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REC Ltd.

BSE: 532955 Sector: Financials
NSE: RECLTD ISIN Code: INE020B01018
BSE 00:00 | 24 Jun 141.35 -3.60
(-2.48%)
OPEN

145.25

HIGH

146.90

LOW

140.70

NSE 00:00 | 24 Jun 141.35 -3.60
(-2.48%)
OPEN

145.15

HIGH

145.50

LOW

140.50

OPEN 145.25
PREVIOUS CLOSE 144.95
VOLUME 166814
52-Week high 167.75
52-Week low 91.90
P/E 3.34
Mkt Cap.(Rs cr) 27,915
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 145.25
CLOSE 144.95
VOLUME 166814
52-Week high 167.75
52-Week low 91.90
P/E 3.34
Mkt Cap.(Rs cr) 27,915
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

REC Ltd. (RECLTD) - Chairman Speech

Company chairman speech

Dear Shareholders

It is my privilege to present to you the 51st Annual Report of your Company. With theCOVID-19 pandemic still impacting our lives these are turbulent times for our businessesand economies. However adversity caused by the pandemic has also revealed to us new waysof survival and doing business. Despite the challenging times REC stands tall as aleading financial & development institution of the country delivering strongperformance on all counts while cautiously managing its risks. The Company has also madeits humble contribution towards managing the pandemic by arranging food & shelter formigrant workers distribution of essentials for communities and medical gear for frontlineworkers besides contribution to the PM CARES Fund.

Global economic conditions had been witnessing a gradual decline since the last twoyears. The world economy which grew at 4% in 2017 continued to soften to a growth of3.6% in 2018 and 2.9% in 2019. With the outbreak of COVID-19 in early 2020 one countryafter the other was hit with high human costs and a resultant public health crisis. At thesame time economic activity was adversely impacted at an unprecedented level. Chinawhich happened to be the epicentre of the pandemic saw a sharp decline in its productionactivities. This had a cascading effect on global supply chains prolonging the halt inmanufacturing activities & cross border trade. Simultaneously asset prices commodityprices and equity markets also plummeted. Softening oil prices provided some relief butuncertainty in the economic outlook continues.

Governments of advanced economies as well as developing economies were swift inproviding fiscal response to market disruptions alongwith support to heavily-impactedsectors and workers. Broad-based fiscal stimulus has prevented a further decline in thebusiness sentiment and a bigger downturn.

India was also impacted by the pandemic but the adverse effects have been containedwell by swift and strong measures taken by the Government. The Indian economy which had astrong performance in the recent decades grew at 4.2% in fiscal 2019-20 as the lastquarter was hit by COVID-19 and nationwide lockdown. The IMF has projected a contractionin the Indian economy in 2020 due to continuing challenges posed by the pandemic.However the economy is expected to bounce back in the next year.

The Hon'ble Prime Minister has given us the vision of AtmanirbharBharat of makingIndia a self-reliant nation. A huge fiscal package has been provided alongwith policypush in order to minimize the adverse economic impact of the pandemic. RBI has cut downthe repo rate to a 15-year-low of 4% and reverse repo rate to 3.35% besides allowingbanks NBFCs and housing finance companies to stall EMIs and extend moratorium up to sixmonths.

The new norms of 'social distancing' and 'work-from-home' brought into fore byCOVID-19 have put an increased focus on the centrality of electricity in powering ourcurrent and future societies. Having said that power sector is not immune to the adverseeffects of the pandemic and decreased economic activity. The long-term impact would becomeapparent only with passage of time. On the whole sustained economic growth is necessaryto maintain the demand for power and better energy systems. In the coming years we wouldsee enhanced power generation through renewable sources as also new technologies likesmart grids geospatial data systems and widespread e-Mobility which should form basis ofour energy planning to be done today.

