Olectra Greentec Management Discussions

Annexure-6

A) Electric Vehicles (E Buses and E Tippers) Industry Structure and Development:

The international communities have been conscious and concerned about the high carbon emissions and global warming and nations across the globe have assumed responsibility and demonstrated their commitment towards making the planet a sustainable place for survival of the coming generations. In the said advent there have been various efforts through their respective governments and implementing agencies to remedy the situation. We have multiple international treaties to address climate change for example, the Paris Agreement which was adopted by 196 nations at the UN Climate Change Conference (COP21) in Paris, The United Nations Framework Convention on Climate Change (UNFCCC) in 1992 i.e. the Kyoto Protocol, Vienna Convention and Montreal Protocol etc.

It is a well-known fact, that one of the major reasons of global warming is high carbon emissions attributable to the injudicious and irresponsible development activities which includes carbon emissions from conventional vehicles operated on fossil fuel. These carbon and other harmful gas emissions subsequently spread around the planet like a blanket, retaining the solar heat and waves that would otherwise have been radiated out into the outer-space. India is one of the signatories of international treaties to address climate change and as an active implementation partner has embraced multiple sustainable practices like power generation through renewable energy including power generation thorough biomass power and bagasse cogeneration., adopting electric vehicles for public mobility and privately used vehicles etc.

In the environment protection programs and climate change redressals; electric mobility would certainly play a major role by not only reducing the carbon emissions but also creating a sustainable alternative to the scarce fossil fuel. Also, with the advent of our rapidly growing economy, EV mobility has a major role in shaping the auto industry and means of transport. The Indian automotive industry at present is placed as the fifth largest in the world and is slated to be the third largest by 2030. Catering to a vast domestic market, relying on the conventional modes of fuel intensive mobility will not be sustainable. We, at Olectra are committed to sustainable business practices and through our innovative products are always inclined to address the market requirements while ensuring that our products are not only useful but also environment friendly. Coexistence of mankind with nature is the core principle of our R&D initiatives. In the said spirit last year, we had introduced a heavy-duty electric Tipper which has multiple applications and uses. This year, we have started commercial production and already sold 17 Tippers. Also, we have in the current year, in collaboration with Reliance Industries Limited developed a prototype of a fuel cell/ hydrogen powered electric bus which has a much higher range than the conventional electric buses and also do not required long time for charging. The said Hydrogen Bus will open the Indian market to a cutting-edge transportation system. The said proto type bus contains 4 hydrogen cylinders installed on the top of the bus which can be increased as per the requirement. The hydrogen cylinders are designed to endure temperatures of -20 to +85 degrees Celsius. A typical range with 4 cylinders is more than 400 kilometers on a single hydrogen fill which takes only 15 minutes.

Public transport is the backbone for any economy, the electric bus deployment for public mobility has become a reality and have been picked up for a wider adoption across India. We have one of the largest market share in the Indian E-Bus retail market with a retail market share of 28% as at September 30, 2022 (Source: ICRA Report). Our range of E-Buses includes 7m, 9m, 12m etc. and 12m inter-city coach models with 135 variants to pick and choose. The first of our E-Buses received their homologation by Automotive Research Association of India (ARAI) in 2017. As at March 31, 2023, around 1,188 of our E-Buses were operating on Indian roads.

Outlook

In India we have a conducive environment which promotes renewable sources of energy generation and inter-alia addresses favorable acceptance of electric vehicles. We have a much higher number of State Transport Undertakings (STUs) coming forward for placing electric buses orders through public tenders. In the current year It has been witnessed that the demand for electric buses are not majorly impacting despite the absence of state or central subsidies. The STUs appear to have been sensitized about the benefits of electric buses, its low cost of operation and maintenance, while being environment friendly.

