Transformers & Rectifiers India Ltd Management Discussions

Global Transformer Market Analysis

Introduction

The global energy sector is undergoing a profound transformation driven by technological advancements, environmental concerns, and shifting consumer preferences. This report analyses key market trends and growth projections within the energy sector and assesses their impact on the transformer industry. With a particular focus on emerging technologies and renewable energy sources, this report presents a bullish outlook for both the energy sector and the transformer industry.

Renewable Energy Market

The renewable energy market is poised for substantial growth of approx. 20%, with a projected value of $28.2 billion USD by 2028. This growth is primarily driven by increasing investments in wind, solar, and hydroelectric power generation, fueled by environmental sustainability goals and government incentives.

Hydrogen Market

The hydrogen market presents significant opportunities, with an estimated value of $410 billion USD by 2030, exhibiting a robust compound annual growth rate (CAGR) of 7.8%. Hydrogen is emerging as a clean and versatile energy carrier, particularly suitable for sectors such as transportation, industry, and power generation.

Offshore Wind Market

The offshore wind market is expected to reach $56.8 billion USD by 2028, with a CAGR of 12.3%. Offshore wind farms offer abundant and consistent energy resources, making them a key component of the transition to renewable energy sources.

Oil Immersed transformer market

The oil-immersed transformer market is projected to reach a value of $28.2 billion by 2028, experiencing a Compound Annual Growth Rate (CAGR) of approximately 6%. Oil-immersed transformers are a type of electrical transformer where the core and windings are immersed in insulating oil. These transformers are commonly used in various applications such as power distribution, industrial settings, and renewable energy projects.

Electrolysers Market

The electrolysers market, essential for hydrogen production, is forecasted to grow at an astonishing CAGR of 80.3%, reaching $23,600 million USD by 2028. Electrolysers play a crucial role in facilitating the integration of renewable energy sources by enabling the production of green hydrogen.

DRY Type Transformer Market

The DRY type transformer market is expected to reach $9.2 billion USD by 2028, with a CAGR of 6.8%. As the demand for efficient and reliable power transmission and distribution systems increases, there will be a corresponding need for advanced transformers capable of handling variable loads from renewable energy sources.

Transformer Monitoring Market

The transformer monitoring market is projected to grow at a CAGR of 9.1%, reaching $3.7 billion USD by 2028. With the integration of smart grid technologies and the need for real-time monitoring and diagnostics, there will be a heightened demand for advanced transformer monitoring solutions.

Hydrogen Storage Tank and Transportation Market

The hydrogen storage tank and transportation market are expected to grow rapidly, with a CAGR of 48.6%, reaching $4155 million USD by 2028. Transformers play a crucial role in the efficient and safe operation of hydrogen production and transportation infrastructure, thereby driving demand in this segment.

Fuel Cell Generator Market

Fuel cell generators are experiencing rapid growth, with a projected market value of $2.1 billion USD by 2028 and a remarkable CAGR of 25.4%. These generators offer efficient and low-emission power generation solutions, particularly suitable for decentralized and off-grid applications.

Switch Gear Market

The switchgear market is forecasted to reach a value of $119.9 million with a CAGR of 5.20%. Switchgear refers to the combination of electrical disconnect switches, fuses, or circuit breakers used to control, protect, and isolate electrical equipment. It plays a crucial role in the safe and efficient operation of electrical power systems by managing the flow of electricity and protecting equipment from overloads, short circuits, and other faults.

Indian Market Outlook:

Opportunities for Transformer Industry

In recent years, India has witnessed a notable upward trajectory in its capital expenditure budget across the last four fiscal periods, with annual increases ranging between 33% and 37%. This marks the first instance in Indian history where the CAPEX budget has experienced four consecutive years of growth. Notably, the capital budget now represents approximately 3.4% of the GDP, signaling the countrys overall economic advancement. The surge in CAPEX implies concurrent growth in infrastructure, power, and productive capacity, all of which are poised to have a significant, multifaceted impact on the nations overall economic expansion. Projections indicate that the capital expenditure budget for the fiscal year 2024-25 is expected to reach 11.11 Lakh Crore, a substantial increase compared to the 4.1 Lakh Crore allocated in FY 2021. Additionally, the Central Electricity Authority (CEA) has estimated a total investment of 7.42 Lakh Crore from 2022 to 2030 for the upgrade of distribution infrastructure. Beyond the CEAs distribution plan, numerous other avenues are anticipated to contribute significantly to the forthcoming demand within the transformer sector until the year 2030. Anticipated CAGR growth of transformer market in India is 12-14%.