POWER SECTOR SCENARIO

The power sector in the country witnessed limited disruption due to COVID-19 as powercomes under essential services category. However demand for power fell steeply on accountof drop in the commercial and industrial activity. Power distribution was impacted themost with fall in revenue collections affecting the financial and liquidity position ofplayers. As the lockdown eased out power demand started to recover. Further theGovernment announced liquidity infusion to the power sector granting relief from thesudden cash crunch.

India is the third largest producer and third largest consumer of electricity in theworld with total installed power capacity of 370 GW as on March 31 2020. The Indianpower sector is highly diversified with conventional sources such as coal lignitenatural gas oil hydropower and nuclear power on one hand; and renewable sources such assolar power wind power and agricultural & domestic waste on the other. The share ofrenewable energy in the generation mix is consistently increasing. Further the Governmentis pursuing various energy efficiency measures through innovative programmes such asUJALa SLNP National E-mobility Programme and Super-Efficient Air Conditioning Programmeetc. which serve the dual purposes of power saving and environmental sustainability.

The Government's focus on attaining '24x7 Power For All' has accelerated the capacityaddition in the country. Around 750 million people in the country gained access toelectricity between years 2000 to 2019 reflecting strong and effective policyimplementation. There is keen focus on becoming a low carbon economy. India has a hugepotential to become the world leader in renewable energy space. Furthermore developmentof smart cities and introduction of energy saving & storage devices might become thenew sources of investment traction.

OPERATIONAL PERFORMANCE

REC is engaged in financing projects / schemes of power generation (both conventionaland renewable energy) transmission distribution rural electrification and activitieshaving forward / backward linkage with power projects in both public and private sectors.Its key products include Long Term Medium Term and Short Terms Loans etc. for the entirepower sector value chain.

In addition to that REC also acts as nodal agency or project management / implementingagency for various schemes and programmes of national importance of the Ministry of PowerGovernment of India such as DDUGJY SAUBHAGYA and NEF to name a few.

During the financial year 2019-20 the Company sanctioned total loan assistance of Rs110907.99 crore towards various power sector projects/schemes. The same included Rs55811.89 crore sanctioned towards generation projects Rs 7026.33 crore towardsrenewable energy projects Rs 41604.77 crore towards T&D projects and Rs 6465.00crore towards short term medium term & other loans.

Further the Company disbursed a total loan amount of Rs 75666.95 crore in thefinancial year 2019-20. The same included Rs 27490.87 crore towards generation projectsRs 5699.09 crore towards renewable energy projects Rs 30856.19 crore towards T&Dprojects Rs 6390.00 crore towards short term medium term & other loans and Rs5230.80 crore of counter-part funding under DDUGJY including DDG (DecentralizedDistributed Generation) and SAUBHAGYA schemes. Further grant/subsidy of Rs 6473.88 croreprovided by the Government of India was also disbursed to various states/implementingagencies during the financial year 2019-20 under the dDuGJY DDUGJY-DDG and SAUBHAGYAschemes.

FINANCIAL PERFORMANCE

REC's Total Operating Income for the financial year 2019-20 was Rs 29791.06 crore asagainst Rs 25309.72 crore during the last financial year. Further the Profit After Taxand Total Comprehensive Income for the financial year 2019-20 were Rs 4886.16 crore andRs 4336.37 crore as compared to Rs 5763.72 crore and Rs 5703.18 crore in the lastfinancial year.

The Gross Loan Asset Book of REC as on March 31 2020 was Rs 322424.68 crore ascompared to Rs 281209.68 crore in the last financial year. The Net Worth of the Companyas on March 31 2020 stood at Rs 35076.56 crore i.e. 2.26% higher as compared to NetWorth of Rs 34302.94 crore as on March 31 2019.

The overall weighted average annualized interest rate of borrowing raised during thefinancial year 2019-20 and for the borrowings outstanding as on March 31 2020 excludingother finance charges was 6.70% and 7.32% respectively. As a result your Company wasable to deliver debt financing at competitive rates. The domestic debt instruments of RECcontinued to enjoy "AAA" rating the highest rating assigned by CRISIL CAREIndia Ratings & Research & ICRA. REC also enjoys international credit rating of"Baa3" and "BBB-" at par with sovereign ratings from internationalcredit rating agencies viz. Moody's and FITCH respectively.

