Asian Energy Services Ltd Management Discussions.

ECONOMIC REVIEW r

The Global Overview

The year 2019 recorded a slow pace of growth, plummeting from 3.6% in 2018 to 2.9% in 2019. This was amidst the growing uncertainty surrounding the global economic activities due to rising debt, growing trade barriers and escalating geopolitical tensions. Global exporters were seen to be gradually adjusting to the trade wars. The developed economies also witnessed a decline from 2.2% in 2018 to 1.7% in 2019. This was attributed to the manufacturing slowdown and rising tariff. The repercussions of this economic slowdown were felt across Emerging Market and Developing Economies (EDME) as their growth was revised down to 3.7% in 2019, a 0.8% deceleration from 2018. The financial turmoil owing to external borrowing also had its role to play here. As a mitigation measure, the Government lowered interest to counter the threat of global debt level. Going forward, some of the factors favouring EMDEs like young demographics, economical

labour workforce, and growing and easy access to technology are going to entice fresh investments in these regions.

Outlook

After facing a sluggish growth in 2019, the year 2020 looked prospective for the economy until the Covid-19 outbreak. The pandemic led to a lockdown, bringing the global supply chain to a halt. This unprecedented crisis is likely to force countries to look for alternatives for their supply. An increased focus towards localisation, domestic production and critical infrastructure reinforcement is anticipated.

The indian Scenario

Despite economic rundowns, the credit squeeze and sluggish growth, India remained the 5th fastest growing economy in the world, with 4.2% growth in the GDP this fiscal. Additionally, the Government and the Central Bank responded well in order to overcome this slowdown caused by a slump in consumption and business confidence. The Central Bank cut down the interest rate on different occasions during the last two fiscal years. These measures were taken to improve the private investment and consumption scenario in the country. To further revitalise consumption, the Government slashed the corporate tax rate in the first half of the financial year, while it lowered the income tax rate in the second half. The pro-active involvement

by the Government was well-received by the World Banks Ease of Doing Business Ranking, thereby jumping 14 places in the same, from the 77th spot to the 63rd position.

Outlook

Just as the economy was moving towards the next fiscal year, Covid-19 crisis sent shockwaves across the globe. The Government and regulators introduced various fiscal stimulus at different intervals. These measures were aimed at safeguarding the most impacted sectors and the worst-hit working class of people. On a brighter note, with the crude prices hitting the lowest levels in recent times, the Government got the unique opportunity of stocking up crude oil in strategic petroleum reserves. Going forward, the staggered reopening of the economy in phases will also be controlled by the end-user industries demand.

OVERViEW

Global

Energy Sector and its Prospective

The major transformation of the current global energy system is quite aligned with the UNs Sustainable Development Goals (SDGs). The substantial growth in the usage of natural gas and renewable energy has facilitated in keeping the global carbon emission in control. Following the increase in the carbon emissions for two-consecutive years in 2019, it remained stagnant at 33 Gigatonnes (GT) (Source: IEA). Nevertheless, fossil fuel would continue to remain a primary source of energy to keep up with the demand of rising population and economic growth, while oil consumption will stay on the top of the chart followed by natural gas and coal. Going forward, the International Energy Agency (IEA)

expects global energy demand to rise by 1% annually until 2040 owing to the rising population and growing economy.

Oil

Oil prices in 2019 remained in the range level despite the disruptive drone attack incident on the Saudi Aramcos oil infrastructure. The OPEC share of global oil market fell drastically from 70% in the 1970s to ~29% in 2019, which has furthermore impacted their power to control crude oil prices. Thus, through mutual agreement, OPEC nations decided to deepen oil production cut by 500,000 barrels a day. This resulted in a reduction of crude oil production by 2% to 29.86 mb/d in 2019 from 31.86 mb/d in 2018. Meanwhile, the oil production from Non-OPEC nations rose to 62.06 mb/d in 2019 from 60.12 mb/d in the previous year to maintain a balance in the oil market. US topped the list, followed by Norway, Brazil and Canada. Oil share in the total global energy mix is expected to make 28% by 2040, on the basis of current announced policy. Having said that, it would be difficult to assess the impact of Covid-19 on oil in 2020 due to contraction in industrial activity, aviation sector and transport mode.

Natural Gas

Competitive price and environment-friendly natural gas continues to take the market share from coal in the electricity sector. Natural gas emits less than 50% of CO2 than coal and 30% as opposed to oil. IEA expects this factor to influence the demand of gas with anticipation to witness an increase of 1.6% every year, on an average till 2024. Asia-Pacific region is expected to be the major driving force in the scenario, where China will account for 40% of global gas demand. This will be followed by the Middle East, the US and North

Africa owing to high demand from industry and power plants. This growing demand will be met majorly from the US gas supply, where surging production from the nations shale fields has left drillers in search of new markets. After a decade of uninterrupted growth, the demand for gas is expected to decline by 5% in 2020 owing to the Covid-19 lockdown. Although it isnt expected to be obstructed to the same extent as oil. But with abundance of Liquefied Natural Gas (LNG) available in the market, the gas prices will remain lower until economy re-opens. By the year 2040, natural gas will be as crucial as oil in terms of consumption, attributing to affordability, increased pipeline network and sustainable nature.

