Agni Green Power Ltd. Management Discussions

OF OPERATIONS

You should read the following discussion of our financial condition and results of operations together with our restated financial statements for the period ended on 31^st January 2022 and financial year ended on 31^st March 2021, 31^st March 2020 and 31^st March 2019 including the notes and significant accounting policies thereto and the reports thereon, which appear elsewhere in this prospectus. You should also see the section titled "Risk Factors" beginning on page 19 of this prospectus, which discusses a number of factors and contingencies that could impact our financial condition and results of operations. The following discussion relates to our Company, unless otherwise stated, is based on restated audited financial statements.

These financial statements have been prepared in accordance with Ind GAAP, the Companies Act and the SEBI (ICDR) Regulations and restated as described in the report of our auditors dated May 27, 2022 which is included in this prospectus under the section titled "Financial Information as Restated" beginning on page 128 of this prospectus. The restated financial statements have been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. We do not provide a reconciliation of our restated financial statements to US GAAP or IFRS and we have not otherwise quantified or identified the impact of the differences between Indian GAAP and U.S. GAAP or IFRS as applied to our restated financial statements.

This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those described under "Risk Factors" and "Forward Looking Statements" beginning on pages 19 and 14 respectively, and elsewhere in this prospectus

Accordingly, the degree to which the financial statements in this prospectus will provide meaningful information depends entirely on such potential investors level of familiarity with Indian accounting practices. Our F.Y. ends on March 31 of each year; therefore, all references to a particular fiscal are to the twelve-month period ended March 31 of that year. Please also refer to section titled "Certain Conventions, Use of Financial, Industry and Market Data and Currency Presentation" beginning on page 12 of this prospectus.

BUSINESS OVERVIEW

AGNI is in the business of execution of turn-key Solar Photovoltaic Power Plant projects, including Design, Engineering, Supply, Installation & Commissioning (I&C) and Maintenance, for both Stand-alone and Grid Connected PV Systems from the conceptualization to completion stages, for ratings ranging from few Watts to Megawatt capacity, as per the International Standard.

 

For Detailed information on our business, please refer to chapter titled "Our Business" and "Restated Financial Information" beginning from page no. 80 and 128 of this prospectus respectively.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST AUDITED PERIOD

In the opinion of the Board of Directors of our Company, since the date of the last audited period i.e., January 31, 2022 as disclosed in this prospectus, there have not arisen any circumstance that materially or adversely affect or are likely to affect the trading or profitability of our Company or the value of its assets or its ability to pay its material liabilities within the next twelve months except as follows:

1. The Board of Directors have decided to get their equity shares listed on Emerge Platform of National Stock Exchange of India Limited and pursuant to Section 62(1)(c) of the Companies Act 2013, by a resolution passed at its meeting held on April 01, 2022 proposed the Issue, subject to the approval of the shareholders and such other authorities as may be necessary.

2. The shareholders of the Company have, pursuant to Section 62(1)(c) of the Companies Act 2013, by a special resolution passed in the Extra Ordinary General Meeting held on April 04, 2022 authorized the Initial Public Offer.

SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION

IMPACT OF COVID-19

During the first half of calendar year 2020, COVID-19 spread to a majority of countries across the world, including India. The COVID-19 pandemic has had, and may continue to have, significant repercussions across local, national and global economies and financial markets. In particular, a number of governments and organizations have revised GDP growth forecasts for calendar year 2020 downward in response to the economic slowdown caused by the spread of COVID-19.

The global impact of the COVID-19 pandemic has been rapidly evolving and public health officials and governmental authorities have responded by taking measures, such as prohibiting people from assembling in large numbers, instituting quarantines, restricting travel, issuing ?stay-at-home orders and restricting the types of businesses that may continue to operate, among many others. On March 14, 2020, India declared COVID-19 as a ?notified disaster and imposed a nationwide lockdown beginning on March 25, 2020. The lockdown lasted until May 31, 2020, and has been extended periodically by varying degrees by state governments and local administrations. The lifting of the lockdown across various regions has been regulated with limited and progressive relaxations being granted for movement of goods and people in other places and calibrated re-opening of businesses and offices.

