global vectra helicorp ltd Management discussions

REPORT

OVERVIEW

Global Vectra Helicorp Limited (GVHL) is the largest private sector helicopter operator in India. GVHL is listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited and is an ISO 9001-2015, ISO 14001-2015, and OHSAS 45001-2018 certified Company. These certifications overarch all GVHL activities, including flight operations, engineering, safety, quality control and commercial systems. GVHL is also proud to be a long-term Corporate Member of the Rotary Wing Society of India (RWSI).

Its prime objective is to continue to deliver world class standards of safety and service to India?s helicopter industry and to be the leader in Offshore Oil & Gas operations. We are extremely positive with regard to the continued growth in the helicopter industry in India and abroad. To capitalize on this, GVHL will continue to expand its fleet and adapt its services to meet the dynamic needs of these markets.

Flying hours and safety

Being the largest private sector helicopter operator in India, GVHL has always ensured that safety is paramount in its operations and has recorded over 2,80,000 accident free hours to date and has also been commended for our safety initiatives, including being awarded "Operator of the Year "in 2016 and 2017 by the India Business Aircraft Operators Association.

OPERATIONS, MAINTENANCE & PERSONNEL

The major maintenance base for offshore fleet is Mumbai where all maintenance work is carried out including 5000 hours / 05 years check on its Bell 412 and 1200 hours / 04 years check on AW 139 fleet of aircraft in a 6600 sqm state-of-the-art hangar. This facility meets international quality standards and maintains all relevant certifications from the Directorate General Civil Aviation (DGCA) as a CAR 145 & CAR-M sub part G approved organization.

GVHL has a total staff of over 412 personnel, including pilots, engineers and support staff.

AUDITS

GVHL is actively involved in regular and stringent audit activities from some of the most prominent oil companies in the world, including British Petroleum, Total, British Gas, ONGC, Reliance, Dolphin Geo, CGG and Cairn, through their renowned auditing agencies like Hart Aviation, GSR, Airclaim Services, Schlumberger Asia Services Limited and Aviation Management Services. It is also fully compliant with all Indian Directorate General Civil Aviation (DGCA) auditing schedules (Operations, Maintenance, Safety and Quality) and also follows a rigorous Internal Audit program. Further, GVHL undergoes thorough, independent financial auditing on a quarterly and annual basis.

SERVICES

With a modern and technologically advanced fleet of helicopters, Global Vectra Helicorp Limited has a wide range of capability to provide essential onshore and offshore services to strategic sectors:

• Oil and Gas

• Geophysical Survey

• Corporate and VVIP flights

• Aerial Photography

• Religious Tourism

• Emergency services

• Underslung operations

• Power Grid Construction and Maintenance

Its unblemished safety track record also makes it preferred supplier for the top rung of the country for corporate, religious and leisure travel. It has world class maintenance facilities having highly skilled engineers and experienced pilots to ensure safe, secure and uninterrupted services to the nation. It is the only service provider that is capable of providing a replacement helicopter at short notice thus, ensuring unhindered operations for its clients.

CLIENTS

Our offshore team is dedicated to providing Air logistics services to the Oil & Gas industry majors like Oil and Natural Gas Corporation (ONGC), Cairn India, Reliance Industries Limited (RIL), Transocean (TSF), Shelf Drilling, British Petroleum, Schlumberger Asia Services Limited, Baker Hughes and many more, under long term contracts with an outstanding market share in the offshore helicopter market in India.

Dolphin Geo, Shearwater, Polarcus, Fugro, CGG Veritas, Results Marine & Western Geco have been our major Seismic partners for whom we have flown on the East and West Coast of India in the recent past and are hopeful for the same in the near future as well.

GVHL provides services to its clients under long-term contracts. These contracts range from one to five years with renewal options. Companies involved in offshore E&P activities have to use helicopter services extensively for Crew Change, Production, Cargo and Medevac.

BASES

GVHL has its main maintenance base at Juhu Airport, Mumbai with sub-bases in various parts of India including: Juhu (Mumbai), S. Yanam, Rajahmundry, Suvali, Gadimoga, Imphal, Porbandar, Hyderabad, Patna, Itanagar, Katra, Behala, Neel Grath, and Vishakhapatnam.

INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

GVHL is totally committed to maintaining the highest possible standards in its operations, maintenance and safety. GVHL introduced in India a full and formal Safety Management System (SMS) as per international recommendations and requirements of the Global Oil/Gas Industry and International Civil Aviation Organisation.