The future of public and private means of transport is electric and there is a pragmatic expectation for more demand of electric vehicles in the future. The government of India has promulgated many policies including “Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India” (FAME) for adoption of electric vehicles. The world has witnessed a volatility in the crude oil prices for the past couple of years. The increasing crude oil prices and targets for reduction in carbon foot print have paved the way for rapid growth and transition in electric bus market. Most cities and states in India are focusing on deploying Electric Buses for Public transport. Various Electric vehicle policies have been introduced or under consideration at state level like giving upfront subsidies for electric vehicle adoption, charging stations and introducing exemption of MV tax, registration fees, permit fees and rebates in power tariff for charging which will promote the manufacturing and adoption of EVs on a larger scale. With long range buses, STUs have started working on Intercity Electric buses. State Governments like Maharashtra, Gujarat, Tamilnadu, Telangana, Delhi, Goa, Karnataka are aspirating to completely shift to Electric fleet.

The company has bagged some of the biggest orders from various STUs in India in the last financial year and the current year which includes the following orders:

a) 550 electric buses from Telangana State Road Transport Corporation (TSRTC)

b) 2,100 electric buses from Brihanmumbai Electric Supply and Transport Undertaking (BEST)

c) 5,150 electric buses from Maharashtra State Road Transport Corporation (MSRTC) There are a few more tenders in pipeline in which the company has participated in the bidding and is hoping to bag more of such orders.

Last year, the Company through its extensive R&D efforts was able to bring to the market yet another innovative technology in electric vehicles ‘Electric Tipper this is a major breakthrough and is the first of its kind in our country and could be a game changer in infrastructure development at relatively lower cost. We have witnessed a surge in the demand for our electric tippers from the infrastructure and construction companies and have been receiving enquiries for supply of our electric tippers as they are heavy duty and low on maintenance, operational cost is much below than the customary fuel-based tippers.

We have supplied 17 tippers in FY 22-23. The demand for our revolutionary product i.e. electric tippers has been increasing and are getting multiple expressions of interest and business inquiries.

Opportunities

Convergence Energy Services Limited-CESL under the mandate of Niti Aayog would be calling tenders for procurement of more than 50 thousand electric buses within the next few years. The market for electric buses is much higher considering that the 50 thousand number is less than 10% of the actual buses plying on Indian roads today. As the population is rising demand for induction of more buses is already felt as evidenced from various tenders floated by STUs for their new bus depots serving additional routes. Furthermore, many of the ICE buses which are now operational would have to be replaced with electric buses. The demand for electric buses is expected to grow continuously. The low operational and maintenance cost of the electric buses is yet another catalyst for its demand. The fuel cost contributes to approximately 40 to 50 percent of the ICE bus operations cost as the fuel price continues to rise the public and private fleet is expected to transition to electric buses at a shorter time. The major chunk of the electric bus demand is from STUs on a gross-cost contract operations model (the “GCC Model”) which has emerged as the preferred model for STUs in the E-Bus industry in India. This significantly alleviates the upfront capital deployment burden on cash-strapped STUs while simultaneously spurring electrification through increased private participation (Source: ICRA Report). Convergence Energy Services Limited (“CESL”), a wholly owned subsidiary of the Energy Efficiency Services Limited (which is controlled by the Government of India). Some of the STUs like BEST, TSRTC and MSRTC had floated tenders for large bus supplies on GCC

model and are considering the replacement of old ICE engine buses with e-bus and addition of more buses to meet the demand of public transportation under the respective STUs. The tender for larger orders is expected to continue being floated by the STUs and CESL. In the said manner, there are other large tenders in pipeline including the tender from, a statutory corporation BEST which has released a new tender for operation of Stage carriage services for public transport of 2,400 E-Buses (with variation of + 25%) in Mumbai. The Company has been participating in the said tenders and has been able to bag some really big tenders in the recent past for e.g., 5150 electric buses from MSRTC. This order has been one of the largest in the history of GCC awards. The company is also augmenting its production capacity in Electric Vehicles Business to cater to growing demand for Electric Vehicles in India. The Company has already awarded a contract to MEIL for construction of the new production facility at the 150 Acres of Land acquired from TSIIC for setting up of New Greenfield EV Manufacturing Facility with an initial capacity of 5000 vehicles per year and extendable to 10,000 vehicles per year. The construction of the factory is in good progress and it is expected to be completed within the stipulated timelines.

