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Chairman’s Speech, 23rdAnnual General Meeting, September 27, 2016

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Dear Shareholders,

On behalf of the Board of Directors, I warmly welcome you all to the 23rd Annual General Meeting of your Company. I am thankful to each of you for continued support and trust in the management of your Company.

The global economic outlook continues to remain challenging with the year 2015 that passed by registering a growth of 3.1% only. With the slowdown in China and recent developments like Brexit, IMF projects the growth rate to remain stagnant at 3.1% in 2016, with a marginal improvement to 3.4% in 2017.

In 2015, India overtook China as the fastest growing major economy in the world. The country's GDP grew at a rate of 7.6% during the FY 2015-16 compared to 7.2% in FY 2014-15. The initiatives by the Government on infrastructure development and allied sectors, the implementation of the recommendations of 7th Central Pay Commission on pay and pension benefits and good monsoon so far in the country is expected to spur the investment cycle resulting in better economic growth.

Concerted efforts by the Government in the current fiscal have resulted in signs of improvement in the areas of telecommunication, roads, airports and ports. However the power sector (excluding solar power) continues to lag behind inspite of progressive measures announced by the Government. Fuel Shortages (Gas), and lower off-take by the state distribution companies resulting in untied capacities, continue to inhibit the inflow of investments. Implementation of the Uday scheme, and consequent improvement in financial health of discoms, is expected to lead to an increase in long term (PPA based) demand for power and revival of the sector. Your Company got 60% gas under gas pooling scheme for the 1108 MW for the period October 2016 to March 2017.

The strong push by the Government for the development of renewable energy in the country (target of 1,75,000 MW by 2022), with major focus on solar energy, can create a favourable environment for investment in the solar power sector and bolster economic growth through job creation.



Consolidated Financial Performance

Issues that continued to affect the performance of the Company in the reporting year include Macro-economic and sectoral issues, inordinate delays in disbursement of project loans, inadequate fuel supply, delay in sale of assets / raising equity from the market despite employing multiple investment bankers, poor financial health of the Discoms etc.,

For the year 2015-16, on a consolidated basis, gross revenue was Rs. 8,228 crore vs. gross revenue of Rs. 9,511 crore in the previous year. Net loss for the year 2015-16 was Rs. 266 crore compared to a loss of Rs. 2,037 crore in 2014-15. The Company could reduce the losses on receipt of favourable judgement from Hon'ble Supreme Court in respect of Lanco Kondapalli tariff arrears, and favourable order from UPERC in respect of Lanco Anpara for the reimbursement of past losses and tariff correction. Cash Profit for the year was Rs.441 Crore vs. a cash loss of Rs.506 Crore in the previous year. The management is glad to inform the members that your Company made cash profit after two years of cash losses.

Performance of Various Businesses

POWER BUSINESS

As on March 31, 2016, your company's installed power capacity stood at 3,465 MW generating revenues of Rs. 6,220 Crore with an EBIT of Rs.1,759 Crores for the year 2015-16.

The capacity under construction is 4,636 MW. The execution of these under construction projects namely Lanco Amarkantak 3 and 4 (1320 MW), Lanco Babandh (1320 MW), Lanco Vidarbha (1320 MW), Lanco Teesta (500 MW), Lanco Mandakini (76MW) and Diwakar Solar (100 MW) is getting delayed on account of delayed approvals and disbursements from the lenders and shortage of equity funds. Your management is in continuous touch with the lenders and strategic/financial investors to augment the cash gaps. Your management is confident of tying up the necessary funds for completion of these under construction projects, which will give value to all the stake holders.

ENGINEERING, PROCUREMENT AND CONSTRUCTION (EPC)

The total EPC order book (including Power and Solar projects) at end of 2015-16 stood at Rs. 27,079 crores. Revenues for the full year 2015-16 were Rs. 2,875 crores compared to Rs. 1,316 Crores for previous year with an EBIT of Rs.463 Crores. The ramping up of EPC activity could not be undertaken due to cash flow gaps arising out of delayed disbursements of loans. Your management is in touch with the lenders to grant necessary support for ramping up of the EPC business.

INFRASTRUCTURE PROJECTS

The road projects in Karnataka collected Rs. 117 crore in toll revenue during the year 2015-16 with an EBIT of Rs.26 Cr.

SOLAR

Lanco Solar has its presence across solar EPC, solar power project development, manufacturing of modules and O&M, thus stands as one of the leading integrated solar energy enterprises in the country. Lanco Solar has taken considerable strides in the solar industry during recent years with it's integrated approach, with an aim to deliver sustainable, innovative and cost effective solutions across the entire solar power value chain.

Revenues during the year 2015-16 for Solar EPC were Rs.543 crores while EBIT was Rs.40 crores. As of end March 2016, the solar EPC order book was Rs. 3,668 crores.

RESOURCES

Production at Griffin coal during the year 2015-16 was 2.45 MT with sales of 2.44 MT. Revenues during the year 2015-16 stood at Rs.500 crores while EBIT loss of Rs.189 crores. Capacity enhancement programme for increasing the capacity from present to 15 MTPA is in approval stage. The Tasra Opencast coal Mine Development and Operations project is in the development stage.

Corporate Social Responsibility

Lanco Foundation is the CSR arm of the Lanco Group. The Foundation operates in 12 locations across 10 states in India. Lanco Foundation programmes include Health, Supply of drinking water, free disability assistance, providing free education and free medical support. During the year 2015-16, Lanco group spent Rs. 3.61 Crores on CSR related activities.

Acknowledgement of Support

On behalf of the company's Board, I record our thanks to all the stakeholders including banks, financial institutions, the central and state governments, customers, vendors and business associates for their co-operation and support. I also thank all Lanconians and my colleagues on the Board for their guidance. Lastly, our deepest gratitude to all shareholders for the continued support and confidence in the Company..

Thank you,

L Madhusudhan Rao
Executive Chairman
Lanco Infratech Limited

     


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