As part of our continuing effort to further enhance our management systems we implemented an ERP (Enterprise Resource Planning) System from IFS AB, a Swedish company and one of the world?s leading providers of business software. Through this system we have integrated the management data of Flight Operations, Maintenance, Repair and Overhaul

(MRO) processes, Quality Control, Logistics, Inventory Management, Human Resources/Payroll and Finance.

MISSION STATEMENT

Global Vectra Helicorp Limited shall provide safe, efficient and reliable helicopter services and we shall remain recognised as the operator of choice in our region. We shall also grow our brand internationally, by further enhancing our safety, quality and compliance functions, in line with internationally recognised standards and best practice principles for our industry.

• We are the first choice for helicopter services in India.

• Our commitment to maintaining our safety focus underpins all that we do.

• We deliver safe operations.

• We are cost effective and reliable, commensurate with high quality of service provided.

• We shall exceed our customer expectations.

• We shall achieve our objectives - because we know where we are today and where we are going tomorrow.

Our Mission is driven by our Management Team - but delivery comes from every member of our Company.

Oil and Gas Industry in India INTRODUCTION

The oil and gas sector is among the eight core industries in India and plays a major role in influencing decision making for all the other important sections of the economy.

The oil and gas industry has rebounded strongly throughout 2021, with oil prices reaching their highest levels in six years. While the industry?s recovery is better than expected, uncertainty remains over market dynamics in the coming year.

Oil prices have recovered to around $80/bbl after turning negative in April 2020. Oil prices have been rising since the start of 2021, bolstered by recovering demand and capped supply from OPEC.

OPEC has stuck with its forecast that world oil demand will exceed pre-pandemic levels in 2022, although the producer group said Russia?s invasion of Ukraine and developments around the coronavirus pandemic pose a considerable risk.

The OPEC maintained its forecast that world oil demand would rise by 3.36 million barrels per day (bpd) in 2022, extending a recovery from 2020?s slump.

The Ukraine war sent oil briefly above $139 a barrel in March, the highest since 2008, worsening inflationary pressures.

Looking ahead, current geopolitical developments and the uncertain roll-out of the pandemic toward the end of the second half of the year continue to pose a considerable risk to the forecast recovery to pre-pandemic levels.

India?s economic growth is closely related to its energy demand, therefore, the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment. India retained its spot as the third-largest consumer of oil in the world as of 2021.

The Government has adopted several policies to fulfil the increasing demand. It has allowed 100% Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products and refineries, among others. Today, it attracts both domestic and foreign investment as attested by the presence of Reliance Industries Ltd (RIL) and Cairn India.

The primary energy demand is expected to nearly double to 1,123 million tonnes of oil equivalent, as the country?s gross domestic product (GDP) is expected to increase to US$ 8.6 trillion by 2040.

FDI inflows in India?s petroleum and natural gas sector stood at US$ 7.98 billion between April 2000-March 2022.

India?s economic growth is closely related to energy demand, therefore, the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment.

The Government of India has adopted several policies to fulfil the increasing demand. The government has allowed 100 per cent Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products, and refineries, among others. Today, it attracts both domestic and foreign investment, as attested by the presence of Reliance Industries Ltd (RIL) and Cairn India.

MARKET SIZE

The estimated conventional hydrocarbon resources in 26 sedimentary basins stood at 41.87 bn tonnes (oil and oil equivalent of gas), an enormous increase of about 49% in comparison to the earlier estimate of 28.08 bn tonnes. India retained its spot as the third-largest consumer of oil in the world, as of 2021. India?s consumption of petrol products stood at 204.23 MMT in FY22, while crude oil production stood at 29.7 MMT. Assam, Gujarat and Rajasthan account for more than 96% of oil production in India. India has about 10,420 kms of crude pipeline network, with a capacity of 147.9 MMTPA.

India has 23 refineries - 18 are in the public sector, two in the joint sector and three in the private sector. India?s state refineries have upgraded their facilities to comply with a new government requirement to produce oil products with the equivalent of Euro VI emission standards. India?s total installed provisional refinery capacity stands at 249.21 MMT, making it the second-largest refiner in Asia. Private companies own about 35% of the total refining capacity.

India is one of the largest exporters of refinery products due to the presence of various refineries. In terms of trade, exports of petroleum products from India reached 62.7 MMT in FY22. The value of these exported crude oil and petroleum products stood at US$ 44.41 billion. In FY22, crude oil imports stood at 4.24 MBPD, which was worth US$ 120.4 billion.

According to the International Energy Agency (IEA), India?s medium-term outlook for natural gas consumption remains solid due to rising infrastructure and supportive environment policies. Industrial consumers are expected to account for 40% of India?s net demand growth. The demand is also expected to be driven by sectors such as residential, transport and energy.