There is a surge in the demand for electric tippers and it is expected to grow in the near future owing to the infrastructure developments being undertaken by the Government of India and/or private sector including construction industries, as these industries use heavy earth moving vehicles which includes tippers. Our electric tipper which is based on advanced technology meets the endurance and performance requirements for the construction related industries who are involved in constructing buildings (residential and commercial), roads, bridges, dams, tunnels etc. Our electric tippers has a high market, considering its load bearing capacity while being environment friendly and cost effective with low maintenance requirements.

Segment wise Performance

The market position of the Company has been on a continuous improvement path and has been performing well. During the year under review; it has bagged orders for 131 electric buses for outright sale and 3,108 number of electric buses under GCC contracts. In the recent past, your companys operational arm i.e. Evey Trans Private Limited has recently won the legal battle in the Honble Supreme Court of India against Tata Motors Limited under the BEST tender for supply of 2,100 buses on GCC also we have bagged an order of 5,150 electric buses from Maharashtra State Road Transport Corporation (MSRTC) which is the largest order in the history of GCC Contracts in India.

. Your Company is a pioneer in bringing Electric Buses to the Indian market, its first bus received the homologation certificate by ARAI in 2017, Our range of E-Buses includes 7m, 9m, 12m etc and 12m inter-city coach models with 135 variants thereof in total. With our R&D we continually strive to make our buses more reliable, safe and comfortable. Our mission is to make public transport more sustainable, pollution free, safe and lower the operational and maintenance costs.

The Company continued with system improvements, cost reduction exercises without compromising on productivity and improved profitability. Its R&D efforts has been quite promising and have been upgrading its product offerings through high and smart technological advancements. It has also put in efforts through its design thinking and technical maturity to bring in new solutions to the market. The recent innovations have been the electric tippers and hydrogen fuel cell buses.

Your Company through its extensive R&D efforts was able to bring to the market Electric Tipper which is one of its kind and has a high demand in the construction industries and at present we have received the homologation for tippers and we have entered into the commercial production of the same and delivered some of the orders. As a continued R&D efforts we have in the current year in collaboration with Reliance Industries Limited developed a prototype of a fuel cell/hydrogen powered electric bus which has a much higher range than the conventional electric buses and also do not required long time for charging. In the last Financial Year, your company sold 563 e-buses and 17 e-tippers as against 259 e-buses sold in previous year registering a growth of 123.94%. Your Company has registered a significant increase of net sales with 93.77% and in FY 22-23 compared to FY 21-22.

The Company looks forward to technologically advanced brighter future through its innovations and R&D and to bring in safer and user-friendly products in its existing offerings and upcoming products.

Risks, Concerns and Threats

The GCC contracts has a cut-throat competition in prices. The company is critically evaluating opportunities for production price reduction without compromising with the safety and quality of its products. The company is exploring through its R&D efforts to bring in more technological advancements with lower costs in this regard. Ongoing international conflicts impact the supply of certain raw materials and components. Electric buses use certain rare earth elements and as the demand of electric buses increase and suppliers of raw material and components remain unchanged we need to have tie ups with more suppliers and strengthen our ecosystem.

The Company in order to address such risks has already tied up with more supply partners and has been exploring to add more of them to its ecosystem. This will help the company to not only meet the regular requirements but will assist to meet the exigent requirements as well. The company has been skilling its workforce to reduce the production errors on real time basis by imparting them ‘on the job trainings for effective, efficient and accurate production planning and execution. The Company has been also considering and evaluating opportunities of cost-effective production with usage of minimal manpower intervention, technological innovations and adoption to precise and Artificial intelligence-based manufacturing process to meet the anticipated challenge of cut throat and aggressive pricing for the future orders/tenders.

B) Insulators Industry Outlook

Electricity demand has been increasing across the globe due to population increase and increase in multiple applications being run on electricity. The natural resources for generation of thermal electricity continue to deplete while the demand for electricity continue to increase, in order to address the said scenario, as a sustainable option, the governments are inclined towards investing in renewable sources of energy and also in modernization of electricity grid to cater to the ongoing and increasing demands. India is the third largest producer and second largest consumer of electricity in the world, it has an installed power capacity of more than 416 GW. Electricity generation reached 1624.158 billion units (BU) in FY 2022-23 as compared to 1491.859 BU generated during 2021-22, representing a growth of about 8.87%. (Source: https:// powermin.gov.in/) The coverage of electricity to wider locations including rural coverage has incubated the need for new power lines, transformers, and other equipment, which in turn requires more insulators to ensure safe and reliable operation and electric transmissions. Additionally, the replacement of aging infrastructure also generates demand for insulators.