REC's Credit Impaired Assets (Stage III) continue to be at low levels. As on March 312020 the Gross Credit Impaired Assets (Stage III) were Rs 21255.55 crore which was6.59% of the gross loan assets; and the Net Credit Impaired Assets (Stage III) were Rs10703.42 crore i.e. 3.32% of the loan assets.

DIVIDEND

The Board of Directors of your Company has declared an Interim Dividend of Rs 11/- perequity share of Rs 10/- each for the financial year 2019-20 which was paid in February2020. The Board has not recommended any final dividend for the year. Thus the totaldividend for financial year 2019-20 works out to Rs 11/- per equity share of Rs 10/- eachrepresenting 110% of the paid-up share capital of the Company consistent with thedividend of Rs 11/- per equity share of Rs 10/- each paid for the last financial year.

CAPITAL STRUCTURE

As on March 31 2020 the Authorized Share Capital of the Company was Rs 5000 crorecomprising of 5000000000 Equity Shares of Rs 10/- each; and the Issued & Paid upShare Capital of the Company was Rs 1974.92 crore comprising of 1974918000 EquityShares of Rs 10/- each. Power Finance Corporation Limited (PFC) a Government Companyholds 52.63% equity stake in REC in line with the Share Purchase Agreement dated March20 2019 entered between the President of India acting through the Ministry of PowerGovernment of India and PFC.

FLAGSHIP GOVERNMENT PROGRAMMES

REC is proud to be associated with various flagship programmes of the Ministry ofPower Government of India which are contributing immensely towards development of powersector in the country besides improving socio-economic conditions and quality of life.

REC is the Nodal Agency for Deendayal Upadhyaya Gram Jyoti Yojana i.e. DDUGJY aflagship scheme of the Ministry of Power Government of India launched in December 2014covering all aspects of rural power distribution facilitating towards achievement of'24x7 Power For All' in rural areas of the country through defined project components. Ina landmark achievement all remaining census inhabited villages in India stand electrifiedas on April 28 2018.

The Ministry of Power has also designated REC as the Nodal agency foroperationalization of SAUBHAGYA scheme i.e. Pradhan Mantri Sahaj Bijli Har Ghar Yojanalaunched in financial year 2017-18. With the concerted efforts of States and DISCOMselectricity connections were provided to 2.63 crore households under SAUBHAGYA DDUGJY andState Government schemes during the period from October 11 2017 to March 31 2019.Further on request of seven States (Assam Chhattisgarh Jharkhand Karnataka ManipurRajasthan and Uttar Pradesh) the Ministry of Power had accorded time extension approvalto electrify additional 19.09 lakh un-electrified households which were unwilling earlierto get electrified and had expressed their willingness before March 2019. Out of theseStates/DISCOMs have released connections to 13.92 lakh households during financial year2019-20.

Under the 'Atmanirbhar Bharat' package of the Government of India REC has disbursedSpecial Long-Term Transition Loans to DISCOMs for making payment to generators as theywere facing severe cash crunch owing to the pandemic. These loans provided much neededrelief to the power sector by injecting liquidity.

REC is also supporting the Ministry of Power for implementation of Ujwal DISCOMAssurance Yojana i.e. UDAY scheme launched in financial year 2015-16 for financialturnaround and revival of Power DISCOMs in the country. REC has developed astate-of-the-art web portal and an online App for monitoring the performance of DISCOMswhich has resulted in transparency and accountability.