As per data released by Department for Promotion of Industry and Internal Trade (DPIIT), FDI inflows in India?s petroleum and natural gas sector stood at US$ 7.98 billion between April 2000-March 2022.

Investments

According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), FDI inflows in India?s petroleum and natural gas sector stood at US$ 7.98 billion between April 2000-March 2022.

49% FDI allowed in petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs under automatic route.

Following are some of the major investments and developments in the oil and gas sector:

• In May 2022, ONGC announced plans to invest US$ 4 billion from FY22-25 to increase its exploration efforts in India.

• As of May 1, 2022, India had 10,420 kms of crude pipeline network, with a capacity of 147.9 MMTPA.

• The total number of OMC retail outlets increased to 83,208, as of May 1, 2022, from 59,595 in FY17.

• In April 2022, Indian Oil Corporation Limited, Larsen & Toubro and Goldman Sachs-backed renewable energy producer ReNew Power formed a joint venture by signing a term sheet. This JV will develop green hydrogen projects, helping India cut down its carbon emissions.

• Exports of petroleum products from India reached 62.7 MMT in FY22. The value of these crude oil and petroleum products stood at US$ 44.41 billion. In FY22, crude oil imports stood at 4.24 MBPD, which was worth US$ 120.4 billion.

• In March 2022, the Board of IOCL approved plans to invest Rs. 7,282 crore (US$ 932.6 million) for the development of City Gas Distribution (CGD) network in 9 geographical areas (GAs).

• In March 2022, the Board of Oil India approved an investment of Rs. 6,555 crore (US$ 839.49 million) for Numaligarh petrochemical project.

• As of March, 2022, the oil sector?s total installed provisional refinery capacity stood at 249.21

MMT, and IOC emerged as the largest domestic refiner with a capacity of 70.05 MMT.

• In January 2022, Indian Oil Corp. Ltd. (IOCL) announced plans to expand its city gas distribution (CGD) business, looking to invest Rs. 7,000 crore (US$ 918.6 million).

• In January 2022, Adani Total Gas Ltd (ATGL), a joint venture between the Adani Group and TotalEnergies, won licences to expand its City Gas Distribution (CGD) network to 14 new geographical areas, with an investment of Rs. 20,000 crore (US$ 2.62 billion).

• In November 2021, Oil and Natural Gas Corp. Ltd (ONGC) announced that it invested up to Rs. 6,000 crore (US$ 800 million) in its petrochemicals arm (ONGC Petro Additions Ltd.) to meet its equity requirements.

• Under the Hydrocarbon Exploration & Licensing Policy (HELP), the exploration acreage has now reached to about 2,15,000 sq. km. after 4 successful bidding rounds of Open Acreage Licensing Programme (OALP). The future exploratory work commitment comprises of the following: *

• 29,270 line km of 2D Seismic Survey

• 43,272 square km of 3D Seismic Survey

• 369 Exploratory Wells

• 290 core analysis to establish Shale Resources

These commitments have a potential to generate an investment of about USD 2.35 Bn in exploratory work alone.

Government Initiatives

Some of the major initiatives taken by the Government of India to promote oil and gas sector are:

• On May 21, 2022, the Government announced a reduction in excise duty of Rs. 8 (US$ 0.10) per litre on petrol and Rs. 6 (US$ 0.077) per litre on diesel.

• In May 2022, the government approved changes in the Biofuel Policy to bring forward the target for 20% ethanol blending with petroleum to 2025-26 from 2030.

• In the Union Budget 2022-23, the customs duty on certain critical chemicals such as methanol, acetic acid and heavy feed stocks for petroleum refining were reduced.

• In February 2022, Minister of Petroleum & Natural Gas, and Housing & Urban Affairs, Mr Hardeep Singh Puri, said that India will more than double its exploration area of oil and gas to 0.5 million sq. km. by 2025 and to 1 million sq. km. by 2030 with a view to increase domestic output.

• In December 2021, the Ministry of Petroleum and Natural Gas launched the seventh bid round under the OALP. Under this round, around 15,766 sq. km. has been offered to investors.

• In November 2021, India announced that it will release 5 million barrels of crude oil from its strategic petroleum reserves in a concerted effort to bring down global crude oil prices. This is roughly equivalent to a day?s consumption in the country.

• In November 2021, the government set up a committee to work out measures needed to make natural gas available to power plants at reasonably stable prices.

• In October 2021, the Union Ministry of Petroleum & Natural Gas approved a revised project cost of Rs. 28,026 crore (US$ 3.8 billion) to increase refining capacity for the ongoing Numaligarh Refinery Expansion Project from 3 to 9 MMTPA.