Insulators being critical components in electrical systems, providing insulation and support to power lines and other equipment, they must withstand various environmental and mechanical stresses, such as wind, ice, and lightning, as well as electrical and thermal loads. Therefore, their quality and reliability are essential for ensuring the safety and efficiency of the power grid. The Government of India through its widespread schemes like Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY), Ujwal DISCOM Assurance Yojana (UDAY), and Integrated Power Development Scheme (IPDS) has helped the country with larger coverage of electric connections in the recent past including rural and remote areas. India has also launched the Mission Innovation Clean Tech Exchange, a global initiative that will create a whole network of incubators across member countries to accelerate clean energy innovation. Indias power requirement is expected to reach 817 GW by 2030 for meeting the said requirements, the Government of India plans to establish renewable source of energy with a capacity of approximately 500 GW by 2030. (Source: https://powermin.gov. in/) Indias electric insulator market size reached US$ 379.8 Million in 2022. Looking forward, it is expected to reach US$ 557.4 Million by 2028, exhibiting a growth rate (CAGR) of 6.6% during 2023-2028. Indias electric insulator market is primarily driven by rapid urbanization, which has increased the need for heating, ventilation, and air conditioning (HVAC) systems in the country. The growing industrial sector has further escalated the electricity consumption, providing a positive impact on the electric insulator market. Additionally, the emerging trend of privatization of the electricity distribution sector has also increased the power generation capacity, thereby expanding the transmission and distribution (T&D) infrastructure in the region. Since insulators form an essential component of these networks, their expansion is creating a positive outlook for the market. Furthermore, the government is investing heavily in refurbishing the aging grid technology and establishing smart grid vision and green energy corridors to develop a sustainable and efficient electrical network that reaches every state. Massive industrialization and urbanization enormously increased the demand for electricity which in turn stressed the rapid development of transmission and distribution system.

Opportunities

Indias power sector is one of the most diversified in the world. Sources of power generation in India ranges from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power, to viable non-conventional sources such as wind, solar, agricultural and domestic waste. Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required. With electricity generation (including renewable sources) of 1,359.21 BU in India up to January, 2023 in the current fiscal year FY23, the country witnessed a growth of 10.08% YoY.

The global composite insulator market size reached USD 2975.7 million in 2018. Demand for composite insulators grew by 4.1 percent in 2022 and estimated to reach USD 3433.3 million in 2023.

Worldwide product demands projected to exhibit a 6.4 % CAGR over the assessment period from 2023 to 2033. It is projected to result in a market size of USD 6413.1 million by the end of 2033.

The country has a significant extent of aging infrastructure, including Power Transmission and Distribution systems. Several of the existing insulators made from traditional material such porcelain and glass might be reaching the end of their lifespan or becoming prone to failures.

Composite insulators offer a reliable and durable alternative that can withstand harsh environmental conditions and provide long term performance; the characteristics of these composite insulators make them an alternative choice for infrastructure upgrades and replacements which generate increased demands for these insulators. Demand for composite insulators is on the rise due to their superior performance and durability compared to traditional insulator material. Composite insulators are made from combination of materials such as FRP and silicon rubber. These offer excellent electrical insulation properties and high mechanical strength. Another reason pushing demand for composite insulator is its lightweight nature. The composite segment dominates the global electric Insulator market. The composite insulator segment is expected to attain CAGR of 4.8% through 2031. Rise in investments in repairing outdated grid networks across industrialized countries and the growing adoption of smart grid technologies will increase the demand for composite insulators. The increased emphasis on grid network expansion, advantages of composite insulators, and substantial expenditures by regulatory authorities in the construction of efficient electric infrastructure will boost the demand for composite insulators. Furthermore, favourable power distribution changes and increased industrialization and commercialization will drive the demand for composite insulator in electric insulator market. This is expected to increase its adoption and thus, drive the market growth in upcoming years.

