Ujaas Energy Ltd Management Discussions.

GLOBAL ECONOMY OVERVIEW

The acceleration in global activity that started in 2016 gathered steam in 2017, reflecting firmer domestic demand growth in advanced economies and improved performance in other large emerging market economies. Global growth is expected to sustain for the next couple of years and has also accelerated mainly in the emerging market and developing economies due to the commodity exporters. Global growth is set to be just over 3.5% in this calendar year 2018, the fastest for seven years, with improved outcomes in both advanced economies and the Emerging Market Economies. The US taxation policy has stimulated the growth in the country primarily driven by increase in investments in USA due to favourable corporate tax rate. Although the global economy has grown at a seven year high in the near term it is expected that the economy will see a sharp turn over the long term horizon and is subjected to substantial downside risk mainly due to increased protectionist policies, possibility of financial stress and rising geo political tensions.

Confidence measures and levels of new orders for businesses have remained strong. This long awaited lift to global growth, supported by policy stimulus, is being accompanied by solid employment gains, a moderate upturn in investment and a pick-up in trade growth. The continued expansion depends on robust global growth and governments support for right trade policies. However, there are signs that escalating trade tensions may already be affecting business confidence and investment decisions, which could compromise the current outlook.

(Source: IMF, IRENA & WORLD BANK)

INDIAN ECONOMY OVERVIEW

Indian economic growth is giving a positive signal for the current and future scenario. It is projected to strengthen to above 7%, gradually recovering from the transitory adverse impact of rolling out the Goods and Services Tax (GST) and measures to choke off the black economy, including demonetization. Indias GDP grew 7.2% in the third quarter of 2018, surpassing expectations and wresting back the mantle of fastest growing economy from China on the back of a rebound in industrial activity, especially manufacturing and construction, and an expansion in agriculture. Reserve Bank of India has estimated GDP growth in a range from 7.4% to 7.9% for the Financial Year 2019-2020. (Source: OECD and Economic Times) The biggest challenges for 2018 are as to how the economy can maintain its recovery in the face of increasing inflationary pressures, coupled with a higher fiscal deficit as well as an increasing debt burden. The key to this conundrum lies in the revival of consumer demand and private investment.

Fiscal deficit for 2017-18 is revised to INR 5.95 lakh at 3.5% of the GDP which is approximately the same as 2016-17 in spite of transformation in the economy. In addition to initiatives like; "Make in India", "Housing for All", "Digital India" government has also introduced "Sagarmala" and "Bharat Mala" initiatives which is expected to boost the domestic growth of the country.(Source: IBEF and Trading Economics)

GLOBAL RENEWABLE OVERVIEW

Renewable energy is the fastest growing energy source, accounting for 40% of the increase in energy. Natural gas grows much faster than either oil or coal. The energy mix by 2040 is the most diversified ever seen. In 2017, the global renewable generation capacity amounted to 2,179 GW of which Hydro accounted for the majority share of 58.3% with an installed capacity of 1,271 GW; Wind constituted for 23.5% with capacity of 514 GW and solar energy constituted for the balance of 17.94% with capacity of 391 GW.

In comparison to last year, renewable generation capacity saw an up rise of 8.3% to 167 GW in 2017, keeping in line with 8-9% annual capacity growth rate during the decade. Solar energy registered a capacity increase of 94 GW (+31.5%) and wind energy with an increase of 46 GW (+10%). Hydropower and bioenergy capacities increased by 23 GW (+2%) and 5 GW (+5%) respectively. Geothermal energy increased by just less than 1 GW. Renewable capacity expansion continues to be driven mostly by new installations of solar and wind energy. http://www.irena.org/newsroom/pressreleases/2018/Apr/ Global-Renewable-Generation-Continues-its-Strong-Growth-New-IRENA-Capacity-Data-Shows http://irena.org/-/media/Files/IRENA/Agency/Publication/2018/Mar/IRENA_RE_Capacity_Statistics_2018. pdf https://www.irena.org/-/media/Files/IRENA/Agency/ Publication/2018/Mar/RE_capacity_highlights_2018. df?la=en&hash=21795787DA9BB41A32D2FF3A9C-0702C43857B39C