• In September 2021, the Indian government approved oil and gas projects worth Rs. 1 lakh crore (US$ 13.46 billion) in Northeast India. These projects are expected to be completed by 2025.

• In September 2021, India and the US agreed to expand their energy collaboration by focusing on emerging fuels. This was followed by a ministerial conference of the US-India Strategic Clean Energy Partnership (SCEP).

• In July 2021, the Department for Promotion of Industry and Internal Trade (DPIIT) approved an order allowing 100% foreign direct investments (FDIs) under automatic route for oil and gas PSUs.

• The Government is planning to set up around 5,000 compressed biogas (CBG) plants by 2023.

Road Ahead

Crude oil consumption is expected to grow at a CAGR of 5.14% to 500 million tonnes by FY40 from 202.7 million tonnes in FY22. In terms of barrels, India?s oil consumption is forecast to rise from 4.05 MBPD in FY22 to 7.2 MBPD in 2030 and 9.2 MBPD in 2050. Natural Gas consumption is forecast to increase at a CAGR of 12.2% to 550 MCMPD by 2030 from 174 MCMPD in 2021.

India is planning to double its refining capacity to 450500 million tonnes by 2030.

Energy demand of India is anticipated to grow faster than energy demand of all major economies on the back of continuous robust economic growth. Moreover, the country?s share in global primary energy consumption is projected to increase to two-fold by 2035.

advantage to india

GROWING DEMAND

• Oil demand in India is projected to register a 2x growth to reach 11 million barrels per day by 2045.

• Diesel demand in India is expected to double to 163 MT by 2029-30, with diesel and gasoline covering 58% of India?s oil demand by 2045.

• Consumption of natural gas in India is expected to grow by 25 billion cubic metres (BCM), registering an average annual growth of 9% until 2024.

Energy demand of India is anticipated to grow faster than energy demand of all major economies on the back of continuous robust economic growth. Moreover, the country?s share in global primary energy consumption is projected to increase to twofold by 2035.

RAPID EXPANSION

• India aims to commercialise 50% of its SPR (Strategic Petroleum Reserves) to raise funds and build additional storage tanks to offset high oil prices.

• In May 2022, ONGC announced plans to invest US$ 4 billion from FY22-25 to increase its exploration efforts in India.

SUPPORTIVE FDI GUIDELINES

• In July 2021, the Department for Promotion of Industry and Internal Trade (DPIIT) approved an order allowing 100% foreign direct investments (FDIs) under automatic route for oil and gas PSUs.

• The Government has allowed 100% Foreign Direct Investment (FDI) in upstream and private sector refining projects.

POLICY SUPPORT

• In Union Budget 2022-23, the customs duty on certain critical chemicals such as methanol, acetic acid and heavy feed stocks for petroleum refining were reduced.

• In September 2021, India and the US agreed to expand their energy collaboration by focusing on emerging fuels.

OIL SUPPLY AND DEMAND IN INDIA

• Diesel was the most consumed oil product in India and accounted for 39% of petroleum product consumption in 2019. It is used primarily for commercial transportation and further, in the industrial and agricultural sectors.

• Oil demand is expected to rise by 5.8 mbpd in 2040 from 5.27 mbpd in 2019.

• Oil demand increased 3.11% to 5.27 mbpd in 2019 from 5.11 mbpd the previous year.

• Rapid economic growth is leading to greater outputs, which in turn is increasing the demand of oil for production and transportation.

• In FY21, crude oil imports decreased to 3.96 MBPD from 4.54 mbpd in FY19.

DOMESTIC GAS PRODUCTION AND IMPORTS (BCM)

• Demand is not likely to simmer down anytime soon, given strong economic growth and rising urbanization.

• Gas consumption is projected to reach 143.08 bcm by 2040. The Government is planning to invest US$ 2.86 billion in the upstream oil and gas production to double the natural gas production to 60 bcm and drill more than 120 exploration wells by 2022.

• India?s natural gas imports increased at a CAGR of 6.92% between FY16 and FY21.

• LPG penetration rate of households reached ~97% in early 2020 compared with 56% in 2016.

COVID-19

IMPACT ANALYSIS ON THE HELICOPTER INDUSTRY:

Coming closely on the heels of the three COVID-19 waves, last being the Omicron wave, the impact of the pandemic further aggravated the overwhelming challenges that GVHL was already facing since the beginning of the pandemic.

The main hurdle lies in the difficulty to inspect helicopters across national and even state borders. Resellers are adapting through technology and proposing video prepurchase inspections while global dealers can offer local inspection services.

