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CESC Ltd.

BSE: 500084 Sector: Infrastructure
NSE: CESC ISIN Code: INE486A01013
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NSE 12:36 | 15 Dec 1016.60 14.80
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OPEN 1014.50
PREVIOUS CLOSE 1002.50
VOLUME 16243
52-Week high 1079.70
52-Week low 601.35
P/E 15.46
Mkt Cap.(Rs cr) 13,482
Buy Price 1016.05
Buy Qty 62.00
Sell Price 1017.55
Sell Qty 32.00
OPEN 1014.50
CLOSE 1002.50
VOLUME 16243
52-Week high 1079.70
52-Week low 601.35
P/E 15.46
Mkt Cap.(Rs cr) 13,482
Buy Price 1016.05
Buy Qty 62.00
Sell Price 1017.55
Sell Qty 32.00

CESC Ltd. (CESC) - Director Report

Company director report

The Directors have pleasure in presenting the Annual Report and Audited Accounts ofCESC Limited for the year ended 31 March 2017.

Financial Results

(Rs. crores)

Particulars 2016-17 2015-16
Revenue from operations 7220.07 6796.14
Other Income 146.56 127.65
Total Income 7366.63 6923.79
Profit before regulatory income/(expenses) and Tax 911.00 1234.21
Regulatory income/(expenses) 190.23 (188.16)
Profit before tax 1101.23 1046.05
Taxation (238.37) (200.92)
Profit after tax 862.86 845.13
Other comprehensive income (39.11) (32.87)
Total comprehensive income 823.75 812.26
Retained Earnings - Opening Balance 10897.59 10719.62
Add :
Profit for the year 862.86 845.13
Less :
Other comprehensive income 39.11 32.87
Fund for unforeseen exigencies 16.16 16.63
Dividend & Tax thereon 159.55 303.13
Adjustment on withdrawal additional depreciation & other adjustment 341.50 314.53
Retained Earnings - Closing Balance 11204.13 10897.59

The financial statements for the year ended 31 March 2017 have been prepared inaccordance with the Indian Accounting Standards (Ind AS) notified under Section 133 of theCompanies Act 2013 read with Companies (Accounts) Rules 2014. The financial statementsfor the year ended 31 March 2016 have been restated in accordance with Ind AS forcomparative information.

Performance Overview

During the year under review the Company's revenue from operations increased by 6.24 %over last year to reach Rs.7220.07 crore. Total income (including other income) grew by6.4% from Rs.6923.79 crore in 2015-16 to Rs.7366.63 crore in 2016-17. Profit beforetaxation grew by 5.27% to Rs.1101.23 crore during the year while profit after taxes (PAT)for 2016-17 stands at Rs.862.86 crore which reflects an increase of 2.1% over Rs.845.13crore during 2015-16. Total comprehensive income increased by 1.41%.

A detailed review of the operations for the year ended 31 March 2017 is given in theManagement Discussion & Analysis which forms a part of this Report.

Dividend

The Board of Directors of the Company at its meeting held on 15 February 2017 declaredan interim dividend of 100% i.e. Rs.10 per equity share. The said interim dividend hasbeen paid during the financial year 2016-17.

Subsidiaries

As on 31 March 2017 CESC had thirty-nine subsidiaries. Guiltfree Industries LimitedISGN Solutions Inc. ISGN Fulfilment Services Inc. and ISGN Fulfilment Agency LLC becamesubsidiaries of the Company during the year. Broad details of operations of thesubsidiaries are given in the section 'Power Business' and the section 'Other Businesses'in the Management Discussion & Analysis which forms a part of this report.

In accordance with the Companies Act 2013 ('the Act') consolidated financialstatements of the Company and of all its subsidiaries have been prepared in the form andmanner as that of its own and duly audited by M/s. Lovelock & Lewes CharteredAccountants the auditors in compliance with the applicable accounting standards and theSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 ('SEBIRegulations'). The consolidated financial statements for the year 2016-17 form part of theannual report and accounts and shall be laid before the Annual General Meeting of theCompany while laying its financial statements as required under the Act. A separatestatement containing the salient features of the financial statements of its subsidiariesis attached.

