasonable quality of life in India.
India currently suffers from a major shortage of electricity generation
capacity, even though it is the world`s fourth largest energy consumer.
India needs an extraordinary level of capital investment to provide access
of electricity to its population.
While consequent to promulgation of Electricity Act, 2003, the Indian power
sector was touted to be one that can usher in phenomenal growth rate for
the economy and the sector was certain to enjoy both priority and policy
favor, the government has been wanting on required supports, policy
lethargy and more importantly unable to support competitive market
development. Also sloppy execution, policy bottlenecks, steep rise in input
cost and failing state Electricity Boards brought the sector`s fortunes to
a standstill. When eleventh five year plan was drafted (more than a half a
decade ago), the power capacity addition was expected to the tune of 78.70
GW. Sometime in the middle, the target was reduced to a more realistic
figure of 62 GW. With the Eleventh five year plan period completed, the
actual capacity addition figure was 50 GW.
As per the draft Twelfth Five Year Plan released by Planning Commission,
more than 80 GW of new power capacity is already under construction, hence
targeting 100 GW of new capacity addition during next plan.
Without adequate energy of desired quality, the economic growth of 8 to 9 %
achieved in the recent past cannot be sustained and the economic growth
targets envisaged by the Government over the next decade may not be
* Source: Central Electricity Authority (CEA)
INSTALLED CAPACITY AND CAPACITY UTILISATION DURING FY 2011-12
The electricity sector in India had an installed capacity of 200 Gigawatt
Total Installed Capacity:
The installed generation capacity of the country as on 31 March 2012 stood
at 199,877 MW.
Sector MW Percentage
State Sector 85,918.65 42.99
Central Sector 59,682.63 29.86
Private Sector 54,275.75 27.15
Total 199,877.03 100.00
Out of the installed capacity, thermal power plants constitute 65% of the
installed capacity, Hydroelectric about 19% and rest being a combination of
wind, small hydro, biomass and nuclear.
Fuel MW Percentage
Coal 112,022.38 56.05
Gas 18,381.05 9.20
Diesel 1,199.75 0.60
Hydro 38,990.40 19.51
Nuclear 4,780.00 2.39
Sources 24,503.45 12.26
Total 199,877.03 100.00
Captive Generation capacity connected to the Grid in MW 19,509.00
Power Generation during 2011-12
The total power generation in the country during FY12 was 876.89 Billion
Units (BUs). For the year 2011-12 a base load energy deficit and peaking
shortage to be 10.2% and 11.1% respectively. The peaking shortage would
prevail in all regions of the country, varying from 15.6% in the Southern
Region to 4.8% in Eastern Region. India`s Central Electricity Authority
expects a surplus output in some of the states of Northern India those with
predominantly hydropower capacity, but only during the monsoon months. In
these states, shortage conditions would prevail during winter season.
According to this report, the five states with largest power demand and
availability as of May 2011 were Maharashtra, Andhra Pradesh, Tamil Nadu,
Uttar Pradesh and Gujarat.
Energy Demand and Supply deficit
For the past two decades, India had to face increasing deficit in power
supply, both for meeting its normal energy requirements as well as its peak
load demand. The problem is acute during peak hours and summers which
necessitates planned load shedding by many utilities to maintain the grid
in a healthy state.