Most countries across the world had shut down their borders and restricted their activities for several months. The Coronavirus pandemic has arguably led to the worst economic crisis since the 2008 financial meltdown and the future remains uncertain despite gradual economic reboot.

The helicopter industry has been hit hard and faces difficult times ahead. Nothing in the helicopter industry?s history prepared the world for this pandemic and its effects on the rotorcraft community with the struggle felt by the offshore support helicopters as well. The major OEMs had to pause production as a result of the Covid-19 crisis. The operations and supply chain were severely affected by the coronavirus pandemic and precautions were taken to prevent potential exposure through minimising travel and working remotely through flexible working arrangements for employees. The pandemic also disrupted supply chains in the aviation industry, resulting in a major drop in deliveries.

Combined with the economic hit from Covid-19, rising insurance rates have put the squeeze on smaller operators in particular.

In the long run, the versatility of the helicopter industry will help it to rebound. It is expected that the helicopter industry will continue to feel this pandemic?s effects for some time to come.

While waiting out for the pandemic to end completely, the helicopter industry continues to evolve. The industry as a whole-manufacturers, operators, pilots, and maintenance - is ideally positioned now to build, operate, fix, and fly these aircrafts.

As the tourism industry was closed and operations in the oilfield facilities came to a new low, many helicopters were grounded with heavy losses to the helicopter operators. Moreover, due to the pandemic, the supply chain has also been impacted as helicopter manufacturing facilities were closed.

The downturn in the oil and gas industry had led to severe cuts in expenditure over exploration, production and maintenance activities across the globe, thereby adversely affecting the offshore helicopters market. In addition, the global helicopter fleet utilization hit a low of 54% in 2021 due to falling demand and increased supply from orders placed pre-downturn. As a result, oil companies required fewer journeys offshore which led to many airframes to be put into storage. However, with the recovery of oil prices to sustainable levels coupled with increased spending for offshore project development and maintenance activities, especially in the deep-water exploration and production (E and P) operations, the offshore helicopter services are expected to grow in the near future.

The need for large helicopters with an ability to transport further and with increased passenger capacity is also set to increase. In the long term, the industry is projected to grow at a marginal pace with the influx of a more advanced helicopter fleet, increase in the production acreage of the end users and the rise in the drilling of offshore oil and gas fields.

With the operations and maintenance in the offshore segment of the oil and gas industry increasing in complexity, especially on ultra-deep-water and deepwater drilling operations, there exists a need for frequently transporting large helicopters at regular intervals. Moreover, the government regulations have become stringent on the number of people transported at a time and the type of helicopters that can fly in particular airspace. Thus, the demand for the medium and heavy type of helicopters is expected to grow significantly.

GVHL is taking continuous efforts to help the business sustain and grow during the COVID-19 pandemic.

RUSSIA UKRAINE WAR AND ITS IMPACT ON THE HELICOPTER INDUSTRY

The Russian invasion of Ukraine in February 2022 has been the largest conventional military attack seen since World War II which caused a global economic catastrophe. This crisis stoked uncertainty in global trade and impacted the oil and gas along with other industries.

Although, India had taken a neutral stance, born of its historic strategic partnership with Russia, yet, it could not shield India from the ravages of a war of such scale.

Despite India?s limited direct exposure to the war, the combination of escalated supply disruptions and uncertainties due to the war deteriorated the situation and aggravated the challenges of the offshore helicopter industry in the country with escalated costs all around.

It had a direct adverse impact on all the related services especially the movement of aircrafts and ships which resulted in increased costs of transportation and insurance in addition to facing unprecedented delays in the mobilisation of helicopters to the clients, importing spare parts and undertaking overseas maintenance activities of the contractual helicopters.

INTERNAL CONTROL SYSTEMS AND ADEQUACY:-

The Company has an appropriate system of internal controls to ensure that all activities are monitored and controlled against any unauthorized use or disposition of the assets and those transactions are authorized, recorded and reported correctly.

The Company ensures adherence to all internal control policies and procedures as well as compliance with all regulatory guidelines. The Audit Committee of the Board of Directors appraised the adequacy of internal controls.

Human Resources:-

The Company takes pride in the commitment, competence and dedication shown by its employees in all areas of business. Various HR initiatives are taken to align the HR Policies to the requirement of the business.

As on March 31,2022 the Company has a total workforce of over 412 employees.

cautionary statement-

statements in this Report on Management Discussion and Analysis, describing the Company?s objectives, projections, estimates, figures and expectation may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those expressed or implied.

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.