CEA Distribution Perspective Plan 2030

National Rail Plan vision 2030-2041-2051 for passenger trains (enhancement of speed to 40KMPH by 2030) National Rail Plan vision 2030-2041-2051 for Freight ecosystem (45% market share in total freight & HDN network) National High Speed Rail Corporation & HSRCISL Projects Urban Rail Transit system (Rapid, Metro, Mono etc.) National Industrial Corridor Development Program: 32 Projects 4 phases Affordable & Other Residential development CAGR 24.77 FY2029 Data Centre Growth CAGR 12 FY 2032 Electric Vehicle Growth CAGR 49.79 FY 2030 Renewable & Green Hydrogen Prospective Special Duty Transformer opportunities Export opportunities African, Middle East, European & US Market .

CEA: Distribution System Plan 2030

Projected Installed Capacity by March 2030:

Expected total installed capacity: 786 GW.

Compared to March 2022: Increase from 400 GW to 786 GW.

Renewable capacity percentage: Envisaged to be around 62.6% of total installed capacity.

Current Power Sub-Station Statistics (as of March 31, 2022):

Total number of power sub-stations: 39,965. Total installed capacity: 4,82,810 MVA.

Planned Sub-Station Expansion (2022-23 to 2029-30):

Planned addition of sub-stations: 12,192.

Total power substation capacity addition: Approximately 1,41,522 MVA.

Projected Cumulative Sub-Station Capacity by 2029-30:

Cumulative sub-station capacity by 2029-30: Around 6,24,332 MVA. Increase compared to March 31, 2022: 29.31%.

Renewable Energy & Opportunities for Transformer Industry

International Energy Agency (IEA): “RENEWABLE CAPACITY WILL MEET 35% OF GLOBAL POWER GENERATION BY 2025”

Electricity demand in India and the United States rose, while Covid restrictions affected Chinas growth. Chinas zero-Covid policy weighed heavily on its economic activity in 2022, and a degree of uncertainty remains over the pace of its electricity demand growth. We currently estimate it to be 2.6% in 2022, substantially below its pre-pandemic average of over 5% in the 2015-2019 period. Further data expected in due course will provide greater clarity on trends in China in 2022, which could also have implications for the global picture.

Electricity demand in India rose by a strong 8.4% in 2022, due to a combination of its robust post pandemic economic recovery and exceptionally high summer temperatures. The United States recorded a significant 2.6% y-o-y demand increase in 2022, driven by economic activity and higher residential use to meet both heating and cooling needs amid hotter summer weather and a colder-than-normal winter.

Low-emissions sources are set to cover almost all the growth in global electricity demand by 2025 Renewables and nuclear energy will dominate the growth of global electricity supply over the next three years, together meeting on average more than 90% of the additional demand. China accounts for more than 45% of the growth in renewable Electricity Market Report 2023 PAGE : 7 IEA. CC BY 4.0. Executive summary generation in the period 2023-2025, followed by the EU with 15%. The substantial growth of renewables will need to be accompanied by accelerated investments in grids and flexibility for their successful integration into the power systems. The increase in nuclear output results from an expected recovery in French nuclear generation as more plants complete their scheduled maintenance, and from new plants starting operations, largely in Asia. Out to 2025 the 70% of demand is set to come from India, China & South East Asia Combined.

As per IEA Low-carbon sources set to cover almost all the growth in global electricity demand by 2025

Low-carbon generation from renewables and nuclear had diverging trends in 2022. Renewables saw a year-on-year rise of 5.7%, making up almost 30% of the generation mix. A surge in renewable generation in the Asia Pacific region accounted for more than half of the increase, followed by Americas. By contrast, nuclear output fell 4.3%. This was due to maintenance outages at a large number of French plants, decommissioning of units in Germany and Belgium, and reduced Ukrainian output.

