SRM Energy Ltd Management Discussions.

The following Management Discussion Analysis ("MDA") focusses on various important and significant factors that affected the overall performance of the Company, SRM Energy Limited and its wholly owned subsidiary company SRM Energy Tamilnadu Private Limited during Financial Year 2019-20 and to the date of this report. This Section of Annual Report primarily focusses on Industry Structure and Developments, Opportunities and Threats, Performance of the Company, Internal Control Systems and their Adequacy, Key financial aspects and the overall risks and concerns during the financial year and till date of this report.

1. FORWARD-LOOKING STATEMENT

Statements in this Management Discussion and analysis of Financial Condition of the Company describing the Companys objectives, expectations or predictions may be forward looking. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements on the basis of any subsequent developments, information or events.

In accordance with the provisions of the Companies Act, 2013 (the Act) and comply with the Companies (Indian Accounting Standards) (Ind AS) Rules, 2015, which have been notified by the Central Government on February 16, 2015. The Management of SRM Energy Limited ("SRM Energy" or "the Company") has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the state of affairs and profit/(loss) for the year.

The following discussions on our financial condition and operations should be read together with our audited consolidated financial statements and the notes to these statements included in the Annual Report.

Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", or "SRM Energy" are to SRM Energy Limited and/or its subsidiary companies.

2. INDUSTRY STRUCTURE AND DEVELOPMENTS

Power is one of the most critical components of infrastructure crucial for the economic growth and welfare of nations. The existence and development of adequate infrastructure is essential for sustained growth of the Indian economy.

Indian power sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continues to drive electricity demand in India. The Indian governments focus on attaining Power for all has accelerated capacity addition in the country.

Indias power sector is one of the most diversified in the world. Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and

nuclear power to viable non-conventional sources such as wind, solar, and agricultural & domestic waste. Total installed capacity of power stations in India stood at 370.34 GW as of April 2020. Electricity production reached 1,252.61 billion units (BU) in FY20.

Between April 2000 and March 2020, the power industry attracted US$ 14.98 billion in Foreign Direct Investment (FDI), accounting for three per cent of total FDI inflow in India.

Financial Year 2019-20 remained a subdued year for Indias power sector. Power demand grew at a rate of Just about 1 % largely reflecting slowdown in the economy.

The year ended with all round massive disruptions caused by COVID-19 pandemic. While the impact in FY 20 was limited to a catastrophic immediate fall in demand in the last week of March 2020, the pandemic is expected to have a deep and lasting impact on the economy, businesses and social setup generally. As of the date of this report, the situation is evolving with no clear visibility on the extent and timing of impact on power sector. This will muddy the already poor investment climate in the sector and further slow down the flow of new investments in the sector. The sector already grappling with several impediments faces the most challenging FY 21 ahead.

On the policy and regulatory front, the Government and Regulatory bodies continued the reform process for improvement in efficiency in various aspects of power supply. Government of India launched "Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA)" to achieve universal household electrification in the country.

2.1. GENERATION

The electricity generation target of conventional sources for the year 2020-21 was fixed at 1330 Billion Unit (BU), comprising of 1138 BU from thermal, 140.35 BU from Hydro, and 43.88 from Nuclear having total growth of around 6.33% over actual conventional generation of 1250.784 BU for the reporting year. The conventional generation during 2019-20 was 1250.784 BU as compared to 1249.337 BU generated during 2018-19, representing a growth of about 0.12%.

Renewable energy is fast emerging as a major source of power in India. The Government of India has set a target to achieve 175 GW installed capacity of renewable energy by Financial year 2022.