Distribution Franchisee

Last year CESC emerged as the winner in two separate bids floated by Jaipur VidyutVitran Nigam Limited and was appointed as Distribution Franchisee (DF) for the cities ofKota and Bharatpur in the state of Rajasthan.

During the year CESC has emerged as the winner of another bid floated by JodhpurVidyut Vitran Nigam Limited for appointment of DF for the city of Bikaner in Rajasthan.

All these DFs' operations have commenced satisfactorily.

Projects

Details of the projects undertaken in the recent past have been provided in therelevant sections of the Management Discussion and Analysis which is annexed as a part ofthis report.

Restructuring Scheme

CESC the flagship company of the RP-Sanjiv Goenka Group and incorporated in 1978supplies electricity to the cities of Kolkata and Howrah. The core operation of theCompany is its electricity distribution business. It also has electricity generationbusiness inter alia supplying electricity for the licensed distribution business.

However over the course of time the Company has grown into a diversified conglomeratehaving interests in various businesses including retail business process outsourcinginformation technology real estate entertainment etc.

Given its diversified business it has become imperative for the Company to reorientand reorganize itself in a manner that allows imparting greater focus on each of itsbusinesses. With this repositioning the Company is desirous of enhancing the operationalefficiency. It will continue with its distribution business with the generating stationscontinuing to supply power as earlier to the licensed distribution business.

Subject to necessary statutory approvals the Board of Directors of the Company hasapproved a Composite Scheme of Arrangement under Sections 230 to 232 and other applicableprovisions of the Companies Act 2013 ("the Scheme") involving the Company andsome of its subsidiaries.

In terms of the aforesaid Scheme against their holding of every 10 CESC equity shareson the record date to be fixed in due course shareholders of the Company will beallotted on a pro-rata basis and without any consideration 5 equity shares each indistribution and generation business 6 equity shares (of Rs.5 each) in retail businessand 2 equity shares in the entity holding other businesses such as informationtechnology/business process outsourcing etc. The retail company will also allot fully paidpreference shares of Rs.5 crore to CESC without any consideration. All the above fourcompanies will be listed entities.

CESC will continue with its power distribution business. Its issued subscribed andpaid up share capital shall stand reduced from the present amount of Rs.1325570430divided into 132557043 equity shares of Rs.10/- each fully paid to Rs.662785215divided into 132557043 equity shares to Rs.5/- each fully paid. Simultaneously twosuch equity shares of Rs.5/- each shall be consolidated into one fully paid up equityshare of Rs.10/- each.

The Scheme when implemented is expected to offer a simple business structure bysegregation/unbundling of the businesses as well as further expansion thereof by enhancingthe competitive strength unlocking shareholders' value and providing better flexibilityin accessing capital market.

Directors

In terms of the provisions of Section 152 of the Act and Article 102 of the Articles ofAssociation of the Company Mr. Aniruddha Basu Managing Director retires as a Directorat the forthcoming Annual General Meeting and being eligible offers himself forreappointment.

The Independent Directors of the Company have confirmed that they meet the criteria ofindependence as prescribed under the Act and the SEBI Regulations.

The policy on Director's appointment and remuneration including criteria fordetermining qualifications positive attributes independence of Director and alsoremuneration for the Key Managerial Personnel and other employees forms part of CorporateGovernance Report of this Annual Report. During the year performance evaluation ofindependent directors and other board members as well as the committees of the board wasdone in terms of the Act and SEBI Regulations.

Six meetings of the Board of Directors were held during the year.

Key Managerial Personnel

During the year there was no change in the Key Managerial Personnel of the Company.

Listing

The equity shares of the Company continue to be listed at BSE Limited (BSE) NationalStock Exchange of India Ltd (NSE) and the Calcutta Stock Exchange Ltd (CSE). The Companyhas paid the requisite listing fee to the Stock Exchanges up to the financial year2017-18.