Despite the lifting of the lockdown, there is significant uncertainty regarding the duration and long-term impact of the COVID-19 pandemic, as well as possible future responses by the Government, which makes it impossible for us to predict with certainty the impact that COVID-19 will have on our business and operations in the future. The COVID19 pandemic has affected and may continue to affect our business, results of operations and financial condition in a number of ways such as:

It caused execution delays at our ongoing projects due to several factors such as lockdowns enforced by government agencies, work-stoppage orders, disruptions in the supply of materials and shortage of labour, which resulted in failure to meet development milestones as well as an increase in the cost of execution. We have gradually resumed execution at our sites in compliance with the government guidelines;

It led to a closure of our offices and we moved to a work-from-home model. We resumed operations at our offices in a staggered manner in compliance with government guidelines. A surge in the number of COVID-19 cases in the future could result in a complete or partial closure of, or other operational issues at our offices resulting from government action;

It may result in imposition of operational guidelines or other conditions to protect the health and safety of personnel working at our commercial developments, which may result in additional costs and demands on our facility management team;

It may affect our ability to execute our growth strategies and expand into new markets;

Inherent productivity, connectivity, and oversight challenges due to an increase in number of individuals working from home;

Increased vulnerability to cyber-security threats and potential breaches, including phishing attacks, malware and impersonation tactics, resulting from the increase in numbers of individuals working from home;

Uncertainty as to what conditions must be satisfied before government authorities completely lift - stay-at home orders; and

The potential negative impact on the health of our personnel, particularly if a significant number of them are afflicted by COVID-19, could result in a deterioration in our ability to ensure business continuity during this disruption.

While our operations had slowed down during the lockdown period, they have almost resumed to full normalcy with requisite precautions. We have used the principles of prudence in applying judgments, estimates and assumptions based on the current conditions. In assessing the liquidity position and recoverability of assets such as goodwill, inventories, financial assets and other assets, based on current indicators of future economic conditions, we expect to recover the carrying amounts of our assets. However, the actual impact of COVID-19 pandemic on our results remain uncertain and dependent on spread of COVID-19 and steps taken by the Government to mitigate the economic impact and may differ from our estimates. We are closely monitoring the impact of COVID-19 on our financial condition, liquidity, operations, suppliers and workforce. Any intensification of the COVID-19 pandemic or any future outbreak of another highly infectious or contagious disease may adversely affect our business, results of operations and financial condition.

COST OVERRUN IN EXECUTION OF PROJECTS

The company has undertaken a 1.2 MWp solar power plant project with Military Engineering Services (MES) Barrackpore since FY 2018-19. The value of the Project contract entered into was Rs.7,56,95,250 and our initial assessment of the overall costing for the project was Rs.7.19 crores approximately. However, after the project work started, we observed that the Project work required a vast project site restoration which we couldn’t reasonably apprehend at the time of initial project evaluation. Due to this massive site restoration and development work the project cost actually amounted to Rs.8,87,87,669 for completion of the project which resulted in substantial loss from this project causing considerable reduction in net profit and earning per share for FY 2019-20 and FY 2020-21.

REGULATORY LANDSCAPE AND POLICIES

The solar energy industry in which we operate is subject to constant change. Our business is heavily dependent on Central and state government policies that encourage establishment and adoption of solar energy projects. In particular, the solar energy industry benefits from various incentives provided by the Government of India. Therefore, if the benefits or policies are adversely amended, eliminated or not extended beyond their current expiration dates, or if funding for these incentives is reduced, or if governmental support of renewable energy development, particularly solar energy, is discontinued or reduced, it could have an adverse effect on our business and financial condition. We also cannot assure you that laws or regulations will not be adopted, enforced or interpreted in the future in a manner that will not have a material adverse effect on our business and results of operations. Any such adverse change in law or applicable policy may require us to face increased compliance costs, obtain additional approvals and licences, and may also require us to alter our business strategy, or implement onerous requirements and conditions on our operations.

COMPETITION

As an EPC contractor, we compete with other Indian EPC contractors. A few competitors have undertaken initiatives for higher backward integration which would enable them to compete on costs and have better margin performance. Further, some of our competitors may have greater financial, marketing, personnel and other resources than we do and may be in a position to seek to grow their business more aggressively. Any increase in competition in our industry is likely to adversely impact our market share, margins and profitability.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATION

Covid-19 pandemic.