In Financial Year 2020, total thermal installed capacity in the country stood at 230.81 GW while renewable, hydro, and nuclear energy installed capacity totalled to 86.76 GW, 45.70 GW and 6.78 GW, respectively. The Government plans to double the share of installed electricity generation capacity of renewable energy to 40 per cent by 2030. India has also raised the solar power generation capacity addition target by five times to 100 GW by 2022. The Government is preparing a rent a roof policy for supporting its target of generating 40 GW of power through solar rooftop projects

by 2022. The peak power demand in the country stood at 180.80 GW in Financial Year 2020 In the Union Budget 2020-21, Rs 15,875 crore (US$ 2.27 billion) has been allocated to the Ministry of Power, while Rs 5,500 crore (US$ 786.95 million) has been allocated towards Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY).

India has relied traditionally on coal-fired power plants, which generated 72% of the countrys electricity in 2018-19. Indias combination of abundant sunshine about 300 sunny days in a year and a large energy hungry population makes it an ideal location for solar. The countrys solar capacity reached 36.6GW at the end of the first quarter of 2020, with the aim of growing to 100 GW by 2022.

2.2. Fuel

Through sustained programme of investment and greater thrust on application of modern technologies, it has been possible to raise the All India production of coal at 728.72 million tonnes in 2018-19. The all India Production of coal during 2019-20 were 729.10 MT (Provisional) with a positive growth was 0.05%.

Singareni Collieries Company Limited (SCCL) is the main source for supply of coal to the southern region. SCCL production of coal during 2019-20 was 64.40 MT(Provisional) with a negative growth was -0.55%. Small quantities of coal are also produced by TISCO, IISCO, DVC and others.

Indias Coal Import increased to 248.55 Million tonnes in financial year 2019-20 as compared to 235.24 Million tonnes in financial year 2018-19.

2.3 Transmission

The transmission network in India has grown significantly over the past few years driven by the need to support the growing load and provide connectivity to generation projects. Indias power transmission segment is growing mainly due to the thrust provided by the recent policy and regulatory development, as well as government initiatives

In the transmission sector, Indias regional grids (Northern, Eastern, Western, North-Eastern and Southern) are currently integrated into one national grid. By the end of the 12th plan period (2012-2017), India had total inter-regional transmission capacity to transfer nearly 75,050 MW. This is expected to increase to about 1,18,050 MW by the end of the 13th Plan (2017-2022) and will be adequate to meet the energy flow requirements across the regions within India. 2.4. Distribution

The distribution sector consists of Power Distribution Companies (Discoms) responsible for the supply and distribution of energy to the consumers (industry, commercial, agriculture, domestic etc.). This sector is the weakest link in terms of financial and operational sustainability.

Central and state governments have launched a number of schemes and initiatives aimed at improving the operations and financial health of Discoms. UDAY (Ujwal Discom Assurance Yojana) scheme, launched in November 2015, is the latest attempt to address the severe financial stress due

to accumulation of debt by the Discoms, with a focus on improving the overall efficiency and financial turnaround.

Indias power distribution sector is passing through a turbulent phase on the back of large accumulated dues to be paid to generators, liquidity issues due to restricted cash flow, uncertain revenue due to closure of industrial and commercial operations and the prevailing low power demand in the sector in the wake of the lockdown due to the coronavirus outbreak. Lockdown has impacted the financial health of Discoms. Indias daily power demand has declined by 25 to 28 percent since the beginning of the nationwide lockdown, driven primarily by factory and office closures in the commercial and industrial sectors.

3. OPERATIONAL PERFORMANCE

The Company had plan to set up a power project at Tamilnadu with a capacity of 3X660 MW i.e. 1980 MW. The said plan was proposed to be set up through the Wholly Owned Subsidiary SRM Energy Tamilnadu Pvt. Ltd. Your Company has no other operation at present and the related expenses incurred during the current period are considered as pre -operative expenses pending allocation to the power project.

As informed earlier that the project did not took off due to various reasons including the changed market conditions for the thermal power project over a period of time, and also the changed in policies of the Government, the overall investments in the Company was also one of the reasons. In its Directors Report, the Company has been apprising you about its situation. The Companys the Net worth has been significantly reduced and it has been incurring cash losses.