Electricity Demand and Supply
Year Energy Energy in MU
Requirement Generated Deficit Deficit %
2002-03 545,983 497,890 48,093 8.81
2003-04 559,264 519,398 39,866 7.13
2004-05 591,373 548,115 43,258 7.31
2005-06 631,024 578,511 52,513 8.32
2006-07 693,057 624,716 68,341 9.86
2007-08 737,052 664,660 72,392 9.82
2008-09 777,039 691,038 86,001 11.07
2009-10 830,594 746,644 83,950 10.11
2010-11 861,591 788,355 73,236 8.50
2011-12 937,199 857,886 79,313 8.50
Peak Energy Demand and Supply
Year Energy Energy in MU
Requirement Generated Deficit Deficit %
2002-03 81,492 71,547 9,945 12.20
2003-04 84,574 75,066 9,508 11.24
2004-05 87,906 77,652 10,254 11.66
2005-06 93,214 81,792 11,422 12.25
2006-07 100,715 86,818 13,897 13.80
2007-08 108,866 90,793 18,073 16.60
2008-09 109,809 96,785 13,024 11.86
2009-10 118,472 102,725 15,747 13.29
2010-11 127,195 114,686 12,509 9.83
2011-12 130,006 116,191 18,815 10.60
Short Term Trading of Electricity:
Power trading in the country continuous to be in the nascent growth stage
with 94 billion units of power exchanged as against 874 billion units of
electricity generation across utilities.
The transmission constraints between southern region and the rest of India,
process of open access permitting, procedural delays of implementation,
other constraints imposed on continuing open access by certain states have
only resulted in inhibiting the growth of the short term exchange of power
and efficient price discovery.
Power traded through the power exchanges continue to be a very small
component with 54% of the short term traded power being by nature of
bilateral trading of short term nature and a part of the balance on account
of Unscheduled Interchange Settlement mechanism.
Fuel Availability to Power Sector
With about 1,12,022 MW, i.e. 56% of the installed capacity, contributed by
coal based power plants, coal remains a key fuel for power generation. As
per information provided by Ministry of coal in FY2011 -12 the projected
demand for coal is 696.03 million tonnes (as per annual Plans of Ministry
of Coal), actual supply (dispatch) is 534.53 million tonnes and the gap
between demand and supply of coal during FY 2011 -12 is 161.501 million
In India coal is continued to be major source of fuel for power generation.
Availability of fuel, funding and people are important to meet the growing
demand for coal. As per draft report of the working group on coal & lignite
set up for formulation of Twelfth Five Year Plan, all India coal demand in
the terminal year of Twelfth plan i.e. 2016-17 is projected as 980 million
tonnes against the indigenous availability of 795 million tonnes.
Availability of domestic coal to meet the demand is dependent on various
factors such as non-expansion of capacity by government controlled mine
operators, coal block allocation, land acquisition, environmental and
forests clearances etc. The gap between demand and supply warrants
dependence on imported coal.
The installed generation capacity with gas as fuel as at 31 March 2012 was
18131.05 MW. The availability of gas to the gas based power plants are also
decreasing by year on year. CEA has mandated that no new gas based power
plant will be allowed till 2015-16 as the natural gas output is expected to
fall considerably. The gas output in the fiscal year 2013-14 is expected to
fall by 35%.
With increased focus on environment and scarcity as well as concerns on
carbon foot print of fossil fuels for generation of power, Government of
India has given impetus to generation of renewable energy. Renewable
energy, an alternative source of power generation, is environment friendly
but is beset with high cost. Recent efforts in research and development for
development of new technology for reducing costs encouraged increased
capacity additions in this sector.
OPPORTUNITIES, THREATS & OUTLOOK:
With a view to encourage power generation and reduce transmission and
distribution losses, it is anticipated that the tax holiday for the power
sector shall be extended. The extension of tax break is part of the
government`s efforts to scale up the country`s power generation capacity to
meet the growing needs.
Indian energy sector has consistently adopted relevant global trends to
support sustainable growth in Indian economy. The increasing maturity of
the sector is evidenced by adoption and indigenization of technologies
across the energy sector in general and power sector in particular.
Of late, the sector has grappled with new challenges which have arisen out
of rapid growth of the sector. Some of these challenges will be overcome
quickly and some will require all resourcefulness and intellect to convert
them into promising opportunities for future.
Based on the various scenarios of estimation of electricity requirement,
the projected requirement of power at the end of the next two 5 year plans
is expected to be
Energy Requirement Peak Load (MW)
End of Twelfth Plan (2016-17) 1,354,874 199,540
End of Thirteenth Plan (2021-22) 1,904,861 283,470
The above points to a healthy demand growth of power requirement and
associated power generation opportunities. Also the need for low cost power
generation is reinforced by the outlook on financials of the various
procuring utilities but also by the price realization on sale of surplus
short term power.