IEAs outlook for 2023 to 2025 shows that renewable power generation is set to increase more than all other sources combined, with an annualised growth of over 9%. Renewables will make up over one-third of the global generation mix by 2025. This trend is supported by government pledges to increase spending on renewables as part of economic recovery plans such as the Inflation Reduction Act in the United States. Nuclear output is expected to grow by 3.6% per year on average, mainly due to the increase in Asia Pacific, plus French generation returning to normal. As a result, low-carbon generation sources renewables and nuclear together are expected to meet on average more than 90% of the additional electricity demand over the next three years, unless developments in the global economy and weather events change the trends in electricity demand and fossil-fired generation.

The global renewable energy market is expected to drive growth at a CAGR of 8.50% from 2023 to 2032. Asia Pacific region will lead the global renewable energy market over the next ten years.

Key Factors:

The hydroelectric power segment is growing at a CAGR of 6.6% from 2023 to 2032.

By end use, the residential segment is expected to reach at a CAGR of 8.5% between 2023 to 2032.

The solar energy segment is registering growth at a CAGR of 13.5% between 2023 to 2032.

Asia-Pacific is grow at a notable CAGR of 9.7% from 2023 to 2032 and generated 35% market share in 2022.

Europe region exhibited 32.5% market share in 2022 and growing at a CAGR of 8.5%

India Story of Renewable Energy Growth

India is 3rd largest energy consuming country in the world and 4th largest producer of renewable power capacity addition. India stands 4th in wind power and 5th in Solar Power. As on December 2023 the total renewable sources including hydropower installed capacity stands to 180.79GW which includes 118,04GW of Solar and Wind. India has set a target to reduce the carbon intensity of the nations economy by less than 45% by the end of the decade, achieve 50 percent cumulative electric power installed by 2030 from renewables, and achieve net-zero carbon emissions by 2070. India aims for 500 GW of renewable energy installed capacity by 2030.

Industry Scenario

Renewable energy sources have a combined installed capacity of 150+ GW. As of Dec 2023, Renewable energy sources, including large hydropower, have a combined installed capacity of 180.79 GW. The following is the installed capacity for Renewables: Wind power: 44.73 GW

Solar Power: 73.31 GW

Biomass/Co-generation: 10.2 GW Small Hydro Power: 4.98 GW Waste to Energy: 0.58 GW Large Hydro: 46.88 GW

India has set a target to reduce the carbon intensity of the nations economy by less than 45% by the end of the decade, achieve 50 percent cumulative electric power installed by 2030 from renewables, and achieve net-zero carbon emissions by 2070. India aims for 500 GW of renewable energy installed capacity by 2030.

India aims to produce five million tones of green hydrogen by 2030. This will be supported by 125 GW of renewable energy capacity.

50 solar parks with an aggregate capacity of 37.49 GW have been approved in India. Wind Energy has an off-shore target of 30 GW by 2030, with potential sites identified.

Following list of activities in renewable energy will be considered for trading carbon credits under bilateral/ cooperative approaches under Article 6.2 mechanism as assigned under the National Designated Authority for the Implementation of the Paris Agreement (NDAIAPA):

Union Budget 2023 Highlights

Green Growth identified is one of the nodes in the SAPTARISHI (7 priorities). $2.4 Bn National Hydrogen Mission for production of 5 MMT by 2030, $36 Mn additional in Budget.

4 GWh Battery Energy Storage Systems supported through Viability Gap Funding Pumped Storage Projects has received a push with a detailed framework to be formulated. $1.02/2.5 Bn Central Sector Support for ISTS infrastructure for 13 GW Renewable Energy from Ladakh

Growth Drivers

Government Commitment:

Reduce Indias total projected carbon emission by 1 Bn tons by 2030, reduce the carbon intensity of the nations economy by less than 45% by the end of the decade, and achieve net-zero carbon emissions by 2070.

Proposed solar cities and parks

Solar city per state-approved and approved setting up 57 solar parks of 39.28 GW across the nation. The government is also giving a push to Floating PV Projects.