POLICY INITIATIVES

REC regularly reviews and amends its policy framework to meet the demands of dynamicbusiness environment and changing statutory requirements. During the financial year2019-20 REC amended its 'Code for Regulating Monitoring and Reporting of Trading byDesignated Persons & their Immediate Relatives and for Fair Disclosure' 'Policy fordetermining Material Subsidiaries' 'Policy on Materiality of Related Party Transactions& Dealing with Related Party Transactions' and 'Policy for Prevention of Frauds'. TheCompany also adopted a policy for resolution of stressed assets; and additional guidelinesfor working capital loan to state power utilities. Regular review of policies has helpedREC in achieving its corporate objectives effectively.

HUMAN RESOURCES MANAGEMENT

Human resources continue to play a significant role in the journey of REC. During theyear under review the Company appointed 37 Executives in various disciplines from reputedinstitutes thus infusing fresh talent. Training and capacity-building programmes areregularly conducted to upgrade the skill sets and performance of the employees. RECbelieves in effective deployment of human resources for meeting the organizational goals.At the same time employee well-being and work-life balance is also promoted. This isreflected in a motivated workforce continuously striving towards organizationalexcellence.

INFORMATION TECHNOLOGY INITIATIVES

Information Technology is a key focus area of REC for enhancing automation of itsbusiness processes. Your Company was the first CPSE in the power sector to go paperlesswith organization wide implementation of 'E-office' for automated workflow and electronicdocument management. The Company has revamped its e-Business ERP to the latest version andalso migrated the ERP hardware to private cloud environment. Video conferencing is usedextensively in REC to conduct meetings of the Board Committees senior managementreview meetings meetings with Government agencies imparting training to employees andfor meetings with business associates.

REC has also implemented the IT Security framework prescribed by RBI as per its MasterDirection to NBFCs. The Primary Data Centre and Disaster Recovery Center of REC areISO/IEC 27001:2013 certified and also comply with the Government's National Cyber SecurityPolicy. Further REC has a secured VPN network enabling users to work remotely and ensurebusiness continuity.

REC INSTITUTE OF POWER MANAGEMENT AND TRAINING

The Company has a training institute at Hyderabad namely REC Institute of PowerManagement and Training (RECIPMT) which conducts specialized training programmes relevantto the power sector. The trainings are imparted to engineers managers and other employeesof various organizations from India and abroad besides in-house training sessions foremployees of REC. During the financial year 2019-20 RECIPMT conducted a total of 132programmes and workshops on various topics ranging from energy conservation relating topower generation transmission & distribution management finance informationtechnology and renewable energy. In all 3109 personnel were trained and an aggregate of11993 training man-days were achieved during the year.

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT

REC's Corporate Social Responsibility and Sustainable Development initiatives arepursued with a focus on socially beneficial projects giving priority to issues offoremost concern in the national development agenda and to reach a wide spectrum ofbeneficiaries. The Company's CSR funds are channelized through 'REC Foundation' a societyregistered under the Societies Registration Act 1860.

For the financial year 2019-20 REC had allocated a CSR budget of Rs 156.68 crore.Further REC disbursed an amount of Rs 258.40 crore in financial year 2019-20 towardsvarious CSR projects (including amounts carried forward from previous years) in the fieldsof sanitation and hygiene promotion of healthcare facilities skill development womenempowerment environmental sustainability and rural infrastructural development besidescontribution to the PM CARES Fund. The implementation of CSR projects is done inproject-mode with baseline survey specified time-frame identified milestones periodicmonitoring and impact assessment studies. The disbursements are linked with achievement ofpre-defined milestones and deliverables of each project.

During the year under review the Company also observed Swachhta Pakhwada and SwachhtaHi Seva initiatives to undertake cleanliness drive and to raise awareness about harmfuleffects of single use plastic. Close to 500 kgs. of single use plastic waste wassegregated collected and sent for recycling under REC's Swacchta Shramdaan activity onOctober 2 2019. REC was also presented the "Swachh Bharat PuraskaP by the Ministryof Jal Shakti Government of India.