While the government effort continues on removal of hurdles like, enhancing
engineering and capital goods manufacturing capacity within India - both
for main power plants and balance of plants, increasing the number of
construction agencies, manpower and training facilities in power sector, IT
based monitoring etc the key would be to address the fuel and associated
While ambitious capacity addition targets of 75 GW in next 5 years set, the
limited effort is currently being made to address low cost domestic coal
and gas exploitation and supplies resulting in power lenders being driven
to restructure their loan portfolios in light of significant stranded
capacities. The same would have contagion effect on the entire energy
Similarly, while attempting to address utility financials through
distribution tariff reforms coupled with competitive procurement, parallel
attempts to restructure and rewrite existing Power Purchase Agreements of a
few developers to accommodate high cost imported fuel pass-through would
only lead to further worsening of utility financials.
The recent developments in the Indian energy sector, more specifically with
respect to acute fuel shortages, slowdown in generation capacity additions
by other developers, accumulating receivables of power generators from
local utilities, extremely slow government approvals and decision
processes, along with the anticipated challenges in the next 24 to 36
months across the power sector in India validate our belief that
sustainable and continual progress by power plant developers in India
requires them to have a low cost structure base for operations, be
innovative, have the ability to adapt to the changing situations including
addressing government policy asymmetries and have a flexible approach on
the ground to develop and implement strong and sustainable power generation
The developer challenges, while acute, the solutions look very simple -
addressing the fuel security with flexible approach on asset build on
ground for strong and sustainable power generation assets to address this
RISKS AND CONCERNS
Securing Fuel - Shortage of Coal
Coal based power plants, accounting for over 80% of the total units
generated in the Country. More stringent rules and norms brought about
recently by the MoEF over allocation of coal blocks have left many
developers devoid of coal linkages.
Even state GENCO`s are repeatedly under pressure due to lack of adequate
and timely supply of fuel.
Securing fuel from imported coal market is becoming increasingly costly and
uncertain. The recent change in international markets, enactment of the new
mining law in Indonesia has significantly impacted the cost of imported
coal for Indian companies who are relying on supply of coal from south east
Asian nations. Recently, Krishnapatnam and Mundra UMPPs expressed their
concern over the projects unviable at the tariff quoted by them. This has
been aggravated by the fact that changes in international law and
regulations are not currently covered under change in law in Indian Power
Securing land and clearances
- Land is a basic necessity and a pre-requisite for power generation
projects. Lot of projects are cancelled or delayed due to non-availability
of land or difficulties in land acquisition. Another major hurdle
subsequent to land acquisition is securing required clearances from MoEF,
Ministry of Aviation, Department of Forests and other government bodies.
Past experience indicates that the following are the major hurdles in land
acquisition and securing clearances which include the following:
* Social reasons like opposition from nearby residents on loosing of land,
water supply and pollution problems
* Resettlement and rehabilitation issues
* Regulatory delays
* Environmental issues like a forestation
* State specific issues like availability of supporting infrastructure
* Financial reasons resulting from rising costs of land
Issues pertaining to competitive bidding
Competitive bidding in power generation and transmission is viewed as a
major fundamental change - a move towards a competitive market, which would
attract private sector participation and also help in discovering
competitive prices in a largely regulated market. The typical duration for
which companies quote their tariffs in competitive bidding scenario, is 25
years and 35 years for generation and transmission respectively. The
duration is fixed considering the life of assets and the period within
which companies would be able to recover their costs at reasonable tariffs.
The results in competitive bids in the recent past in India indicate that
the tariffs discovered have been in most cases significantly lower than
There are risks associated with projects that, if the bidder does not
cover/hedge, he would expose to a potential downside over a 25/35 year
Project execution challenge
The major players in Indian power sector have shown strong operational
capabilities, but have dares poorly in project management and execution.