Directors' Responsibility Statement

Pursuant to Section 134 of the Act your Directors hereby state and confirm that :

i) in the preparation of the accounts for the financial year ended 31 March 2017 theapplicable accounting standards have been followed along with proper explanation relatingto material departures if any;

ii) the Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe profit of the Company for that period;

iii) the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities;

iv) the Directors have prepared the annual accounts on a going concern basis;

v) the Directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively; and

vi) the Directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems are adequate and operating effectively.

Corporate Governance

A report on Management Discussion and Analysis is attached herewith (Annexure 'A'). Aseparate Report on Corporate Governance (Annexure 'B') along with Additional ShareholderInformation (Annexure 'C') as prescribed under the SEBI Regulations are annexed as a partof this Report along with the Auditors' Certificate thereon.

Corporate Social Responsibility

In accordance with Section 135 of the Act and the rules made thereunder the Companyhas formulated a Corporate Social Responsibility Policy a brief outline of which alongwith the required disclosures are annexed as a part of this Report. A detailed section inthis behalf is attached (Annexure 'D') which forms part of this report.

Business Responsibility Report

A separate Business Responsibility Report as required under SEBI Regulation is annexedand forms a part of this report (Annexure 'E').

Whistle Blower Policy

Pursuant to Section 177 of the Act the rules made thereunder and the SEBI Regulationsthe Company has a Whistle Blower Policy ('Vigil Mechanism') in place for reporting genuineconcerns over happening of instances of any irregularity unethical practice and/ ormisconduct involving the directors employees and stakeholders. The details of the saidpolicy have been disclosed in the Company's website www.cesc.co.in . There was no instanceof such reporting received during the year.

Related Party Transactions

All related party transactions that were entered into during the financial year were onan arm's length basis and were in the ordinary course of business. There was no materiallysignificant related party transaction that had a potential conflict with the interests ofthe Company. Transactions with related parties entered into in the normal course ofbusiness are periodically placed before the Audit Committee of the Board for its approval.

Particulars of Loans Guarantees or Investments

In terms of the provisions of the Section 186 (11) of the Act the provisions ofSection 186 (4) requiring disclosure in the financial statements of the full particularsof the loan given investment made or guarantee given or security provided and the purposefor which the loan or guarantee or security is proposed to be utilised by the recipient ofthe loan or guarantee or security is not applicable to the Company.

Fixed Deposits

The Company during the year has not accepted any deposits and as such no amount ofprincipal or interest was outstanding as on the date of the Balance Sheet.

Auditors

As per the provisions of the Act the Company is required to appoint a new auditor andMessrs. S R Batliboi & Co. LLP Chartered Accountants (Firm RegistrationNo.301003E/E300005) are proposed to be appointed as auditors of the Company for a periodof five years commencing from the conclusion of Thirty-ninth Annual General Meeting tillthe conclusion of Forty-fourth Annual General Meeting subject to ratification of suchappointment by the shareholders every year from the Fortieth to the Forty-third AnnualGeneral Meeting of the Company.

Messrs. S R Batliboi & Co. LLP Chartered Accountants have consented to the saidappointment and confirmed that their appointment if made would be within the limitsspecified under Section 141(3)(g) of the Act. They have further confirmed that they arenot disqualified to be appointed as statutory auditors in terms of the proviso to Section139(1) Section 141(2) and Section 141(3) of the Act read with the Companies (Audit andAuditors) Rules 2014.

The Board of Directors recommend the appointment of Messrs. S R Batliboi & Co. LLPChartered Accountants as statutory auditors of the Company for the aforesaid period.

The proposed appointment of Messrs. S R Batliboi & Co. LLP as the new auditors isin place of Messrs. Lovelock & Lewes who have been the auditors of the Company sinceincorporation of the Company in 1978. The Board places on record its appreciation toMessrs. Lovelock & Lewes for discharging their duties as the Company's auditors for along period.

Cost Audit

Messrs. Shome & Banerjee Cost Accountants were re-appointed to conduct the auditof the cost accounting records of the Company for the year under review.