As apprised in the last annual report the company initiated the process for sale of land of subsidiary company and utilized the sale proceeds towards settling of loan as extended to its subsidiary. Till March 31, 2020 subsidiary company has sold 97.680 acres of its land out of 215.140 acres of total land. As per the approval of shareholders, the subsidiary company utilized the part amount of Rs. 66.05 Lac out of the total sale proceed of Rs. 293.02 lac to settle the outstanding loan. Rs 210.00 Lac is kept in the Fixed Deposit to be utilised to settle the loan.

4. PROJECTATCUDDALORE

The project status of the Company remained static since the last reporting. However, we have been apprising you that it could not take off due to various reasons which included the unfavorable industrial scenario, change in the policies of the Govt. (over the period of time), status of the land acquisition and overall investment of the promoters being low etc. In the previous year, the subsidiary has also initiated to sell the land of the project as per the approval obtained from the shareholders. Hence as of now the project has been into the status of abandon.

5. HUMAN RESOURCES

The Company continues to work with limited necessary staff as the company is not having any operations at present. As on 31st March, 2020 there are only two employees providing

best of their services to the Company. The employees includes two key managerial personnel i.e. one Company Secretary (CS) and one Chief Financial Officer (CFO). The Company is a firm believer that its employees are its strength and the Company therefore respects individual rights and dignity of all its employees. The relations of the management with employees during the year continued to be cordial.

The Remuneration of employees is governed by a proper remuneration policy relating to the Whole time Director/ Executive/Managing Director, Key Managerial Personnel (KMP) and Senior Management Personnel, as required under the Companies, 2013 and SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015. Details of Remuneration paid to the employee during the financial year are provided in MGT-9 Forming part of Directors Report.

6. INTERNAL CONTROL SYSTEMS

The Companys Internal Control Systems are commensurate with the size and scale of its operations. Audit Committee of the Company monitors policies, guidelines and procedure of Internal Control System. M/S Amarjeet Singh & Associates is the Internal Auditor of the Company. It carries out extensive internal audit throughout the year across all functional areas and submits reports to Management and Audit Committee. The recommendations from such internal audit and follow up actions for improvements of the business processes and controls are also continously reviewed and monitored by the Audit Committee.

7. RISKS AND CONCERNS

The key risks and concerns facing the power sector in India are as follows:

• The financial health of electricity DISCOMs is an area of key concern threatening its viability. DISCOMs are the weakest link in the electricity supply chain and have been suffering on account of operational inefficiencies

• The availability of cost-effective capital for funding of new projects is a cause of concern given banks current exposure

to power sector and stranded assets, which may result in NPAs.

• The large number of stranded and under-utilized thermal assets adds to the already overburdened discoms by way of fixed costs. Climate change related norms, the Covid-19 lockdown has add on to the the burden and slowed down the pace of growth in demand.

• Though renewables are welcome from an environment perspective, a rapid expansion could be at the cost of thermal capacity utilization, thus adding net fixed costs to the system which is already overstretched. This could slow down the renewables sector.

• Shortage of domestic gas and expensive LNG imports affects the financial viability of gas-based power plants.

• Increasing digitization and digital inter-connections in the power system of the country have made the stakeholders (generators, transmission entities, distribution entities and load dispatch centres) exposed to increased risks of cyberattacks and vulnerable to widespread and prolonged service disruptions and data leakage, fraud, etc.

• The spread of Covid-19 and the resultant lockdowns imposed in the country will have impact on the franchised distribution business. Such impacts could be:

(a) reduction in demand for electricity; (b) reduced collection efficiency causing non-collection of outstanding dues; (c) incurrence of costs on labour and employees not fully utilised; and (d) regulatory response to the pandemic causing reduction in profits. CAUTIONARY STATEMENT

Certain statements in the Management Discussion and Analysis may be forward-looking. Actual outcomes may vary from those expressed or implied. The Company assumes no responsibility to publicly amend, modify, update or revise any such statements on the basis of subsequent developments, information or events.