Karma Energy Ltd Management Discussions

BUSINESS REVIEW

General Economy

The global economy had remained steady till December 2024 overall despite the ongoing international political disputes in selected European Countries. However a Tariff war has broken out pursuant to US Administration revising their tariff structure adopting different rates for different countries and even stipulating reciprocal tariff. As a result there has been daily turmoil in the market as change and pausing of tariff has been a regular affair. Indian has been conservative and not rushing through to counter US revised tariffs stipulated for India and is working out a trade deal which has been on even before the tariff mayhem breaking out, but now it has to speed up so that effect is not adverse on its net external demand. Though there is nothing wrong in each country wanting to make their economy strong, but the already existing disparity in growth due to variety of historical and climatic reasons the gap only widens with such mindless tariff wars. The World trade norms at the aegis of World Trade Form have been sidetracked in the tariff conflicts. Inflation rules above average for many economies and expected to aggravate even for big economies like US if tariff clashes continue. Global trade slowed down in 2024-25 and expected to rebound in 2025-26. Central Banks in important countries are treading a cautious path with respect to Interest rate cuts.

In the above scenario having acute uncertainties, as per the National Statistical Office the real GDP growth of Indian economy is around 6.5% on year on year. With Government policies triggering domestic consumption, continued infrastructure push, increased capital expenditure across sectors, the forecast by RBI is maintaining 6.5%- 6.7% in FY 2025-26. Renewable power generation has a share of about 12.7 % of total power generation in India and long way to go when compared to certain European Countries.

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 has received all encouragement from both central and state governments have not grown to the extent expected due to pessimistic approach of many regulatory commissions and most of the State utilities, the latter themselves being in doldrums in terms of availability of funds. 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 and gone are the days 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 post discontinuing AP wind farm of 7.5 MW in late 2024 due to its adverse age factor and providing less or even negative net contribution to the bottom line on account of Sate Utility drastically reducing the tariff post expiry of initial PPA of 1995-96.

OUTLOOK, OPPORTUNITIES AND THREATS

The Pandemic Covid-19 continues to raise its head time and again after gap of every few months causing anxiety.

As far as Companys operations are concerned like any other renewable energy entity many adverse regulatory changes have been worse than the pandemic. Some sites are recording negative earnings. The Company has taken lot of steps for cost reduction, tight cash flow management, policy changes to mitigate the downturn. In fact during the FY 2022-23 it sold its lone wind mill of 0.55 MW along with the land at Poolvadi in Tiruppur District, in Tamil Nadu. In FY 2023-24 the Company decided to close AP wind farm of 7.5MW due to very low tariffs being offered by AP Utility. 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.

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.

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 has helped the Company to tackle the liquidity issues and is now debt free for past two 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 – To fill in

Sr.	Parameters	F.Y. 2024-25	F.Y. 2023-24
No.
1	Debtors Turnover	92.68%	79.90%
2	Inventory Turnover	22.97%	16.46%
3	Interest Coverage Ratio	11.46	0.75
4	Current Ratio	3.45	2.22
5	Debt Equity Ratio	0.21	0.19
6	Operating Profit Margin (%)	92.56%	82.40%
7	Net Profit Margin (%)	17.97%	(1.53)%
8	Return on Net Worth	3.99%	(0.09)%

Notes:

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

Comprehensive income

a)The variation in Inventory Turnover is primarily due to low turnover pursuant to closure of AP wind farm from 01.11.2023, two wind mills at Theni site remaining non-operational for most part of high wind season.

b) Current ratio stood improved due to recovery of old debt of more than a decade old post success in litigation.

c)Net profit margin and Return on Net Worth were all better due to improved bottom line due to recovery of old debts, booking profits on Investments and interest income.