Secretarial Audit

Secretarial audit of secretarial and related records of the Company was conductedduring the year by Messrs. S.M. Gupta & Co. Company Secretaries and a copy of thesecretarial audit report is annexed which forms a part of this report (Annexure 'F').

Conservation of Energy Research & Development Technology Absorption ForeignExchange Earnings and Outgo

The information relating to conservation of energy research & developmenttechnology absorption and foreign exchange earnings and outgo as required under Section134 of Act read with the Companies (Accounts) Rules 2014 is given in Annexure forming apart of this Report (Annexure 'G').

Extract of Annual Return

An extract of the Annual Return as required to be attached in terms of the Act isannexed and forms a part of this report (Annexure 'H').

Particulars of Employees

The information as required in terms of Section 197(12) of the Act read with theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 is set outin an annexure to this Report. However the Report and the Accounts are being sent to allthe Shareholders of the Company excluding the aforesaid information. Any shareholderinterested in obtaining such information may write to the Company Secretary at theRegistered Office of the Company. The said information is also available for inspection atthe Registered Office during working hours up to the date of the Annual General Meeting.

The Company has in place a Remuneration Policy for Directors key managerial personneland other employees duly recommended by the Nomination & Remuneration Committee andapproved by the Board. Other details relating to remuneration paid during the year todirectors and key managerial personnel are furnished in the Report on Corporate Governancewhich forms a part of this report.

Details pertaining to remuneration as required under Section 197 (12) of the Act readwith Rule 5 (1) of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 is annexed forming a part of this Report (Annexure - 'I').

Industrial Relations

Industrial relations in the Company during the year continued to be cordial. Adetailed section on the Company's Human Resource initiatives is a part of the ManagementDiscussion & Analysis forming a part of this Report.

Acknowledgement

The Board wishes to place on record its sincere appreciation for the continuedassistance and support extended to your Company by its consumers banks vendorsGovernment authorities and employees.

Your Directors are also grateful for your continued encouragement and support

On behalf of the Board of Directors
Sanjiv Goenka
Kolkata 18 May 2017 Chairman

Particulars as required under Section 134 of the Companies Act 2013 (Annexure 'G' tothe Directors' Report)

Particulars relating to Conservation of Energy Technology Absorption etc. for the yearended 31 March 2017.

A. Conservation of Energy

Following measures taken over the year have contributed to Energy Conservation andContainment of Losses in Distribution Network.

1. Reactive power compensation by way of installing shunts capacitor banks at variousvoltage levels of Distribution Network. The focus this year was on distributed capacitorsin the LT network - 55 MVAR was added.

2. Standardization to higher rated UG cables 1000 mm2 at 33 kV & 300 mm2at 6/11 kV Distribution Network as an ongoing process.

3. Continued augmentation of Substation plant capacity and laying new underground andoverhead lines.

4. Induction of energy efficient Distribution Transformers with low losses by includingLoss Capitalization as a bid evaluation criterion as an ongoing process.

5. Replacement of over 2.75 lakh old electromechanical meters.

6. Installing 3800 Modified Pillar Boxes with HRC fuses.

B. Additional investment/proposals

1. During the year several major plant & equipment and lines were commissioned.These include :

a. 150 MVA Park Circus Substation with 2x75 MVA 132/33 kV Transformers.

b. The 220 kV underground circuit connecting Princep Street Substation and NewCossipore Substation is nearing completion and expected to be commissioned soon.

c. Augmentation of 50 MVA 132/33 kV Transformer No. 2 at Prinsep Street ReceivingStation by a 100 MVA Unit - Cooled Transformer. The 75 MVA 132/ 33 kV defectiveTransformer No. 3 at East Kolkata Substation was replaced by a new 75 MVA Transformer. Theinstalled capacity of 220/132/33 kV Substations stands at 1120 MVA and that of 132/33 kVSubstations at 2957 MVA at end of FY 16-17.

d. At the 33/11-6 kV Distribution Station level 57.5 MVA of capacity was added takingthe total installed base to 3700 MVA across 114 Stations.