National Green Hydrogen Mission

The Union Cabinet approved the National Green Hydrogen Mission with a total initial outlay of 19,744 Cr, including an outlay of 17,490 Cr for the SIGHT program, 1,466 Cr for pilot projects, 400 Cr for R&D, and 388 Cr towards other Mission components.

Off-shore Wind Energy

The medium and long-term targets for off-shore wind power capacity additions are 5 GW by 2022 and 30 GW by 2030.

Wind-Solar Hybrid Policy

In 2018, national policy was announced to promote an extensive grid-connected wind-solar PV hybrid system for efficiently utilizing transmission infrastructure and land. A way to address the intermittency challenge of one renewable power source is to combine solar and wind, achieving better grid stability. It provides flexibility in a share of wind and solar components in the hybrid project; however, the capacity of one resource must be at least 25% of the rated power capacity of other resources. 47

Aatma Nirbhar Bharat

PLI scheme in Solar PV manufacturing with financial outlays of 24,000 Cr introduced under Aatma Nirbhar Bharat. Imposition of Basic Customs Duty of 25% on Solar Cell & 40% on Solar PV Modules w.e.f. 01.04.2022.

Opportunities for Improvement and Challenges for Growth

TRIL faces formidable challenges in its competitive landscape, characterized by intense rivalry from both local and global players within the transformer industry. This competitive pressure may impact TRILs market share but also influences its pricing strategies. Additionally, the company must navigate regulatory uncertainties, particularly concerning government policies regarding renewable energy subsidies, tariffs, and the burgeoning green hydrogen sector. These regulatory changes can significantly affect TRILs profitability and growth trajectory, underscoring the critical dependency of the transformer industry on evolving policies and incentives. As TRIL strategizes for sustainable growth, it must proactively adapt to these dynamic market conditions and regulatory landscapes to maintain its competitive edge and ensure long-term success.

Company Overview

Over time, your company has solidified its position as a leading manufacturer specializing in high voltage power transformers, furnace transformers, distribution transformers, renewable energy transformers, and more. Leveraging our engineering expertise and cutting-edge facilities, we have emerged as the preferred partner for end users in the industry. In the past year, we have secured orders worth 2050 Cr., and as of March 31st, we have an unexecuted order book of 44,594 MVA valued at 2581 Cr., scheduled for delivery within the next 15 months. Positioned strategically, we are poised to capitalize on the forthcoming growth opportunities in the Transmission & Distribution (T&D) sector, aiming to strengthen our market position year on year.

Recent Advancements in Human Resources and Industrial Relations, Along with Workforce Statistics:

Your company staunchly believes that human resources are an invaluable asset, essential for fostering productivity, innovation, efficiency, and dedication, which are integral to achieving excellence.

As of March 31, 2024, your company boasted a workforce of 528, diligently working and dedicated to the companys goals. Embracing the philosophy that human potential knows no bounds, your company prioritizes effective learning and development initiatives to optimally utilize talent. Each employee is afforded opportunities for professional growth and development, with defined and scheduled training programs, particularly tailored for Graduate Engineer Trainees and Postgraduate Engineer Trainees.

Recognizing the significance of employee engagement, the company consistently organizes activities to foster full engagement, understanding that fully engaged employees are invaluable assets who give their utmost effort. Throughout the 2023-2024 period, your company celebrated various events involving employees, including Annual Day, Annual Picnic, Engineers Day, Vishwakarma Day, Yoga Day, Kite Flying Festival, quizzes, and more, ensuring sustained engagement year-round.

Additionally, alongside technical training programs, the company conducts behavioural and motivational development initiatives, as well as computer literacy enhancement programs such as Microsoft Excel and ChatGPT. Notably, a special motivational workshop titled Vision-2000 was conducted for all senior managers within the organization.

Investor Relations and Engagement:

Investor Relations (IR) is playing an increasingly important role in todays volatile world in enabling companies to manage investor expectations. The objectives of Companys investor relations activities are to boost confidence and develop a long-term relationship of trust with stakeholders including Shareholders, Investors & Analysts, through true and fair disclosure of information/explanation, and bilateral communication.