Risks Concerns and Threats:

The markets are still in the recovery mode, and the tenders pertaining to Transmission and Distribution projects are getting delayed due to price increase of basic raw materials while the Engineering, Procurement and Construction (EPC) projects are not being executed anticipating reduction in prices. Additionally, the high costs involved in upgrading existing Transmission and Distribution infrastructure will prove to be a major restraining factor for the insulator industry across the globe. The aftermath of Covid-19 in the form of operational risk, credit risk, market risk including liquidity risk had impacted the supply chain of raw materials and resulted in shortage and disruptions in supplies on the one hand and increased the costs on the other hand. The conflict amongst Russia -Ukraine has resulted in the shortage of gas supply (both domestic and commercial) in Europe and worldwide crude availability. This has also impacted the supply of raw material and increased costs.

The small and unorganized sector of the insulator industry is also providing stiff competition with low prices by compromising the quality of their products. Moreover, the low-quality products are creating problems in operations and causing concerns for product suitability for longer period.

Segment Wise Performance

Olectra is one of the largest manufacturers of composite insulators in India. Our design, development and manufacturing process of composite insulators have proven to meet the dynamic requirements of customers giving a competitive advantage over other insulator manufacturers. Our high-quality composite insulators offer good operational performance and are well accepted in Indian market, we also have a market share in the USA, Africa and Asian region and our insulators are well accepted in these countries as well, this gives us and impetus to expand our insulator business in the other international markets. In the industry overview, performance of the Companys composite insulators has been quite good inspite of the aftermath of Covid 19 and disruptions in the global peace including the conflict between Russia-Ukraine, entry of new players, dollar fluctuations, increase in raw material costs, reduction in margins due to inflationary trends and slow pace of implementation of EPC contracts. During the year under review, the Company was able to record a net turnover of Rs. 12,381.50 Lakhs for its Insulator Division.

C) Discussion on Financial Performance and operational performance

The net sales of the Company increased by 93.77% from Rs. 1,13,440.67 Lakhs in FY 2022-23 to Rs. 58,543.10 Lakhs in FY 2021-22. This was due to higher number of e- bus deliveries and increase in their operational performance. The Companys net profit was Rs. 7,070.28 Lakhs for FY 2022-23 as compared to Net profit of Rs.3,569.81 Lakhs for the FY 2021-22.

i) Internal Control systems and their adequacy

The internal audit, other financial systems, controls and checks in the Company are considered adequate and commensurate with the size and nature of operations providing sufficient assurance about safe guarding of all assets, authorizing transactions, recording and timely reporting.

ii) Material Developments in Human Resource/Industry Relations front, including number of people employed

Industrial relations are good and harmonious. The Company recognizes the importance and contribution of human resources for its continued growth and development. As on March 31, 2023, the Company has a total strength of 348 permanent employees. Details of significant changes (i.e. changes amounting to 25% or more compared to the previous financial year) in key financial ratios are as follows:

		Standalone
Financial Ratio	Formula used	FY 2022-23	FY 2021-22	Change (%)	Reasons for Change
Interest Coverage Ratio	EBIT/Finance cost	3.92	6.89	-43.11%	The decrease is on account of in- crease in interest expense due to higher volumes and higher utili- sation of working capital limit
Debtors Turnover Ratio	Revenue from operations / average receivables	2.28	1.87	21.93%	The Ratios are positive in current year mainly due to higher volumes and improved operational profits except operating margins which are lower due to revenue mix
Operating Profit Margin (%)	EBITDA / Revenue from operations	13.10%	15.16%	-13.59%
Net Profit Margin (%)	Net profit after taxes / Revenue from operations	6.23%	6.10%	2.19%
Return on Networth	Net profit after taxes / Average total equity	8.68%	4.68%	85.47%

Cautionary Statement

The Statement in this section describes the Companys objectives, projections, estimates, expectations and predictions some of which may be “forward looking statements” within the meaning of the applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand/supply and price movements in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other related factors.