By region all the growth in energy demand came from fast growing developing economies drive by increasing prosperity. China, India & other emerging economies in Asia accounted for roughly two thirds of the global energy demand. As per world economic forum China, USA & India will account for roughly two thirds of the total renewable production in the world by the year 2022. https://www.bp.com/en/global/corporate/energy-economics/ energy-outlook/demand-by-region.html

INDIAN RENEWABLE OVERVIEW

India accounts for approximately 4% of the total global electricity generation and contributes 4.43% to the global renewable energy capacity. The International Energy Agencys World Energy Outlook projects a growth of renewable energy supply to 4,550 GW in 2040 on a global basis. As of March 2018 the total renewable energy power generation installed in the country stood at 114.315 GW which is 33% of the total installed capacity of 344 GW. The installations of renewable energy plants have shown a growth of 12.48% CAGR over the period of FY 2012-2018.

https://en.wikipedia.org/wiki/Electricity_sector_in_ India#cite_note-GES-3 The renewable energy sector in India represents future growth and change in the power generation sector in India. Renewable energy offers India unique value proposition i.e. bridging the gap in countrys energy requirement to power its entire population 24x7 and at the same time cutting on emission due to combustion of fossil fuels for energy. The push to develop and harness power through renewable energy resources is the Governments attempt to rebalance the energy mix in favour of cleaner energy generation. The two main kind of renewable energy sources which have found the widest application are wind energy and solar energy. India with 3,200 km of coastline and tropic of cancer passing through the centre of the country, there is ample opportunity for more solar and wind farms to be set up. http://www.careratings.com/upload/NewsFiles/SplAnalysis/ Report%20on%20renewable%20power.pdf The government of India has been banking a lot on the renewable space and has notified in the Paris climate agreement that India will reduce its carbon emission by 30% till year 2040 this move will be strongly backed by the increase in the renewable energy portfolio of the country. The country has grown substantially when it comes to renewable plant addition from around 42GW in the year 2007 to 114 GW at the end of 2018. In the renewable space the highest growth has been seen in the wind and solar power sector where macro-economic environment have made these projects viable and economical. In the overall renewable sector maximum contribution is from the wind power sector after which solar sector forms the major renewable source of power. https://www.independent.co.uk/news/world/asia/india-renewable-energy-clean-paris-climate-change-treaty-cop21-a7489181.html (Source: IBEF and Trading Economics)

OVERVIEW OF THE GLOBAL SOLAR SECTOR

In the year 2017-18 the total solar installation around the world is estimated to reach 100 GW and after this the total annual solar installation in the world is expected to be cross 100 GW each year up to 2022. In the total solar installation in the world, Asia has dominated the most with more than three quarter of the total installation in the solar sector from the emerging and developing economies in the EMA region. China was at the forefront of solar power plant installation in the world accounting to around 53 GW of the total solar power plant installation, followed by India at 9.6 GW and Japan at 7 GW. China alone contributed more than half of all new solar capacity installed in 2017. Other countries that installed more than 1 GW of solar in 2017 included: USA (8.2 GW); Turkey (2.6 GW); Germany (1.7 GW); Australia (1.2 GW); South Korea (1.1 GW); and Brazil (1 GW). http://www.irena.org/newsroom/pressreleases/2018/Apr/ Global-Renewable-Generation-Continues-its-Strong-Growth-New-IRENA-Capacity-Data-Shows https://renewablesnow.com/news/global-renewables-capacity-expands-by-167-gw-in-2017-irena-607926/

INDIAN SOLAR SECTOR OVERVIEW

The Indian solar sector has seen a phenomenal growth recently where the reduction in the capital outlay for development of a solar plant has fuelled the growth in the country. The reduction in the cost of setting up a solar plant, technological breakthroughs have positioned the industry for huge growth. Invention of thin film panels, smart solar modules, efficient solar cells and light-sensitive nanoparticles have triggered improved efficiency, better reliability and excellent cost-effectiveness which have made solar plants more economical and financially viable. All these economic advantages have been very well addressed by the government when they upgraded the solar installation target under the Jawaharlal Nehru National solar mission from 20GW to 100 GW to be achieved by 2022. Such an ambitious target has led to an increase in investments and growth in jobs in the country as well. In just 2 years the cumulative solar installations in the country have crossed to 20 GW in 2018.3 https://mnre.gov.in/sites/default/files/uploads/mission_ document_JNNSM.pdf Solar Power contributes approximately 21.6 GW out of the total installed renewable energy capacity of 69.02 GW in the country. By 2022, this capacity target has been set, to achieve 100 GW of solar installations.

