Chairman’s Word, 19th Annual General Meeting, September 27, 2012
Welcome to the 19th Annual General Meeting of your company. At the outset, I would like to thank each and
every one of you for your support and trust.
As you are aware, the year gone by has seen many economic and business challenges globally as well as in
the country. The country’s GDP growth rate slipped below expectations refl ecting the economic slowdown.
Continuing infl ation, high interest rates, volatile forex markets, Government policy issues and bearish capital
markets affected the Indian industry, and in particular the infrastructure sector. Your company being one of
the major players in the industry too got affected.
In spite of many challenges your company did reasonably well in the previous year. The operating power
capacity of your company increased to 3330 MW as of end March 2012. Your company created a two level
power structure to support its growth path by mobilisation of capital at the appropriate level to the advantage
of the investors.
All of you are aware that Government of India has now taken up the next level of reforms. The policies
are being overhauled and decision making process has been revived. The opening up of FDI into various
sectors will give an infl ow momentum to the country which will help the industry, particularly infrastructure,
which requires large amount of capital. In addition to this, the power sector reforms at various states will
strengthen the fi nancial position of the power DISCOMs which will in turn support a healthy power generation
capacity. Government of India is taking positive steps to address the infrastructure space, fuel availability
and fuel supply issues. There are positive signals for interest rate cut in the near future. These are various
positive and encouraging steps initiated at the country level that will benefi t the sector in which your company
operates. With all these initiatives, we see the improvement in the overall situation in the coming years.
Your company on a consolidated basis registered gross revenue growth (before elimination) of 36% up
from Rs. 11,305 crore in the previous year to Rs. 15,398 crore in FY12. This growth can be attributed to
the development in EPC and Resources business. EPC revenue grew primarily on account of Babandh,
Vidarbha, Moser Baer, Amarkantak (Unit III & IV) and Kondapalli (Unit III) power projects. On the other hand,
the Resources business witnessed a fi rst full year of operation at Griffi n after its acquisition. PAT including
profi t Eliminated witnessed a decrease of 27.6% for the full year from Rs. 945 crore to Rs. 684 crore in FY12.
Your company achieved a growth of 13% in Cash profi t for the full year from Rs. 1218 crore to Rs. 1378 crore.
Your company operates in a capital intensive industry where there is constant need for both debt and equity
to maintain the pace of execution of on-going projects as well as for the future projects. Your company is
taking active steps to raise capital to help maintain the growth momentum as well as to handle the various
issues that the entire power sector is facing.
Performance of Various Businesses
During the year, your company’s EPC segment entered into new arenas of operation namely:
||Acquisition of maiden international EPC order in Iraq worth Rs. 365.30 crore for AKAZ Power Plant of capacity 2 x 125 MW in Al-Anbar Province
|| Construction of Metro Rail for Chennai and Delhi Metro
||3 Transmission line projects for Power Grid Corporation of India Limited
As on March 31, 2012, the EPC order book was Rs. 26,554 crore with power projects contributing a majority to the order book. During the year, the 2 x 600 MW Anpara Thermal Power Project was completed by EPC and is operational now
External projects under execution include 3 large external Power Projects:
|| 2x600 MW for MB Power (MP) Ltd. of Moser Baer
|| 3x660 MW Koradi Thermal Power Project BOP for MAHAGENCO
|| 2x125 MW Akaz Gas Power Project for Government of Iraq
I am happy to share that Construction World, in September 2011, had adjudged your company as one of the
Most Admired (Construction and Engineering) Companies in India.
The current economic environment is challenging for companies engaged in power generation on the back of
various issues. However 2011-12 witnessed the Government taking several initiatives to address the sector’s
concerns on an urgent basis. A number of reforms have been proposed to push growth. Once implemented,
these reforms will positively impact the overall situation of the sector.
Following are the highlights of some of
Firstly, steps have been taken by the electricity appellate tribunal towards the tariff fi xation process resulting in
authorising the state electricity regulatory commissions (SERC) to raise tariffs on a suo-moto basis, if DISCOMs
do not demand tariff revision. Following this, several states have adopted revisions in power tariffs.
Secondly, in December 2011, the Shunglu Committee recommended several measures that were aimed at
improving the fi nancial health of state-owned power distribution companies.