Cost overrun in execution of projects;

Changes in laws and regulations relating to the Sectors in which we operate;

Political instability or changes in the Government in India or in the government of the states where we operate could cause us significant adverse effects;

Our dependence on limited number of customers/suppliers/brands for a significant portion of our revenues;

Any failure to comply with the financial and restrictive covenants under our financing arrangements;

Our ability to retain and hire key employees or maintain good relations with our workforce;

Impact of any reduction in sales of our services/products;

Rapid Technological advancement and inability to keep pace with the change;

Increased competition in industries/sector in which we operate;

General economic and business conditions in India and in the markets in which we operate and in the local, regional and national economies;

Failure to obtain any applicable approvals, licenses, registrations and permits in a timely manner;

Occurrence of natural or man-made disasters could adversely affect our results of operations and financial condition and

Our inability to successfully diversify our product offerings may adversely affect our growth and negatively impact our profitability.

SIGNIFICANT ACCOUNTING POLICIES:

Our significant accounting policies are described in the section entitled "Financial Statements as Restated" beginning from page no. 128 of the prospectus

SUMMARY OF THE RESULTS OF OPERATION:

The following table sets forth select financial data from restated profit and loss accounts for the period ended 31^st January 2022 and financial year ended on 31^st March 2021, 31^st March 2020 and 31^st March 2019 and the components of which are also expressed as a percentage of total income for such periods.

				For the Period ended on
Particulars	31-01-2022	% of Total Revenue	31-03-2021	% of Total Revenue	31-03-2020	% of Total Revenue	31-03-2019	% of Total Revenue
Income
Revenue from Operations	6,83,05,880	95.96%	34,44,23,319	97.66%	22,29,15,107	95.92%	31,24,46,650	98.46%
Other Income	28,75,009	4.04%	82,55,203	2.34%	94,89,822	4.08%	48,85,789	1.54%
Total Revenue	7,11,80,889	100.00%	35,26,78,522	100.00%	23,24,04,929	100.00%	31,73,32,439	100.00%
Expenditure
Cost of Material Consumed	5,68,58,270	79.88%	22,42,95,583	63.60%	15,59,12,886	67.09%	19,66,82,942	61.98%
Change in Inventories	(7,07,50,454)	-99.40%	78,82,087	2.23%	(2,83,19,122)	-12.19%	6,28,246	0.20%
Employee Benefit Expenses	2,73,84,908	38.47%	3,43,86,643	9.75%	3,51,15,271	15.11%	3,47,66,146	10.96%
Other Expenses	4,69,26,586	65.93%	6,38,87,660	18.11%	5,36,19,225	23.07%	4,46,07,456	14.06%
Total Expenses	6,04,19,310	84.88%	33,04,51,973	93.70%	21,63,28,260	93.08%	27,66,84,790	87.19%
Profit Before Interest, Depreciation and Tax	1,07,61,579	15.12%	2,22,26,549	6.30%	1,60,76,669	6.92%	4,06,47,649	12.81%
Depreciation & Amortisation Expenses	22,42,899	3.15%	79,48,191	2.25%	57,93,058	2.49%	51,33,958	1.62%
Profit Before Interest and Tax	85,18,680	11.97%	1,42,78,358	4.05%	1,02,83,611	4.42%	3,55,13,691	11.19%
Financial Charges	68,85,520	9.67%	1,29,13,002	3.66%	77,94,576	3.35%	59,87,212	1.89%
Profit before Taxation	16,33,160	2.29%	13,65,356	0.39%	24,89,035	1.07%	2,95,26,479	9.30%
Add: Prior Period adjustment items	-	0.00%	20,567	0.01%	(8,95,980)	-0.39%	-	0.00%
Provision for Taxation	(4,89,276)	-0.69%	(13,24,544)	-0.38%	(8,17,732)	-0.35%	(71,34,191)	-2.25%
Deferred Tax	(4,30,500)	-0.60%	9,94,167	0.28%	2,49,374	0.11%	(62,705)	-0.02%
Total	(9,19,776)	-1.29%	(3,09,810)	-0.09%	(14,64,338)	-0.63%	(71,96,896)	-2.27%
Profit After Tax but Before Extra-ordinary Items	7,13,384	1.00%	10,55,546	0.30%	10,24,697	0.44%	2,23,29,583	7.04%
Extraordinary Items			-		-		-
Profit Attributable to Minority Shareholders			-		-		-
Net Profit after adjustments	7,13,384	1.00%	10,55,546	0.30%	10,24,697	0.44%	2,23,29,583	7.04%
Net Profit Transferred to Balance Sheet	7,13,384	1.00%	10,55,546	0.30%	10,24,697	0.44%	2,23,29,583	7.04%

FINANCIAL PERFORMANCE HIGHLIGHTS FOR THE PERIOD ENDED ON JANJARY 31, 2022

Total Revenue Income: Our Company’s total revenue during the period (April 01, 2021 to January 31, 2022) was 711.81 Lakhs. The revenue from operation was 683.06 Lakhs which is almost 95.96% of total revenue which consist of sales of Solar Photovoltaic Power Plants, Solar Lamps & other Solar Products.