e. Containerized 33kV Power Distribution Centre with 33kV GIS was commissioned atNagerbazar Distribution Station first such installation in the system.

f. 108 Nos Distribution Transformers (DTs) aggregating 35.6 MVA were added during theyear taking the installed base to 8147 DTs and 2740 MVA.

g. Commissioning of 11 panels 132 kV and 41 panels 33 kV Gas Insulated Switchgear.

h. Lengths of lines added at different voltage levels were: 2.7 ckm at 220 kV 10.1 ckmat 132 kV 35 ckm at 33 kV 110 ckm at 11 & 6 kV and 157 ckm of LT lines. The overalllengths of lines at the different voltages at FY end are shown in the Major Statisticsattached with this Report.

Impact of the measures

Impact of the measures as outlined under the Items above may be set out as follows:

1. Strengthen the Distribution Network to cope with the growing System Demand as wellas provide quality and reliable supply to the consumers.

2. Contain component of Distribution loss enhance safety and network operationalsimplicity reduce downtime reduce frequency of breakdown and improve customer serviceand system efficiency

C. Technology Absorption

• Induction of GIS switchgears at 33 kV and higher voltage level in the system forimproving reliability of operation optimizing space utilization and enhancing voltagegrade & station capacity of substations in the same space as a continuing process.

• Induction of 100 MVA 132 /33 kV power transformer in distribution substationwith unit cooler heat exchanger type cooling arrangement in place of conventional radiatorcooler bank for optimizing of space utilization with saving of space by 40-50% for atransformer.

• Induction of fully bio-degradable Ester Oil in place of conventional mineral oilbased transformer oil in DTRs and 20 MVA 33/11-6 KV Power Transformer for enhancing firesafety threshold and environment friendly transformer cooling medium.

• Induction of a Portable Outdoor Power Distribution Centre (PDC) i.e. acontainerized E-House at a Distribution Station for optimizing space utilization cost andreduction of execution time. PDC commissioned 21st February 2017 this month contains 6Nos. 33 kV Bay GIS switchboard. Similar 2 nos. PDC/E-House also planned in next FY.

• IEC 61850 based IEDs in protection system in EHV substations with OF networkingfor centralized analyzing of system disturbance and is an on-going drive.

• Feeder automation OF based Remote controlled operation of RMUs and ConsumerModules for restoration of supply. Installation of AMR in DTRs for energy auditing and isan on-going process.

• AMI based smart metering as a pilot project.

• Demand response control as a pilot project for shaving system peak.

• Installation of APFC controllers on DTRs taken up as pilot project for effectivecapacity utilization and monitor loss containment (550 APFC installed till date).

• Installation centralized Video surveillance system in the power cable tunnel(constructed in 1931) under the river Hooghly and at different EHV substations.

• Installation of SCADA through wireless at fringe area Distribution substations.

• Facilitating customers with net metering for solar rooftop installations.

• Smart whole current meters with Net Metering facility are being installed at theLT consumers' premises with RE sources.

• Online Partial Discharge monitoring using the new UHF technique for detectingincipient faults in EHV/HV power transformers and switchgears

• Field-trials for the emerging online PD measurement technology using HFCTtechnique for monitoring live cables

• Self-healing Distribution Station Pilot has been completed at 1 Station forfaster restoration without any manual intervention in case of 33kV cable fault.

• 1.5 MW pilot for Auto Demand Response Solution is under deployment involving 5HT consumers. The solution involves both Advanced Distribution Management System (ADSM)and Distributed Energy Resources (DER). Demand Response is an identified method forreducing peak demand and in a larger scale can defer Capex spends.

• Special initiatives in LT Automation for better customer service and improvementin operational efficiency have been initiated on trial basis.

D. FOREIGN EXCHANGE EARNINGS AND OUTGO

There has been no foreign exchange earning (previous year - Rs.Nil) during the year.The total foreign exchange outgo was Rs.16.86 crore (previous year - Rs.82.59 crore).

For and on behalf of the Board of Directors
Sanjiv Goenka
Kolkata 18 May 2017 Chairman