The capacity addition of 78,700 MW was planned in the Eleventh five year
plan period against which only 50,000 MW of power was achieved, i.e.,
achievement of 63.53 % against the set target.
In addition to bottlenecks in manufacturing (i.e., BTG & BoP manufacturers)
environment clearances and land acquisition have been major issues for
delay in project execution. Investment of time, effort and money in
developing project, planning and project execution capabilities,
streamlining of business processes and adoption of advanced technologies in
the sector would enable the investors overcome such strategic hurdles to a
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL EFFICIENCY:
The operational performance for the financial year 2011 -12 of each of the
operational power plants is provided as under:
Particulars Arasmeta Sai Sitapuram VS Lignite Wardha
Captive Regency Power Power Power
(86 MW) (58 MW) (43MW) (135 MW) (540 MW)
Generation (MU) 292 455 256 926 2,804
Plant Load Factor (%) 49 89 68 78 60
Units Billed (MU) 251 430 222 801 2,481
(in million) 1,034 1,867 1,176 2,637 12,543
RU 4.12 4.34 5.29 3.29 5.06
ARASMETA CAPTIVE POWER COMPANY PRIVATE LIMITED
Arasmeta is a coal based power plant with the capacity of generating 86 MW
(43 MW x 2). The plant operating as a base load plant caters to the
complete power requirement of cement major M/s. Lafarge India. Lafarge
operates two cement manufacturing units at Arasmeta and Sonadih in
Chhattisgarh. The surplus power available is being supplied to the local
SAI REGENCY POWER CORPORATION PRIVATE LIMITED
This Company operates a captive natural gas based combined cycle power
plant with a capacity of 58 MW located in Kalugoorani village in
Ramanathapuram District of Tamil Nadu and wind power generating capacity of
18.90 MW located in Tirunelveli District of Tamil Nadu. The power generated
is wheeled using the grid transmission system to captive consumers located
in the State of Tamil Nadu and surplus to the State utilities.
SITAPURAM POWER LIMITED
This captive power plant operates on coal with a capacity to generate 43 MW
of power. The plant is situated in Dondapadu village of Nalgonda District
in Andhra Pradesh. The power is supplied to a captive consumer M/s. Zuari
Cement Limited having plants in Dondapadu and Yerraguntla in Andhra Pradesh
and surplus power to State utilities.
VS LIGNITE POWER PRIVATE LIMITED
This is lignite based power plant with a capacity to generate 135 MW of
power located in Gurha village in Bikaner District of Rajasthan. The plant
supplies power to major industrial customers in Rajasthan and surplus power
to State utilities.
WARDHA POWER COMPANY LIMITED
This power project is coal based with a generating capacity of 540 MW
comprising of four units of 135 MW each located at Warora Growth Centre,
Chandrapur District of Maharashtra. The power generated is currently
supplying to large industrial customers and to major utilities in the State
PROJECTS UNDER CONSTRUCTION
KSK MAHANADI POWER COMPANY LIMITED - CHHATTISGARH
KSK Mahanadi is the largest power project pursued by the Group till date.
It is a 3600 MW power plant being set up at Nariyara village in Janjgir
Champa District of Chhattisgarh. The coal supplies are tied up from GIDC`s
Gare Pelma Sector III coal block and GMDC`s Morgall coal block in
Chhattisgarh. In so far as Morgall of GMDC, the policy uncertainty on
account of recent stipulations by the Ministry of Environment and Forest
has resulted in extensive diligence on the project progress by government
of India and is anticipated that a solution would be offered by government
for alternative remedies in case forest clearance is not provided.
In addition to land acquisition, environment clearance and execution of
Implementation Agreement with Chhattisgarh Government, Power Purchase
Agreement with GUVNL, EPC contracts with SEPCO of China and tie up of
requisite project debt has been completed and civil works at site for first
2 units of 600 MW each are under advanced stage of completion and expected
commissioned. Other associated works on water intake infrastructure, power
evacuation and construction of railway siding fronts are progressing.