The government has also persuaded Coal India Limited to enter into new fuel supply agreements. Despite
many challenges, the outlook for the sector appears encouraging. The 12th Plan (2012-17) proposes to add
around 76GW of power capacity with the private sector estimated to contribute 56% towards the capacity
As of the end of FY12, your company had 3330 MW of power capacities in operation and a further 6048 MW
of power capacities under construction. Your company’s power plant at Tanjore also received the Golden
Peacock Award for Climate Security in October 2011 at a Global Convention in London.
Over the past seven years, the global solar industry has experienced unprecedented growth. The key reasons
being increasing concerns over climatic change and the need for green and clean energy. The Government
is keen to increase the share of renewable energy in the total generation capacity of power in the country.
Thus, renewable energy is expected to contribute 10% of the total energy procurement by 2015, and 15%
Your company has set up an integrated model in solar power generation starting from polysilicon manufacturing
to solar power plant establishment. It has successfully executed solar PV power projects of 94 MW as a
Developer and EPC contractor, and is also in the process of executing 300 MW solar thermal and solar PV
projects as a Developer and an EPC contractor. Lanco’s Solar Manufacturing Plant at Chhattisgarh currently
has an installed capacity of producing 50 MW of Modules. The Polysilicon and Wafer Plants are under
Your company’s Natural Resources business consists of 2 key assets, namely Griffi n Coal Mines located in
Western Australia and the Mahatamil Project in Chhattisgarh. With a resource base of 1.1 Bn ton, Griffi n has
been producing coal and supplying to the domestic Australian market and to the export market. It produced
3.16 MT of Coal during FY12, of which 0.59 MT was exported and 2.57 MT was sold in the domestic market.
Capacity enhancement of the mine from 4 MTPA to 18 MTPA is in the planning phase.
For the Mahatamil project, with estimated coal reserves of 768 MT in Chattisgarh, potential sites for power
plant have been identifi ed and due diligence is in progress. The target is to have over 15 MTPA of coal output
and at least a 2000 MW power plant.
Your company’s current portfolio of infrastructure projects consists of highway projects of 440 km
length, for which the Concession Agreements are signed with the NHAI. For the 82 km NH48 project in
Karnataka and the 81 km NH4 project also in Karnataka, construction was completed during the year.
The financial closure for the 283 km Aligarh to Kanpur project was achieved during FY12.
People have always been the key assets for your company and the company has continued to give utmost
importance to development of human capital. In the current environment, a need was felt to look at the
organization critically. Your company has taken steps towards consolidation and restructuring of its EPC and
Construction arms, as well as its support functions.
Your company has endeavoured to build a high performance organization through tools like LEO (Leadership,
Entrepreneurship and Ownership) to assess, identify and develop employees with potential to become
leaders. Your company has also gone forward with nurturing its people through its in-house Lanco Academy,
taking care of the learning and development needs of the employees, business capabilities and leadership
development. The focus of your company has been on enhancing the competencies of its employees.
Corporate Social Responsibility
Your Company has always considered Corporate Social Responsibility a core vertical within the Company.
The focus of our CSR initiatives is towards triple bottom line and sustainable development.
Maintaining a right balance between business and CSR programmes and remaining committed to its social
responsibilities, the company’s CSR arm, Lanco Foundation, is focussing on Health, Education, provision
of Safe Drinking Water, empowering the disabled, Community Development and Environment. It is currently
active in 14 locations in 12 states spanning across 227 villages and directly helping over 300,000 people. All
these programmes are delivered through a dedicated team of over 200 employees.
I am happy to inform you that our CSR efforts have earned us the most prestigious National level Golden
Peacock Award for the company for the year 2012.
Your company growth has been made possible with the support and encouragement from the Central and
State governments, banks, financial institutions, customers and vendors. I would like to express my gratitude
to all of them. We seek their continued support in all future endeavours.
I also sincerely thank all Lanconians without whose commitment it would be diffi cult for the company to
target the growth that it is aiming for. I am also grateful for the capable guidance of my colleagues on the
board. Lastly my special thanks to you, our shareholders, for your continued confi dence in the company.
L Madhusudhan Rao