CORPORATE GOVERNANCE

REC is committed to the highest standards of Corporate Governance. We strive to conductour business operations in an ethical and responsible manner within the prevalentregulatory framework for sustainable value creation for all our stakeholders. As a listedPublic-Sector Enterprise REC complies with all applicable provisions relating toCorporate Governance stipulated under the Companies Act SEBI (Listing Obligations &Disclosure Requirements) Regulations DPE Guidelines and other laws. Further the matterpertaining to appointment of requisite number of Independent Directors including WomanIndependent Director on the Board of REC is under consideration of the Ministry of PowerGovernment of India i.e. the appointing authority.

The Company believes in adopting best practices in the field of Corporate Governance.During the financial year 2019-20 REC was conferred the 'PSE Excellence Award 2018' forexcellence in Corporate Governance by the Indian Chamber of Commerce as runner-up in theNavratna and Maharatna category.

MoU RATING AND AWARDS

The performance of the Company in terms of the Memorandum of Understanding signed withthe Ministry of Power Government of India for the financial year 2018-19 has been ratedas "Excellent'. During the financial year 2019-20 REC was conferred the "ICAIAward for Excellence in Financial Reporting for FY 2018-19" by the Institute ofChartered Accountants of India in the 'Public Sector Entities' category in recognition ofits disclosure practices followed in the first Ind-AS (Indian Accounting Standards)Financial Statements and Annual Report. REC also received three awards for corporatecommunications namely first prize for "Best House Journal (English)" secondprize for ‘‘Best Corporate Communications-Internal" and third prize for"Effective use of Digital Media" under the SCOPE Corporate CommunicationExcellence Awards 2019.

SUBSIDIARY COMPANIES AND JOINT VENTURES

REC has two wholly-owned subsidiary companies namely REC Power Distribution CompanyLimited (RECPDCL) and REC Transmission Projects Company Limited (RECTPCL) which provideproject consultancy and implementation services in the areas concerned with the powersector.

RECPDCL is engaged in the businesses of project implementation and consultancy servicesin power sector viz. implementation of distribution system strengthening worksimplementation of grid/off-grid solar (PV) projects implementation of smart meterspreparation of detailed project reports third party inspections pre-dispatch materialinspections and acting as project management consultant / project management agency undersome projects of State-funded schemes such as DDUGJY IPDS etc. As on March 31 2020RECPDCL was working on about 100 on-going projects spread across 57 DISCOMs / powerdepartments / co-operative societies in 26 States and 4 Union Territories. During thefinancial year 2019-20 RECPDCL's Total Revenue and Profit After Tax were Rs 143.01 croreand Rs 12.47 crore respectively and its Net Worth as on March 31 2020 was Rs 168.20crore.

RECTPCL acts as the "Bid Process Coordinator" for selection of TransmissionService Providers through Tariff Based Competitive Bidding (TBCB) process for independentinter-state and intra-state transmission projects assigned by the Ministry of Power andState Governments from time to time. In order to initiate development of each independentinter-state / intra-state transmission project RECTPCL incorporates a project-specificSpecial Purpose Vehicle (SPV) as its wholly owned subsidiary. After selection of thesuccessful bidder in accordance with the TBCb Guidelines such subsidiary is transferredby RECTPCL to the successful bidder along with all assets & liabilities. RECTPCL isalso handling other assignments such as 11 kV Rural Feeder Monitoring Scheme online webplatforms namely Urja Mitra and TARANG (Transmission App for Real Time Monitoring &Growth) etc. under the guidance of the Ministry of Power. During the financial year2019-20 RECTPCL's Total Revenue and Profit After Tax were Rs 70.55 crore and Rs 54.44crore respectively and its Net Worth as on March 31 2020 was Rs 112.60 crore.