J R POWER GEN PRIVATE LIMITED
KSK has signed an MOU with Government of Odisha on 9th April 2010 to set up
1980 MW (3 x 660) power plant at Kishorenagar in Angul District of Odisha.
Coal supplies are tied up from Naini coal block allotted to Pondicherry
Industrial Promotion Development and Investment Corporation Limited. Land
procurement for the project is underway and other works are progressing.
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:
The Company is implementing the internal control system right from its
inception and making modifications continuously to meet with the changing
business conditions. The internal control is supported by internal audit
department and periodic review by the Management. The Audit Committee meets
periodically with the management and internal auditors.
The internal control systems are implemented
1. To safeguard the Company`s assets from loss or damage
2. To keep constant check on cost structure
3. To provide adequate financial and accounting controls and implement
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES AND INDUSTRIAL RELATIONS
Human Resources plays very important role in every organization. Our
Company is making continuous efforts to keep the Human Resources at an
optimum level. As the Company ventured into new areas, the need for man
power was felt and in this direction, the company has employed about 316
people with which the total strength has gone up and as on date, the
company has 1550 employees on rolls.
CORPORATE SUSTAINABILITY INITIATIVES
Corporate Social Responsibility is an essential ingredient of KSK`s
business policy. We embrace the social responsibility that comes with the
opportunity of operating across 8 locations in 6 Indian states. Towards
this direction, our commitment to community moves beyond the requirement of
social license to operate.
KSK at present is building sustainable communities across 68 Villages in 6
States with 8 Project Locations covering 7037 project affected families.
The Group`s sustainability initiatives towards community are essentially
focused on five thrust areas; Education, Health, Socio-economic
empowerment, Infrastructure development and Cultural & Social contribution.
During 2011-2012, the following interventions were taken up to achieve the
above mentioned goals and objectives:
Promoting quality education: Our holistic approach to the issues in
education sector in India focuses on addressing the critical issues of;
quality, access, equity in access, infrastructure and bridging the urban-
rural disparity in vocational training.
Building healthier communities: KSK has two models of health care delivery
for its neighboring communities. While mobile clinic model provides
preventive services at the door step of the client, mega camp model seeks
to address major health concerns of the community.
Facilitating socio-economic empowerment: The Group believes that socio-
economic empowerment of our communities alone can help us ensure
sustainability of the development that we undertake. We are deeply
committed to enhancing individual assets & capabilities and strengthen
community collectives, where we operate.
Developing Infrastructure: We are committed to developing/renewing common
property resources that are critical for rural economy. The Group is also
committed to developing infrastructural facilities that improve community`s
access to basic services and livelihood opportunities.
Fostering culture and social contribution: The Group proactively seeks to
deepen its relationship with local communities. Building relationship for
us is sharing and being part of the joys and sorrows of our communities.
Thus, we support village festivals, sports & games events, besides
extending helping hand in the hour of need.
The above mentioned interventions gave us the scope to address the issues
of project affected families in a more comprehensive manner given the
cultural diversity of India as Corporate Social Responsibility is an
essential ingredient of KSK`s business policy.
INFORMATION TECHNOLOGY AND SYSTEMS
Looking at the expansion and usage of systems, the Company is developing
software on continuous basis to suit the changing environment. Separate IT
team located at Hyderabad is taking care of IT needs of the Company and
implementing the software for various departments and locations.
Implementation and review of the risk management initiatives are
periodically reported to the Board, which helps in identification of new
risk areas, their impact on the business of the Company and to initiate
risk mitigation strategies as may be necessary well in advance to reduce
the impact of the risk in our business process.
Most important, the continual shortfall of coal production by Coal India
and associated fuel shortages increase the risk of non availability of fuel
and associated risk of potential stranded assets.