indian

The Potency of the Power Sector

India is the 3rd largest producer and consumer of electricity in the world. Despite this, the per capita consumption of electricity is 1/3rd of the worlds average. India uses only 6% of the worlds primary energy regardless of having 18% of the total world population. Therefore, in order to push the economic growth, the Government is ensuring equitable energy access to all and is working towards improving the energy efficiency across the value chain in its entirety. Moreover, the country-developed power exchange has played a key role in achieving the Governments vision of Affordable Power for All on around the clock basis. Going forward, with improvement in the economic situation, relief of the stressed assets, growth in the electric vehicles, friendly cross-border electricity trade policies and regulations, the growth rate in the sector is expected to improve.

SI O. A * md

India is the 3rd largest energy and oil consumer in the world followed by China and the US. The oil demand in India is expected to witness a CAGR of 4% by 2030 as compared to the world average of 1%. This robust growth will be on account of economic development and an indicator of prospective growth (Source: investindia). This growth is poised to advance further, underpinned with the fact of being the leader and the largest exporter of petroleum products in Asia. The Middle Eastern region share of crude oil export to India has decreased from 65% in 2018 to 60% in 2019 owing to geopolitical tension. India was seen diversifying the oil import basket by tapping opportunities on to different regions such as the US and Russia. Going forward in medium to long term, the growth in the consumption of natural gas, petroleum and petrochemical products will act as a catalyst for the Oil & Gas industry. Continuous efforts will be in force to create India, a gas-based economy through an investment of US$ 60 Billion in the national gas infrastructure.

SEISMIC INDUSTRY

The Global Scenario

The oil market has gone from a point of scarcity in the 2000s to the time where companies started planning to proliferate within the field. This trend continued in 2019 with Oil & Gas firms discovering a four-year high

with 12.2 Billion barrels of oil. This ultimately benefited the seismic industries due to crude oil price revival. This improvement in oil prices from a year ago helped Oil & Gas firms to increase their capital expenditure. However, in 2020, Covid-19 lockdown caused the stoppage of the seismic surveys and related activities. Despite short term restrain, the global seismic market

is expected to witness a CAGR of more than 4.24% in the forecasted period 2019-26 (Source: Market Watch). These developments will be backed up by increasing energy demand, urbanisation and usage of advanced seismic technology.

indian

To meet the needs of a fast-growing economy, the Indian Government is committed to boosting oil production within the country. In order to raise output and attract major investments, the Government is changing policies in favour of awarding the oil blocks. The Government is thus awarding the oil exploration block by shifting from revenue sharing to production maximisation. The Government, during the four OALP round, has awarded 94 blocks, covering an area of 136,800 sq. km. This along with Indias improvement

in the World Banks ease of Doing Business ranking signifies the advancement in the process of the project clearance. To strengthen ties, India and Russia signed a roadmap to the joint development of Oil & Gas fields in both the nations. The nation also signed an MoU with Brazil to foster progress in the exploration and production area. Friendly policies, strategic alliances and efforts to reduce oil import creates a positive outlook for the industry. Furthermore, the Government expects this activity to generate an investment of US$ 2.35 Billion over the next 3-4 years in exploratory work, alone. (Source: OH and Gas Journal)

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GROWiNG OiL DEMAND

Oil plays a vital role in accelerating industrialisation and urbanisation, especially in developing economies. AOSL strategically operates in developing economies, focusing on regions where the probability for oil discovery looks promising as opposed to others. The demand will result in the growing need for oil discovery and drilling, ultimately creating greater opportunities for the Company.

BAGGiNG DOMESTiC ORDERS

AOSL has completed projects in multi-terrain at different locations in India, that too at a reasonable price. Therefore, the Company stands well to benefit in bagging domestic orders.

SEiSMiC AND E&P OPPORTUNiTY

The Government of India, through its various policies, is placing a huge emphasis on Oil & Gas exploration due to the colossal potentiality of Indias unexplored basins. These reform-based approaches are of critical importance due to the rising imports and demand for energy in a country. Therefore, India is moving towards becoming a gas-based economy and is aiming to cut down the oil import. This creates a pool of opportunities for AOSL to take advantage of the industry, through effective bidding on an exploration of promising reserves.

Threats

EXPLORATION AND RESOURCES

Failure to discover crude oil can undermine future growth prospects. Projects may be less successful if they dont meet the volume of reserves anticipated at the initial stage which may impair the Companys asset value. The Company is technology-focused and tie- ups with partners give support in executing the projects efficiently.

A MOVEMENT TOWARDS THE UNCONVENTIONAL SOURCE OF ENERGY

The Company position can be in threat, owing to reducing global dependency on oil. This could very well dwindle the investment in the sector. However, according to IEA, the share of Oil & Gas in the global energy mix is estimated to be at 48%.

