Karma Energy Ltd Management Discussions

BUSINESS REVIEW

General Economy

The conflict in West Asia has caused acute disruption of global supply chains. This has posed a big challenge for the global economy – higher prices and lower global growth. Merchant Shipping has been severely impaired. In this environment, monetary policy in every country faces a difficult trade-off and more so for India as it is highly dependent on crude oil imports and has also had the adverse effect on exports through sea. This has necessitated anchoring inflation expectations through policy tightening while reducing its impact on growth forgone. Also, equity valuations stand corrected. In the scenario of the turmoil in global financial markets, the US dollar has rallied well against most global currencies.

Despite the gloomy global scenario, on the domestic front, the Indian economy remained resilient in 2025-26. Real GDP is estimated to grow by 7.6 per cent on year to year, as per the Estimates of the new GDP series (base year 2022-23). Private consumption and fixed investment contributed significantly to overall growth, while net external demand remained softened. On the supply side, estimated real GVA growth of 7.7 per cent was driven by buoyant services sector and robust manufacturing activity.

In the above environment, the Governments focus on scaling up domestic manufacturing in several strategic and frontier sectors announced in the Union Budget 2026-27 , GST rationalization, promises well for Indias maintaining the growth trajectory. Taking all these factors into consideration and on the assumption that the adverse impact of the conflict would remain contained in the near term, real GDP growth for 2026-27 is projected at 6.9 per cent.

Both Direct tax and Indirect tax mainly GST collections were buoyant, reflecting the Indian entities all round growth and compliance despite the challenges.

Company Business

The renewable power generation, which is the business of the Company, though the central have been optimistic, due to pessimistic approach of many regulatory commissions and most of the State utilities, Wind power has lost its bite. In many states tariffs have not being encouraging and sale to third parties are being discouraged by imposing high open access charges under one pretext or other and thus providing continued support to conventional energy since state electricity boards have not been able to come to terms even after about three decades with renewable power due to its vagaries and each time assuming that renewable power has come off age and can compete with conventional power even though the facts are just the opposite. In fact it is seen that present environment in Green Energy is only for Big Players with deep pockets developing in terms of thousands of MW and it has become history when many a small and medium entities entered the Green Energy sector and laid the foundation for rapid growth.

The performance of the Company is directly linked to the Renewable Energy Policies of both Centre and State Governments, effectiveness of Nodal Agencies and formulation of encouraging policies and implementation thereof by State Electricity Regulatory Commissions.

Further the Ministry of Power has paved the way for realizing regular dues in Installments along with interest for delays. Also they developed an online portal "Prapti" where the generators can register and input their Invoice details so that State Electricity Companies are forced to settle dues n due date to avoid interest and adverse report from Central power Ministry. This has facilitated regular cash flow leading the Company pre-paying the term loans availed from Bank and become DEBT FREE.

The Company has now about 30.50 MW Power generating wind farms and had closed down loss making and low tariff wind farms in AP and a unit in TN.

OUTLOOK, OPPORTUNITIES AND THREATS

As far as Companys operations are concerned like any other renewable energy entity many adverse regulatory changes had its effect on it. The Company continues to take steps for cost reduction, tight cash flow management, policy changes to mitigate the downturn. Also more wind mills which due to passage of time has outlived its technical life and continuing its operation even with good operation and maintenance may prove uneconomical as tariff remains fixed for many years with no adjustment to inflation or factual cost of repairs and establishment costs has been retired.

Considering the huge outlay needed to achieve the targets set by the Central Government, only big business houses are jumping into the Green Power bandwagon as their pockets are deep and may be able to absorb the running losses in the RE Business which they may leverage against growth in their other core businesses. Further due to their size, they are able to negotiate better with utilities.

RISKS AND CONCERNS

On the Renewable Energy Sector, the considerable delay in processing or decision making by state utilities and State Electricity Regulatory Commission and also the higher judicial authorities have been resulting in considerable strain on the sustainability of small wind farms and also impeding the future projects. It is seen that present environment in Green Energy is only for Big Players with deep pockets with many a small and medium entities who had entered the Green Energy sector more than two decades back closing their units.

The experience of the Company has been that inordinate delays in adjudication of the matters by Electricity Regulatory Commission, Appellate Tribunal for Electricity and even High courts result in acute pressure on the Company due to huge mismatch in inflow and outflow of funds. In the wind power business the expenses are more or less fixed, the delayed receipt of generation proceeds necessitate that company has to resort to temporary borrowings to tide over the mismatch. This is also a concern as it has to bear the brunt of finance cost. However with Central Power Ministry introducing an online portal "Prapti" for monitoring settlement of Invoices of power generators by the utilities has helped the Company to tackle the liquidity issues and is now debt free for past 2-3 years.

The Management Discussions and Analysis explaining the objectives of the company, the opportunities and threats, the outlook for the future, the risks and concerns have to be read with the meaning of relevant applicable laws and regulations. The actual physical performance may differ materially from those explained hereinabove.

INTERNAL CONTROL SYSTEM

The company has a system of internal controls to ensure that all its assets are properly safeguarded and protected against loss from unauthorized use or disposal. Further all the internal control system is practiced by the company to ensure that all transactions are authorized, recorded and reported correctly.

The Company has an Audit Committee of Directors which reviews the adequacy of internal controls.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES

The business in which the company is engaged does not call for large manpower resources.

The company has a team of able and experienced professionals. The work culture and value system in the company is designed to provide each employee the adequate space, freedom and guidance to bring out their full potential and provide personal growth opportunities within the organization. The human resource assets have been ably supporting the company despite the issues which the company is facing in its chosen field.

SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

Parameters	F.Y. 2025-26	F.Y. 2024-25
1 Debtors Turnover	41.95%	92.68%
2 Inventory Turnover	18.53%	22.97%
3 Interest Coverage Ratio	-4.79	10.42
4 Current Ratio	2.19	3.83
5 Debt Equity Ratio	0.06	0.21
6 Operating Profit Margin (%)	83.81%	121.55%
7 Net Profit Margin (%)	-9.59%	16.18%
8 Return on Net Worth	2.62%	3.60%

Notes:

The ratios are in respect of ordinary activities and hence exclude impact of other comprehensive income.

a) The variation in Debtors Turnover Ratio is due to recovery of old dues of FY 2022-23 from State Utilities in FY 2025-26 resulting in improved ratio as compared to FY 2024- 25.

b) The interest coverage ratio became adverse pursuant to loss for the year due to higher Operation and Maintenance Costs, repairs to Wind mills at different sites as against healthy ratio in FY 2024-25.

c) The Current ratio strictly improved as the Company could realise old dues of FY 2022-23 from Utilities in FY 2025-26 and also settled certain old payables in FY 2025-26, but in FY 2024-25 Receivables included old dues from Utilities.

d) Improved Debt Equity ratio is also due to recovery of old dues of FY 2022-23 from State Utilities in FY 2025-26 facilitating payment of certain liabilities.

e) The variation in Operating Margin, Net Profit Margin and Return on Net Worth are all attributable to operating profits in FY 2024-25 being good due to expenses control and scrapping the loss making wind farm in Andhra Pradesh after 28-30 years of operation. However in F.Y. 2025-26 the Operation and Maintenance cost and repair to wind mills at different sites were on a higher side and despite improved turnover the margins were affected.

f) Adverse Net Profit Margin is due to higher Operation and Maintenance Costs, repairs to Wind mills at different sites resulting in loss for the year despite improved turnover.

g) Return on Net Worth reduced due to loss for the year pursuant to higher Operation and Maintenance Costs, repairs to Wind mills at different sites during FY 2025-26 despite improved turnover.