However, the Company is continuously working on appropriate fuel supply as
well as power supply obligations that would leave only little scope for
volatility. Further, in so far as the larger assets are concerned, the
effort of tie up for coal through appropriate cost plus / government
dispensation coal blocks to minimize the risk of higher generation cost
continues. We anticipate that the current policy uncertainties to be
suitably resolved and achieve fuel certainty for the larger power project
under construction during the current year.
FINANCIAL PERFORMANCE Consolidated Financials
The Consolidated Financial Statements of KSK Energy Ventures Limited and
its subsidiaries and joint ventures ("the Group" or "the Company") are
prepared and presented in accordance with Indian Generally Accepted
Accounting Principles (GAAP) under the historical cost convention on the
accrual basis. GAAP comprises accounting standards notified by the Central
Government of India under Section 211 (3C) of the Companies Act, 1956,
other pronouncements of The Institute of Chartered Accountants of India,
the provisions of the Companies Act, 1956 and guidelines issued by
Securities and Exchange Board of India.
Sales and other operating income
(Rs. in Million)
2011-12 % of total 2010-11 % of total
Sales and operating income 19,476.41 95% 10,967.36 95%
Other income 1,116.38 5% 625.28 5%
20,592.79 100% 11,592.64 100%
The total sale and operating income increased by 78% from Rs. 10,967
million for the year ended 31 March 2011 to Rs. 19,476 million for the year
ended 31 March 2012. The inter se distribution of the sales and operating
income is as follows:
2011-12 % of total 2010-11 % of total
Income from sale of energy 19,066.41 97.89% 10,163.63 92.67%
Project development fees 393.09 2.02% 795.48 7.25%
Corporate support services 2.19 0.01% 2.19 0.02%
Other operating income 14.72 0.08% 6.06 0.06%
19,476.41 100.00% 10,967.36 100.00%
Income from sale of energy
Income from sale of energy is primarily from the multiple subsidiaries of
the Company. The income from sale of electricity reported growth over the
Sale of energy, registered a growth of 88% primarily on account of increase
in generation capacities and full year of operations in Wardha Power
Company Limited ("WPCL"), a 540 MW project, which has contributed, Rs.
12,543 million in current year as against of Rs. 3,850 million in previous
year. The other operational plants also experienced marginal increase
primarily on account of increased availability and power load factor.
Income from project development services
Decrease in income from project development services from Rs. 795 million
during the year ended March 2011 to Rs. 393 million during the year ended
March 2012 reflects the maturity of the asset portfolio towards
construction and operating assets. Project development fees are expected to
be far lesser in the coming years and income from sale of energy would be
in the mainstay and dominant mix of revenue and profitability henceforth.
Increased by 78% to Rs 1,116 million for the current year as compared to
Rs.625 million for the previous year as outlined below:
(Rs. in Million)
Interest income 888.24 554.24
Dividend income 13.23 6.59
Net gain on sale of investments 3.98 0.78
Foreign exchange gain, net - 20.02
Miscellaneous income 210.93 43.65
Interest income was higher in the current financial year primarily due to
higher cash and bank balances and a higher yield on investments.
Other miscellaneous income mainly represents the insurance and other claims
received during the current year. Expenditure
Generation and operating expenses (Rs. in Million)
Cost of material consumed 9,988.60 4,335.50
Other manufacturing expenses 1,096.97 697.41
The total of generation and operating expenses indicated an increase of
120% to Rs. 11,085 million.
The increase is mainly on account of increase in units generated to 4,862
million units as against of 2,793 million units for the previous year,
mainly attributable to increase in generation capacities and full year of
operations in WPCL. Further, the increase is also contributed by the
increase in the average fuel cost per unit generated from Rs. 1.71 for the
previous year to Rs. 2.19 for the current year.
Administration and employee benefit expenses
On a consolidated basis, the administration and employee benefit expenses
have registered an increase of 105% over the previous year from Rs. 848
million in 2010-11 to Rs. 1,736 million in 2011 -12. The broad break - up
of the administration and employee benefit expenses is as follows:
(Rs. in Million)
Employee benefit expenses 432.95 297.65
Administration expenses 1,302.67 550.38
General and administrative expenses have experienced an upward trend mainly
on account of further capacity addition, requirement to increase the
operating base of manpower and infrastructure to handle future growth and
rebate given to customers for prompt payment.