LOWER FOSSIL FUEL DEMAND DUE TO COVID-19

The plunging oil demand along with sinking prices pose a threat to the crude oil exploration activities. At an operational site, workers must maintain social distancing while working in a confined space. These restrictions can cause delays in the activities.

RISK AND MITIGATION

Our risk management identifies and manages risk in a way that is supportive of our strategic priorities.

CATEGORY IMPACT APPETITE MITIGATION
Catastrophic risks It includes injuries, production and license loss, assets and environmental damage due to shortcomings in operational performance, adverse geological conditions and natural events. This may result in regulatory issues, rising financial costs impact on community relations. Operational performance such as exploration and drilling are within the limits of our appetite while natural events are outside of our risk appetite. We have technical experts who evaluate, examine and continuously inspect the situation on the site. We adhere to the best technical standards which set the minimum requirement for the projects.
Geopolitical, permits and licenses to operate Our presence in different geographic regions exposes us to this risk. Political and economic instability, including terrorism, civil disorder, violent crime, war and social unrest, can affect our permit clearance and operations. Operating outside the limits of our appetite The Company actively engages with the governments, regulators and other stakeholders of the countries of its operations.
Liquidity risk Inadequate fund of the Company can impact debt obligation and operational activities. Operating within the limits of our appetite We have got a strong balance sheet which is debt-free with an adequate net worth to ensure fund liquidity.
Corruption Bribery or any form of corruption by any individual of our Company will lead to unfavourable media attention, criminal investigation and cause damage to the Companys reputation. Operating within the limits of our appetite We have got an anticorruption policy in place, coupled with active monitoring, training and awareness.
Covid-19 lockdown Lockdown restricts our ability to travel and conduct meetings. Operating within the limits of our appetite We are working from home (WFH) and effectively executing all the non-operational activities.

FINANCIAL REVIEW (CONSOLiDATED BASIS)

Revenue

Revenue from operations showed a significant growth, increasing by 41% from 19,385.52 Lacs in 2018-19 to 27,304.00 Lacs in 2019-20.

Profit after tax (PAT)

The Company posted a profit after tax of 2,923.53 Lacs in the current year compared to profit of 910.07 Lacs in the last year.

key ratios of aosl

Particulars 2019-20 2018-19
Debtors Turnover Ratio 3.70 3.20
Interest Coverage Ratio 17.66 3.40
Current Ratio 1.54 1.78
Debt Equity Ratio 0.00 0.26
Operating Profit Ratio 33% 34%
Net Profit Margin 11% 5%
Change in Return on Net worth 19% 8%

EPS

The earnings per share (EPS) for the year is 7.72 as against 2.39 in the previous year reflecting the profitable performance of the Company during the financial year.

net worth

The group got a strong Net worth of 18,145 Lacs as on March 31, 2020 compared to 15,200 Lacs as on March 31, 2019.

Debt

The debt as on March 31, 2020 stands at NIL compared to 996 Lacs as on March 31, 2019.

Explanation for significant change during the financial year

1. The full repayment of the loan during the financial year has led to debt free status of the Company. This has reduced debt to equity ratio to zero and improved the Interest Coverage Ratio owing to decrease in the interest cost.

2. I ncrease in the operating revenue has resulted in increase in the net profit margin

HUMAN RESOURCE MANAGEMENT

The Company is fundamentally committed to protecting the environment while ensuring healthcare, safety and welfare for all its employees, contractors and communities. The Company is dedicated to performing its duties in a safe, environmentally responsible and effective manner.

Our peoples proficiency and skills strongly hold the foundation of our success. Owing to the value they bring to the organisation, the human resource teams at our operations and offices hold the onus of implementing the best human resource strategies and policies. The Company empowers the people by providing them opportunities across spectrums including leadership and professional development.

To encourage excellence and better productivity, the Companys rewards are clearly and rightfully in tandem with the individuals performance. Employment equity is an integral component of the Company business and human resource strategy. The focus is on the elimination of discrimination within the workplace, regardless of the designated profile across all occupational levels within the organisation. Even after earning ISO 9000: 2015 certification, all these constant efforts have aided us to further improve our quality management.

INTERNAL CONTROL SYSTEM

The Company has adequate internal financial control in place with regard to the financial statements. Such controls were evaluated through the year, while no reportable material weaknesses in the design or operations were observed.

CAUTIONARY STATEMENT

Statements in this report on Management Discussion and Analysis relating to the Companys objectives, projections, estimates, expectations or predictions may be forward-looking within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectations of future events. Actual results might differ materially from those expressed or implied depending upon factors such as climatic conditions, global and domestic demand-supply conditions, raw materials cost, availability and prices of finished goods, foreign exchange market movements, changes in government regulations, tax structure, economic and political developments within India and the countries where the Company conducts its business and other factors such as litigation and industrial relations. The Company assumes no responsibility in respect of forward-looking statements herein which may undergo changes in future on the basis of subsequent developments, information or events.