Total Expenses: Our Company’s total expenses excluding depreciation, Interest and tax amount during the said period (April 01, 2021 to January 31, 2022) was 604.19 Lakhs. The total expenditure is almost 84.88% of total revenue. The main constituent of total expenditure is Cost of Material Consumed which was 568.58 Lakhs, almost 79.88% of total revenue.

Profit Before Interest, Depreciation and Tax: The restated net profit before interest, depreciation and tax as per restated financials for the said period (April 01, 2021 to January 31, 2022) was 107.62 Lakhs which is 15.12% of total revenue.

Depreciation Expenses: The depreciation expenses as per restated financials for the said period (April 01, 2021 to January 31, 2022) was 22.43 Lakhs which is 3.15% of total revenue.

Finance Expenses (including Interest Expenses): The financial expenses as per restated financials for the said period (April 01, 2021 to January 31, 2022) was 68.86 Lakhs which is 9.67% of total revenue.

Profit after Tax: The restated net profit after provision for tax as per restated financials for the said period (April 01, 2021 to January 31, 2022) was 7.13 Lakhs which is 1.00% of total revenue.

Note: There was a decrease in revenue for the period ended January 31, 2022 as compared to FY 2020-21 due to severe impact of Second Wave of COVID-19 and several states imposed complete lockdown and the Government agencies started awarding the contracts on the later part of 3^rd quarter of FY 2021-22, which resulted overall decrease in revenue and profit of our company.

COMPARISON OF THE FINANCIAL PERFORMANCE OF FISCAL 2021 WITH FISCAL 2020

Total Revenue Income: During the FY 2020-21 the revenue from operation and other income of the Company has been increased to 3526.79 Lacs as against 2324.05 Lacs in the FY 2019-20 representing an increase of 51.75% from last year. Increase in Revenue is due to spill-over of contracts of FY 2019-20 executed in FY 2020-21 and resumption of awarding of further contracts by Government agencies later part of 3^rd quarter of FY 2020-21.

Total Expenses: The total expenditure excluding depreciation, Interest and tax amount, for the FY 2020-21 has been increased to 3304.52 Lacs as against 2163.28 Lacs in the FY 2019-20 representing an increase of 52.75% from last year. This increase was mainly due to increase in volume of operation during the FY as mentioned in the Revenue from operations.

Cost of Material consumed: Cost of Material consumed for the FY 2020-2021 has been increased to 2242.96 Lacs as against

1559.13 Lacs in the FY 2019-20 representing an increase of 43.86% from last year. This increase was mainly due to increase in volume of operation during the FY as mentioned in the Revenue from operations.

Employee Benefits Expenses: The Employee Benefits Expenses for the FY 2020-2021 has been decreased to 343.87 Lacs as against 351.15 Lacs in the FY 2019-20 representing a decrease of 2.07% from last year.

Other Expenses: The other Expense for the FY 2020-2021 has been increased to 638.88 Lacs as against 536.19 Lacs in the FY 2019-20 representing an increase of 19.15% from last year. This increase was mainly due to increase in volume of operation during the FY as mentioned in the Revenue from operations and covid-19 pandemic impact.

Finance Expenses: The finance cost of the company for the FY 2020-21 has been increased to 129.13 Lacs as against 77.95 Lacs in the FY 2019-20 representing an increase of 65.67% from last year.

Depreciation and Amortization Expense: The Depreciation and Amortization Expense for FY 2020-21 has been increased to 79.48 Lacs as against 57.93 Lacs in the FY 2019-20.

Profit/ (Loss) Before Tax: We have earned profit of 13.65 Lacs in FY 2020-21 as against profit of 24.89 Lacs in the FY 2019-20. Decrease in profit in FY 2020-21 is due to part of the loss incurred for Military Engineering Services (MES) Barrackpore project and cost escalation due to COVID-19 and increase in finance expenses.

Profit/ (Loss) After Tax: We have earned profit of 10.56 Lacs in FY 2020-21 as against profit of 10.25 Lacs in the FY 2019-20.

COMPARISON OF THE FINANCIAL PERFORMANCE OF FISCAL 2020 WITH FISCAL 2019

Total Revenue Income: During the FY 2019-20 the revenue from operation and other income of the Company has been decreased to 2229.15 Lacs as against 3124.47 Lacs in the FY 2018-19 representing a decrease of 40.16% from last year.