The finance costs on consolidated basis before capitalisation increased to
Rs 10,789 million in 2011 -12 from Rs 7,277 million in 2010-11. The Company
mobilized additional average borrowings of Rs 31,114 million during the
2011-12 to finance its capital expenditure and working capital requirements
resulting in increased interest expense at Rs 3,512 million. The increase
in finance cost was also attributable to Reserve Bank of India tight
monetary policies, causing the increase in interest rates for the borrowing
The breakup of interest and finance charges for the current year and
previous year are as follows:
(Rs. in Million)
Particulars 2011-12 2010-11
Interest of fixed period loans 3,827.06 2,026.96
Interest on other loans 1,426.42 420.72
Finance and other charges 135.24 112.87
Add: Finance cost capitalized 5,400.67 4,716.90
Total 10,789.39 7,277.45
Depreciation and amortization expenses
Depreciation and amortization expense increase from Rs. 1,223.81 million in
2010-11 to Rs. 2,163.30 million in 2011-12 is mainly on account of
capitalization of WPCL - unit III and unit IV and Arasmeta Captive Power
Company Private Limited -Phase II.
During the current financial year, the group has received claims from the
EPC contractor in WPCL towards liquidated damages and realized gain on sale
of windmill undertakings. Considering, the non-recurring nature of the
claims/gain, the amounts realized are classified as exceptional items.
The Group made effective use of various tax benefits available in India and
such benefits have resulted in lower effective tax rate in some of our
major operating subsidiaries.
The tax provided on consolidated basis amounted to Rs. (359.97) million
(including MAT credit of Rs. 80 million) for 2011 -12 against of Rs.
(352.32) million (including MAT credit of Rs. 193 million) for 2010-11. The
main reason for tax being negative is recognition of deferred tax asset on
carry forward of losses in WPCL.
Earnings per share (EPS)
The EPS during the year under consideration is lower at Rs 3.28 as against
of the previous year of Rs 4.75 which is mainly due to reduced attributable
profit for the year.
Business Segment Analysis
For detailed description of the Company`s business segment, referto note 31
of consolidated financial statement. The summary of relative distribution
of the revenues among the segments is as under:
Segment 2011-12 2010-11 % change
Rs (million) % of Rs (million) % of
Project development 395.28 2% 797.67 7% (50)%
Power generation 19,081.13 98% 10,169.69 93% 88%
The summary of relative distribution of segment profit before interest and
taxes (PBIT) among the segments is as under:
Segment 2011-12 2010-11 % change
Rs (million) % of Rs (million) % of
Project development 389.18 9% 632.36 16% (38%)
Power generation 4,102.74 91% 3,230.25 84% 27%
The segment revenue and segment profit for the project development has
decreased by 50% and 38% respectively over the previous year, mainly on
account of substantial part of the development activity of 3600 + MW of
power plants have been completed during 2010-11. PDF is expected to be far
lesser in the coming years and income from sale of energy would be in the
mainstay and dominant mix of revenue mix and profitability henceforth.
The segment revenue and segment profit for the power generation segment has
recorded a significant growth of 88% and 27% respectively over the previous
year, mainly on account of increased operations in terms of generation of
4,862 million Kwh at an average tariff realization of Rs 4.57 per kwh in
2011-12 as compared to 2,793 million Kwh at an average tariff realization
of Rs. 4.09 in 2010-11.
Certain Statements in this Management Discussion and Analysis describing
the Company`s business plans estimates and expectations, numerical or
otherwise, may be `Forward looking statements` within the meaning of
applicable laws and regulations. Actual results might differ substantially
or materially from those expressed or implied. Important developments that
could affect the Company`s operations include economic conditions,
government permission, significant changes in political and regulatory
environment in India, tax laws litigation, labour relations and interest
costs amongst others.