Solar module prices, which account for ~50% of the total cost, has declined more than 70% over FY08-FY17 due to availability of cheaper raw materials (Polysilicon and silicon wafers). This has caused a fall in project capital cost from ~Rs. 300 Mn/MW in FY08 to ~Rs. 50 Mn/MW in FY18. Consequently, average solar tariff, which is largely dependent on capital cost, has declined from ~Rs. 30 per unit to ~Rs. 5 per unit, thereby becoming competitive with other conventional forms of electricity generation. The lower tariff, likely to be stable with negative bias, is now leading to more players setting up solar power plants in the country. Currently, the average tariff for commercial purpose stands at Rs. 7- Rs. 8 per unit and the risk of increase in tariffs (from the jump in input costs of conventional form of electricity generation like coal and fuels) makes the solar investment one of the cost-effective options to generate electricity.

Source: IIFL, CARE, MNRE & Mercom India https://www.sundayguardianlive.com/news/20-gw-solar-power-ahead-deadline

GOVERNMENT POLICIES AND INITIATIVES INTERNATIONAL SOLAR ALLIANCE (ISA):

The ISA is a treaty based inter-governmental organisation proposed by India in 2015 with the primary objective of creating a forum of solar rich countries to ensure increased utilisation and promotion of solar energy. The Framework Agreement for the ISA was signed by 19 countries in Marrakech, on the side-lines of the Marrakech Climate Change Conference in November 2016, and aims to bring together 121 countries. With the former secretary of MNRE, Upendra Tripathy, being appointed as the full-time Interim Director General of the ISA and the World Bank announcing their support for the initiative, the ISA is well poised to work towards one of its important goals of mobilising 1 trillion dollars of finance for solar energy. https://en.wikipedia.org/wiki/International_Solar_Alliance https://www.business-standard.com/article/news-ians/19-countries-sign-up-for-solar-alliance-116111701463_1.html https://indianexpress.com/article/india/india-news-india/ twenty-nations-sign-framework-agreement-of-international-solar-alliance-as-process-begins-4378800/

SOLAR PARK CAPACITY ENHANCEMENT SCHEME:

The central government enhanced the allotted capacity for Solar Parks and Ultra Mega Solar Power Projects from 20 GW to 40 GW in March, 2017. The scheme envisages at least 50 solar parks each with a minimum of 500 MW capacities to be set up by 2019-20 each. A Central Financial Assistance (CFA) of Rs. 8,100 crore has been sanctioned for the scheme, and the Solar Energy Corporation of India (SECI) has been nominated as the implementing agency. The financial assistance would include

Rs. 25 lakh for the preparation of the Detailed Project Report (DPR) of the solar park and up to Rs. 20 lakh per MW or 30% of the project cost, whichever is lower, subject to completion of pre-agreed milestones to be achieved by the park developer. https://www.indianeconomy.net/splclassroom/what-is-solar-park-project/

END OF DOMESTIC CONTENT REQUIREMENT (DCR) CATEGORY:

India introduced a DCR category under the National Solar Mission to support its local solar cell and module manufacturing base. Citing discrimination against solar inputs from other countries, the United States formally filed a complaint with the World Trade Organisation (WTO) against this policy in 2013. In February 2016, the WTO found that India was indeed in violation of its commitments under the General Agreement on Tariffs and Trade (GATT) and Agreement on Trade Related Investment Measures (TRIMs) (Pradeep S. Mehta, 2016). This dispute has finally ended with the recent announcement on 14th June, 2017 that India and the United States have mutually agreed to put an end to the DCR procurement latest by 14th December, 2017. https://economictimes.indiatimes.com/industry/energy/ power/domestic-content-requirement-tenders-are-all-but-disappearing-mercom-india/articleshow/58398282.cms