REC's joint venture company viz. Energy Efficiency Services Limited (EESL) with threeother power sector PSUs is a market leader in the field of energy efficiency. REC'sequity stake in EESL was 22.18% as on March 312020. EESL is implementing variousflagship schemes of the Government such as UJALA (world's largest non-subsidy based LEDlighting programme) SLNP (world's largest programme to replace existing street lightswith smart & energy efficient LED street lights) National E-Mobility Programme(providing e-Vehicles to Government entities for replacing existing petrol & dieselvehicles) and Super-Efficient Air Conditioning Programme (for providing Super-EfficientACs to customers at affordable prices) to name a few. Based on the standalone provisionalfinancials of EESL for financial year 2019-20 its Turnover was Rs 1934.07 crore andProfit After Tax was Rs 44.92 crore.

THE PATH AHEAD

The Indian power sector is experiencing a considerable reformation transitioning fromfossil-fuel centric to renewable-centric systems and increased energy efficiency. TheGovernment has already affirmed its commitment to implementation of the covenants of ParisAgreement and has set a target of 175 GW of renewable energy by 2022. The sector is alsolooking forward to increase in the share of green energy to 40% of the total installedcapacity by 2030 push for e-Mobility promotion of energy saving devices and adoption ofnew & emerging technologies. Economic growth of coming years would also lead tosignificant investments in the power sector. With implementation of programmes like '24x7Power For All' and electrification of all villages & households in the country it isexpected that there will be huge latent demand for power in the near future.

The increase in power demand would also require robustness in the Transmission &Distribution infrastructure to cater to 24x7 power demand thereby attracting moreinvestment in underground cabling smart meters & equipment AMI / AMR infrastructureand Smart Grid etc. Further the investment needs for creation of dedicated GreenCorridors and new network under Tariff Based Competitive Bidding route are enormous. RECoffers a wide range of products to finance the diverse needs of the power sector acrossthe value-chain and throughout the country.

FUTURE STRATEGY

With a strong foothold in its existing area of operations REC is poised to enter intonew areas of business. This will include extending assistance for activities having aforward or backward linkage with energy related projects financing electro-mechanical andhydro-mechanical components and associated civil works in large lift irrigation projectspollution control equipment in thermal power plants and other emerging technologies.Renewable Energy would continue to be a key focus area for REC over the next few years inkeeping with the Government of India's strong policy support to develop this segment.E-Vehicles agriculture pumpsets energy efficient equipment smart transmission anddistribution systems TBCB projects etc. would continue to create new businessopportunities.

In the wake of the economic repercussions of the COVID-19 pandemic many companiesacross the world are now considering diversifying their supply chain and relocate toIndia. Persistent economic and agricultural growth is also likely to drive the electricitydemand further in the coming years. Power sector is going to witness a paradigm shift dueto these changes. The Government is already taking several measures to support the powersector in this evolving scenario. To meet these challenges and harness emergingopportunities REC is well placed in the short-term as well as long-term.

ACKNOWLEDGEMENTS

I express my sincere gratitude to the Hon'ble Minister of State (Independent Charge)for Power and New & Renewable Energy Secretary (Power) Additional Secretaries JointSecretaries and other Officials of the Ministry of Power for their continued support andguidance to the Company. I also thank the officials of NITI Aayog Ministry of FinanceMinistry of Corporate Affairs DIPAM DPE RBI SEBI Stock Exchanges and Depositoriesfor their goodwill and cooperation. I am grateful to the Comptroller & Auditor Generalof India Statutory Auditors Secretarial Auditors Registrars and other professionalsassociated with the Company for their support.

My special thanks to all investors lenders borrowers and clients including the StateGovernments power utilities and private power sector entrepreneurs for placing theirtrust in the Company. I record deep appreciation for my esteemed colleagues on the Boardwho have contributed immensely in the growth of the Company. I also convey my heartfeltthanks to all employees and staff of REC for their untiring efforts. I am confident thatwith the cooperation of all stakeholders Team REC will strive to achieve greater heightsin the future.

With warm wishes

Sanjeev Kumar Gupta
Chairman & Managing Director and Director (Technical)
August 31 2020