To pursue these objectives at all times, your Company continuously discloses necessary information and conducts various investor relations activities. Engaging closely with the investor community helps the Company to gain investor confidence, thereby enabling it to drive maximum value out of the IR programme.

Your Company conducted following major activities for Investor Relations and Engagement:

Conducted results earning calls post announcement of the financial results.

Participated in 6 domestic investor conference organized by top brokerage houses of the country.

Organized plant visits for analyst & investors community to enable them to get an insight on the functioning of the plants.

Investor presentation and the required disclosures are shared with the Stock exchanges as well as hosted on the website of your Company.

Internal Control System:

Your Company has robust internal control system and procedures compatible with size and operations. The company has well defined internal control system and policies. The Internal Audit of the Company is done by internal auditor firm that includes professionally qualified accountants, engineers and IT experienced executives. Some elements of the Companys internal control system:

Preparation and supervision of annual budgets for all operating and service functions Making Standard Operating Procedures and guidelines and ensure compliance with same. Scope of internal audit and the frequency of audit being decided every year to ensure sufficient coverage of different areas and functions over a reasonable period.

The audit plan is discussed and approved in Audit Committee Internal Audit is conducted regularly during the year and on quarterly basis Internal Audit Report is being submitted to audit committee for their review and also for future improvements in the system across the organization.

The Company possesses ERP system to record data for accounting, consolidation and management information purposes.

The Company is also having well defined delegation of power with authority limits for approving revenue and capex expenditures including approval of non-routine and abnormal items.

Also, External Auditor is also performing independent testing of Internal Finance Controls over financial reporting which is line with regulatory reporting requirements. Internal Auditor is also checking the Internal Financial Controls as part of their Audit scope.

The Audit Committee of the Board of Directors comprising of 75% independent Directors, which quarterly reviews the audit plans, significant audit findings, adequacy of internal controls system, compliance with Accounting Standards etc.

Environmental Health and Safety:

At TRIL, we are steadfast in our commitment to environmental stewardship and sustainability. This report encapsulates our endeavours and achievements in this pursuit throughout past few years. Despite the challenges posed by external factors, we have remained resolute in our mission to minimize our environmental impact and contribute positively to the planet. This report outlines our key initiatives, progress, and future aspirations in environmental stewardship.

Dedication to environmental stewardship is deeply ingrained in our corporate ethos. We believe in conducting our business operations in a manner that is environmentally responsible and sustainable. This introduction sets the stage for the report, elucidating our values, objectives, and the significance of our environmental endeavours.

TRILs Moraiya Unit is under Commissioning of Rooftop Solar Power Plant with 1 MW Capacity aiming that could potentially reduce approximately 1,349,894 kgCO2eq of greenhouse gas emissions annually

In a collective effort to minimize environmental impact, TRIL Units have demonstrated significant dedication to water conservation by recycling and reusing over 80 lakh litres of water. This commitment reflects ongoing endeavours to reduce fresh water consumption, showcasing a proactive approach towards environmental sustainability.

TRIL Units have implemented cutting-edge groundwater recharge structures within their premises, enabling the harvesting and recharging of over 10 thousand cubic meters per year of rainwater. This innovative approach underscores their commitment to sustainable water management practices, contributing to the replenishment of groundwater resources while mitigating the impact of rainwater runoff.

Ensuring the safety and health of employees at the workplace remains a paramount focus for the TRIL team. Throughout the past year, they have actively engaged in initiatives aimed at promoting occupational safety and health awareness among their workforce across all units. Noteworthy highlights include the implementation of campaigns such as National Safety Week, Health Management Workshops, and Annual Health Check-up Camps. These efforts underscore TRILs commitment to empowering its workforce with the knowledge and resources necessary to maintain a safe and healthy work environment.

Cautionary Statement:

This document contains statements about expected future events, financial, and operating results of Transformers & Rectifiers (India) Limited, which may be forward-looking. By their nature, forward-looking statements require your Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the actual results may differ from the forward-looking statements mentioned in the Annual Report. Readers are cautioned not to place undue reliance on forward-looking statements.