CHALLENGES & OPPORTUNITIES RENEWABLE PURCHASE OBLIGATION

Renewable purchase obligation (RPO) refers to an obligation enforced to the obligated entities like DISCOM, SEBs, thermal captive consumers, open access consumers etc. to meet a certain percentage of their power consumption requirement using renewable energy sources. The Indian government has increase the renewable purchase obligation target from 17% now to 21% by 2022 which is the major driving force in India to promote the renewable energy sector. With an increase in the target, the Ministry of Power (MoP) has also recently announced an order for long-term growth trajectory of Renewable Purchase Obligation (RPO) for solar and Non-solar for a period of three years i.e. from the year 2019-20 to year 2021-2022 as follows:25.00%

The obligation referred to here is consumption of power by obligated entities excluding power consumption from hydro power. The government has specified that the solar RPO should be met to the extent of 85% or above and if it does then the shortfall if any can be met by non-solar RPO for that particular year.

RPO mechanism has been in the frame for a long time but have its own share of ups and down. Since last year, the process is getting back on trade and REC trading is also working consistently. MNRE recently announced about building an RPO compliance cell providing aid to SERCs for better implementation. https://qz.com/1307648/india-is-forcing-large-power-consumers-to-use-more-renewable-energy/ http://reconnectenergy.com/blog/category/rec-mechanism-india/renewable-portfolio-obligation-rpo/ https://mnre.gov.in/file-manager/UserFiles/Solar%20RPO/ analysis-of-state-RPO-regulations.pdf

RENEWABLE ENERGY CERTIFICATES

Renewable energy certificates were introduced in the renewable sector in order to meet the gap between the supply of renewable power and the demand for the same. These RECs play an important role for the RPO obligated entities to meet the renewable purchase obligation and also they provide an additional return to solar power producers operating under the open access mechanism.

Honourable Central Electricity Regulatory Commission has determined floor and forbearance prices for REC (solar and non-solar) which will be valid from April 1, 2017 onwards. The prices for solar RECs have reduced the Floor Price to INR 1,000 and the Forbearance Price to INR 2,400. Previously, in March 2017, the CERC had revised the solar REC prices and the Forbearance prices from INR 9,300 to Rs. 5,800 in March 2014. The recent reduction was a result of falling tariffs in competitive bidding for solar energy and reducing costs for both solar and wind energy. http://www.cercind.gov.in/2014/regulation/ord16.pdf After the stay announced by the Honourable Supreme Court had stayed the trading of Solar RECs in May 2017 the RECs have resumed trading in April 2018 after the honourable Aptel dismissed all petitions appealing for vintage multiplier of Solar RECs.

GST RATE OF 5% FOR SOLAR EQUIPMENT

The new GST regime became applicable from July 1, 2017. Solar power generating system, equipment and parts have been placed under the lowest rate slab of 5%. However, there is still confusion on GST rate on the equipments other than modules (GST launched but clarity still missing for the solar sector). To tackle the confusion regarding the GST rate many companies are selling equipment with a GST rate of 5% but seeking an undertaking from the buyer that the latter will bear extra cost if applicable GST rate is eventually determined to be 18%. Prior to implementation of GST, various tax incentives including zero or concessional value added tax (VAT) and excise duty exemptions were available for the industry. The sector will cease to enjoy all these sundry exemptions except customs duty concessions.

On the GST front there have been mixed review on the applicable rate of GST where certain Advance rulings authority have mixed reviews on the applicable rate for solar power plants. Maharashtra AAR rules out that the applicable GST rate for a solar plant is 18% which will make the solar plant costlier since electricity does not come under the purview of GST and the input GST becomes a cost as the concerned parties do not get any credit for the same. At the same time Karnataka AAR have ruled out that the applicable GST rate would be 5% putting the sector in a confused. https://economictimes.indiatimes.com/industry/energy/power/ aar-rulings-put-solar-cos-in-a-bind/articleshow/64345773.cms https://www.financialexpress.com/industry/solar-power-plant-epc-to-attract-18-gst-aar/1160449/ http://loopsolar.com/FAQs-GST-solar-panel-inverter-EPC-India.html http://www.solarquarter.com/index.php/perspectives/5151-impact-of-gst-on-solar-sector