Total Expenses: The total expenditure excluding depreciation, Interest and tax amount, for the FY 2019-20 has been decreased to 2163.28 Lacs as against 2766.85 Lacs representing a decrease of 27.90% from last year. This decrease was mainly due to decrease in volume of operation during the FY as mentioned in the Revenue from operations.

Cost of material consumed: The cost of material consumed for the FY 2019-2020 has been decreased to 1559.13 Lacs against 1966.83 Lacs representing a decrease of 26.15% from last year. This decrease was mainly due to decrease in volume of operation during the FY as mentioned in the Revenue from operations.

Employee Benefits Expense: The Employee Benefits Expense for the FY 2019-2020 has been increased to 351.15 Lacs against 347.66 Lacs representing an increase of 0.99% from last year.

Other Expense: The Other Expense for the FY 2019-2020 has been increased to 536.19 Lacs against 446.07 Lacs representing an increase of 16.81% from last year.

Finance Expenses: The finance cost of the company for the FY 2019-20 has been increased to 77.95 Lacs against 59.87 lacs representing an increase of 23.19% from last year.

Profit/ (Loss) Before Tax: We have earned profit of 24.89 Lacs in FY 2019-20 as against profit of 295.26 Lacs in the FY 2018-19. There was a drastic decease in profit due to the following reasons:

"The company has undertaken a 1.2 MWp solar power plant project with Military Engineering Services (MES) Barrackpore since FY 2018-19. The value of the Project contract entered into was Rs.7,56,95,250 and our initial assessment of the overall costing for the project was Rs.7.19 crores approximately. However, after the project work started, we observed that the Project work required a vast project site restoration which we couldn’t reasonably apprehend at the time of initial project evaluation. Due to this massive site restoration and development work the project cost actually amounted to Rs.8,87,87,669 for completion of the project which resulted in substantial loss from this project causing considerable reduction in net profit and earning per share for FY 2019-20 and FY 2020-21."

Profit/ (Loss) After Tax: We have earned profit of 10.25 Lacs in FY 2019-20 as against profit of 223.30 Lacs in the FY 2018-19.

An analysis of reason for the changes in significant items of income and expenditure is given hereunder:

 

1. Unusual or infrequent events or transactions

Except as described in this Prospectus, during the periods under review there have been no transactions or events, which in our best judgment, would be considered unusual or infrequent.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations.

There are no significant economic changes that may materially affect or likely to affect income from continuing operations except the Covid-19 pandemic which is still to be controlled. However, Government policies governing the sector in which we operate as well as the overall growth of the Indian economy has a significant bearing on our operations. Major changes in these factors can significantly impact income from continuing operations.

3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section "Risk Factors" beginning on page 19 in the prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

4. Expected Future changes in relationship between costs and revenues

Our Company’s future costs and revenues will be determined by demand/supply situation, Government Policies and Taxation and Currency fluctuations.

5. Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or increased sales prices

Changes in revenue in the last financial years are as explained in the part "Comparison of the financial performance of above.

6. Total turnover of each major industry segment in which our Company operates

The Company is mainly engaged in execution of turn-key Solar Photovoltaic Power Plant projects, including Design, Engineering, Supply, Installation & Commissioning (I&C) and Maintenance, for both Stand-alone and Grid Connected PV Systems from the conceptualization to completion stages, for ratings ranging from few Watts to Megawatt capacity, as per the International Standard and all the activities of the business revolve around this main business. Therefore, there are no separate reportable segments.

7. Status of any publicly announced New Products or Business Segment

Our Company has not announced any new product other than disclosed in this prospectus.

8. Seasonality of business

Our company’s business is not seasonal in nature. However, the generation of power get affected during rainy seasons. Solar Plants generate 30%-50% of their optimum generation during cloudy weather and 10%-20% of optimum generation during heavy rain.

9. Competitive conditions

Competitive conditions are as described under the Chapters "Industry Overview" and "Our Business" beginning on page 64 and 80 respectively of the prospectus.

10. Details of material developments after the date of last balance sheet i.e., January 31, 2022.

Except as mentioned in this prospectus, no circumstances have arisen since the date of last financial statement until the date of filing the prospectus, which materially and adversely affect or are likely to affect the operations or profitability of our Company, or value of its assets, or its ability to pay its liability within next twelve months.