REC- 1-51.p65 - Rural Electrification Corporation Ltd.

RURAL ELECTRIFICATION CORPORATION LIMITED
Chairman’s letter to Shareholders
Ladies and Gentlemen,
On behalf of the Board of Directors of Rural Electrification Corporation Ltd. (REC) and on my own behalf, I
am happy to welcome you on the occasion of the Forty First Annual General Meeting of the Company.
I assumed charge as the Chairman and Managing Director of the Company on 15th June 2010 and I am
privileged to be heading a Nav Ratna Company which has many more accolades to its credit besides
establishing a record of excellent all-round performance, consistent growth and profitability, especially
over the last three years. I am happy to inform you that your Company is now amongst top fifty companies
of the country based on market cap with YTD performance till July 9, 2010.
I wish to recall, in retrospect, that the Company was set up 41 years ago in July 1969, in the backdrop of a
critical draught situation facing the country in the late sixties. The Company’s initial mandate was mainly
to finance rural electrification schemes in the country to accelerate the pace of rural electrification in the
overall context of planned programmes for increased agricultural production. Thus, from its humble
beginnings of financing rural/village electrification and pumpset energisation schemes, the Company has grown in geometric progression,
especially in the last decade, to become one of the leading public financial institutions in the country, financing all kinds of power projects
without any restrictions.
The tremendous growth in the size, volume and scale of operations of the Company in such magnitude would not have been possible but
for the untiring efforts put in by all my predecessors over the years, including my immediate predecessor Shri P. Uma Shankar, to steer the
Company in a dedicated manner with great sense of vision, mission and farsightedness, with active and consistent support from all the
concerned agencies of the Government of India, led by the Ministry of Power, with the support and cooperation of all employees and other
stakeholders of the Company. I would like to take this opportunity to sincerely thank and applaud all their efforts in making this Company
a ‘behemoth’ organisation in its own way, with Gross Loan Assets of around Rs.66,000 crore as on 31.3.2010 and current market capitalisation
hovering around Rs.30,000 crore, to be reckoned with by domestic as well as global investing community and all other stakeholders.
FURTHER PUBLIC OFFERING (FPO)
Within two years of receiving phenomenal response to the Initial Public Offering (IPO) of the Company, REC went for a Further Public
Offering (FPO) of 17,17,32,000 Equity Shares in February 2010, which also included Offer for Sale of 4,29,33,000 Equity Shares by the
Government of India, at a price determined through the Alternate Book Building Method as per SEBI Regulations, to further increase the
Company’s net worth and expand its lending capacity. In spite of the uncertain conditions in the capital market, there was overwhelming
response for the FPO also, especially from Qualified Institutional Buyers (QIBs) including Foreign Institutional Investors (FIIs), and the
FPO got subscribed 3.14 times. The total amount raised by the Company, including premium, from the Fresh Issue of Shares in FPO was
Rs. 2647.53 crore, which has been utilised for the business of the Company as mentioned in the Prospectus.
ECONOMIC ENVIRONMENT
The world economy has been through a severe recession marked by financial turmoil, large-scale destruction of wealth, and declines in
global output and trade. The global crisis, which began in the financial sector in the developed countries, exposed a number of fragilities
within the increasingly integrated financial system and affected the economy. Global economic conditions however appear to have improved
on the strength of co-ordinated fiscal and monetary policy measures taken by governments and central banks across the world. With
stimulant packages introduced by various governments the world economic situation is steadily improving since the second quarter of
2009 with an increasing number of countries registering positive quarterly growth in their Gross Domestic Product (GDP).
In the case of Indian economy, there is a trend of strong GDP growth expected at 7.2% in FY 2010, rising to over 8% in FY 2011 and moving
on to 9-10% in the medium term. At the same time, inflation is rising. This complex global and domestic economic backdrop has posed its
own set of challenges for policymakers including maintaining interest rates in sync with global rates, while supporting the growth momentum
and also keeping a check on inflation.
POWER SECTOR
During the first three years of the XI Five Year Plan, the installed generation capacity has grown from 132.33 GW at the end of fiscal 2007
to 159.4 GW at the end of fiscal 2010 representing an addition of 27068 MW. The target of capacity addition during the XI Plan has been
kept at 78700 MW.
According to the Report of the Working Group on Power for XI Plan of the Government of India, the overall requirement of funds for the
power sector has been estimated at Rs. 10,316,000 million. For the XII Plan period, CEA estimates that in order to meet the projected
demand requirement by 2017, capacity addition of 100,000 MW would be required; and including additions required in expanding
transmission and distribution systems, the total fund requirement for the plan period would be about Rs. 11,000,000 million.
Investments for transmission system development and related schemes during the XI Plan period is estimated at Rs. 1,400,000 million,
with Rs. 750,000 million being required for the central sector and Rs. 650,000 million being required for the state sector. Further, CEA
estimates that in the XII Plan the funds requirement for transmission sector would be about Rs. 2,400,000 million, with Rs. 1,400,000
million being required for the central sector and Rs. 1,000,000 million being required for the state sector.
The total fund requirement for sub-transmission and distribution system development for urban and rural areas, during the XI Plan period
is estimated at Rs. 2,870,000 million inclusive of APDRP and RGGVY schemes. Further, CEA estimates that for the XII Plan period, the
total fund requirement for the Distribution sector would be about Rs. 3,710,000 million.
The power sector is thus poised to remain vibrant and attract significant investments in the foreseeable future.
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