TRANSMISSION

The Ministry of Power has extended the waiver for inter-state transmission charges and losses for solar projects until 31st March 2022. The waiver is available for a period of 25 years from the date commissioning of the project for generation projects based on solar and wind resources, no inter-state power transmission charges and losses will be levied on a transmission of the electricity through inter-state transmission system for sale of power by such projects commissioned till March 31, 2022. https://powermin.nic.in/sites/default/files/webform/notices/ Waiver_of_inter_state_transmission_of_the_electricity.pdf

ROOFTOP BUSINESS

India has set an ambitious renewable energy target of 175 GW by 2022, including 100GW of solar power. Of that, the government aims for 60 GW to be utility-scale solar, and the rest i.e. 40 GW to be achieved from rooftop solar projects. Though India has made significant progress on the 60 GW utility-scale solar target, getting to the 40 GW rooftop solar target will be a significant undertaking. As of December 2017, installed capacity of rooftop solar was only ~2.1 GW, which means that ~9 GW would need to be installed every year to reach the 40 GW target by 2022 i.e. the rooftop solar installation need to increase by 32 times. Filling this gap between the current instalment and the 40 GW goals will require an estimated investment of USD 39 billion.

The government with the help of MNRE have formulated a number of policies for these installations to undertake:

1) Net metering: 29 states and 7 union territories have notified grid connectivity regulations with provision for net/gross metering but on-the-ground implementation remains patchy.

2) Subsidy for residential, institutional and government consumers: Rooftop solar projects attract a subsidy based incentive scheme depending on the target costumers for the solar rooftops. Residential rooftops attract 30% capital subsidy whereas government projects attract an additional 30% capital subsidy.

3) Boost in government demand: In order to push rooftop solar projects in the country government has issued statement where all government institution and building will be power by solar power using solar rooftops

The Government of India, with assistance from multilateral financial institutions such as Asian Development Bank, The World Bank and New Development Bank, has earmarked US $ 1,470 million of concessional credit lines for the rooftop solar market.

5) Building bye-laws: The Government of India has recommended mandatory rooftop solar installations for buildings exceeding specified size and/or power consumption thresholds under the model Building Bye Laws. Four states and union territories - Uttar Pradesh, Haryana, Chandigarh and Chhattisgarh have adopted these regulations so far.

http://www.bridgetoindia.com/wp-content/uploads/2017/05/ BRIDGE-TO-INDIA_India-Solar-Handbook_2017-1.pdf

EPC BUSINESS

In the EPC segment the company leverages extensive 35 year experience it has in the solar and the power sector and effective and efficient EPC solutions to potential solar power generator. Realizing huge opportunity available on a pan India basis in the EPC segment the company has executed more than 60 MW in the EPC till date while staying focused in its asset light model.

In FY18 the company has executed 17 MW of solar plants through EPC.

a) SEGMENTAL PERFORMANCE

Ujaas Energy has three segments of business wise Transformer, Solar Power Plant Operation and Manufacturing & Sale of Solar Power Systems. In fiscal 2015, 2016, 2017 & 2018 revenue from solar power plant operation was INR 2,177.63 lakhs, INR 2,995.27 lakhs, INR 4,285.67 lakhs & INR 3,155.84 lakhs respectively. Further, in Fiscal 2015, 2016, 2017 & 2018 revenue from manufacturing and sale of solar power system was INR 8,476.89 lakhs, INR 24,716.45 lakhs, INR 44,349.11 lakhs & INR 30,261.47 Lakhs respectively.

Source: Results on BSE

b) OUTLOOK

India power demand is at an all-time high where it is estimated that the country will require an additional power supply of 450 GW. In the overall power scenario solar is at the forefront with the highest multiple of growth to be expected from the solar sector. The government target of total solar installation of 100GW by the year 2020 opens up a huge market for the company and all other sector players as well. The future of solar power looks bright where solar power has reduced to an all-time low of INR 2.44 Kwh which is lower compared to the conventional source of power like thermal or coal. If retail electricity is not subsidised, it is usually more economical to produce solar on rooftop and consume the clean power in-house where solar has an unmatched advantage of generation of power at the point of consumption. The reduction in the costs for setting up a solar power plant has made this technology attractive for many users and investors around the world.

With various types of solar projects like utility scale solar projects and rooftop solar projects, the company has a very strong market opportunity in the rooftop solar space especially in the residential rooftop segment where the company is the one of the largest player in the organized rooftop market where the company is able to convert its megawatts economics to kilowatts economics with presence across the country in the rooftop segment.

c) RISK AND CONCERNS

While the company faces traditional business risks such as un-anticipated labour costs, market risks such as interest rates, operational risks such as supplier/distributor problems and execution challenges and changes in government regulations, no major risks are foreseen. But in FY18 the company has faced one particular risk which resulted in the low revenue of the company that is the GST confusion where there is a huge confusion in the sector over the applicable rate of the GST for developing a solar plan. The company is at the forefront over seeking clarity from various ministers and tribunals both at the centre and the state level. Another risk that the company and the overall sector faces is the fear of anti-dumping duty and safeguard duties on solar imports.

Additionally, the company continuously monitors business and operational risks through an efficient risk management system. All key functions and divisions are independently responsible to monitor risks associated within their respective areas of operations such as production, insurance, legal and other issues like health, safety and environment.

d) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an effective internal control and risk mitigation system, which is constantly assessed and strengthened with new/revised standard operating procedures. The Companys internal control system is commensurate with its size, scale and complexities of its operations. The internal audit is entrusted to Messrs S.K. Malani & Co. (FRN: 159090W), a reputed firm of Chartered Accountants. The main thrust of internal audit is to test and review controls, appraisal of risks and business processes, besides benchmarking controls with best practices in the industry. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strengthen the same. The Company has a robust Management Information System, which is an integral part of the control mechanism. The Audit

Committee of the Board of Directors, Statutory Auditors and the Business Heads are periodically apprised of the internal audit findings and corrective actions taken. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee.

e) QUALITY MANAGEMENT SYSTEMS

Your company has successfully implemented SAP Business solution as an accounting software. Company has installed different modules of SAP like FI (Finance), MM (Material Management,), SD (Sales & Distribution), PS (Project System), QC (Quality Control), and HR (Human Resource). Further the company continued to be certified under ISO: 9001:2008 by International Organization for Standardization. The Quality Management System in the Company is well defined and is well in place. This will enable your company to meet the challenges related with Information systems, Controls, Planning and Quality.

f) CAUTIONARY STATEMENT

Statement made in the management discussion and analysis report as regards the expectations or predictions are forward looking statements within the meaning of applicable Laws and Regulations. Actual performance may deviate from the explicit or implicit expectations.

g) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

(Figures in Millions)

Particulars FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Total Income* 339 370 2,480 5,332 1,133 2,795 4,907 3,374
Operating Expenses 305 336 1,972 4,341 688 2,146 4,156 2,938
EBTDA 34 34 508 991 445 649 751 436
EBITDA Margins (%) 10.03% 9.19% 20.48% 18.58% 39.28% 23.22% 15.30% 12.92%
Finance Cost 19 10 50 91 180 155 184 169
Depreciation 3 4 19 47 81 80 81 82
12 20 439 853 184 414 486 185
Taxation 4 11 169 479 67 205 121 15
8 9 270 374 117 209 365 170
2.36% 2.43% 10.89% 7.01% 10.33% 7.48% 7.44% 5.04%
Diluted EPS 0.65 0.53 1.35 1.87 0.59 1.04 1.82 0.85

h) Material developments in Human Resources / Industrial Relations front, including number of people employed:

Ujaas Energy has a very strong board, first line management and second line management, comprising of various Business Heads, GM and Vice Presidents and below them we have an effective team of managers. The company will have huge openings in the coming years as the company is expecting enormous growth and will need supporting hands for proper management. The total number of people employed in our Company are 441 as on 31st March, 2018.