Ujaas Energy Ltd Management Discussions.

1. GLOBAL ECONOMY OVERVIEW

The global economy is in the midst of a decade long slow growth environment characterized by an imminent productivity growth crisis. The looming labor shortage in mature economies and skill deficiencies in emerging markets will add further challenges to global economic prospect. Global financial markets continue to face elevated levels of uncertainty notwithstanding the resilience to the outcomes of Brexit referendum and the US election. A negative feedback loop arising from productivity and global trade slowdowns and rising protectionism is adding to the pessimistic outlook on global recovery even as the uptick in US interest rates poses a significant risk to emerging market economies.

The forces shaping the global outlook both those operating over the short term and those operating over the long term point to subdued growth for 2016 and a gradual recovery thereafter, as well as to downside risks. These forces include new shocks, such as Brexit, U.K. referendum result in favor of leaving the European Union; ongoing realignments, such as rebalancing in China and the adjustment of commodity exporters to a protracted decline in the terms of trade; and slow-moving trends, such as demographics and the evolution of productivity growth; as well as noneconomic factors, such as geopolitical and political uncertainty. The subdued recovery also plays a role in explaining the weakness in global tradeand persistently low inflation.

Among advanced economies, activity rebounded strongly in the United States after a weak first half of 2016, and the economy is approaching full employment. Output remains below potential in a number of other advanced economies, notably in the euro area. Preliminary third-quarter growth figures were somewhat stronger than previously forecast in some economies, such as Spain and the United Kingdom, where domestic demand held up better than expected in the aftermath of the Brexit vote. The growth rate in China was a bit stronger than expected, supported by continued policy stimulus.

Goldman Sachs expects global growth for 2017 to be 3.5%. US has led the improvement by growing at 2-3% growth, Fiscal easing is also likely under the Trump organisation, Europes growth forecast is 1.5%, it is consistent with the gradual labour market improvement, Japansgrowth rate is inthe range of1%, cause of the weakness in the demographics, and decline in the working age population.

China is expected to grow by 6 and a 1/2 percent, long term concerns remain due to the continued rapid debt growth, which has a potential for financial weakness. Commodity producers saw a lot of economic pain in 2015-16 but there is some gradual recovery.

2. INDIAN ECONOMY OVERVIEW

Indias economy is slowly gaining momentum, with an expected GDP growth of 7.3 and 7.5 per cent in 2016 and 2017, respectively. Despite some delays in domestic policy reforms and enduring fragilities in the banking system, investment demand is supported by the monetary easing cycle, rising FDI, and government efforts towards infrastructure investments and public-private partnerships.

Economic activity is beginning to firm after demonetization shocked the economy in the October to December period. The manufacturing PMI crossed into expansionary territory in January and imports rebounded. The governments bold demonetization program resulted in massive cash shortages and economic disruptions through the economy at the end of last year and growth is expected to have slowed to a multi-year low in Q3 FY 2016. Despite the backdrop of more moderate growth, the government stuck to a market friendly budget for FY 2017. The budget pursued growth-supportive policies while targeting a narrower deficit of 3.2% of GDP and was met with a positive market reaction.

With the government taking steps to improve ease of doing business and relax regulations, foreign direct investment or FDI into the country surged 60 per cent to $4.68 billion in November last year. During the period, India received maximum FDI from Singapore, Mauritius, the UK, the US, the Netherlands and Japan, an official said.

The Reserve Bank of India (RBI) signalled an unexpected early end to the two-year-old rate cut cycle, citing concerns of resurgent inflation. The monetary policy committee (MPC), headed by governor Urjit Patel, decided unanimously to shift the policy stance from "accommodative" to "neutral" and left the repo rate at 6.25%. The MPC said it was still assessing the transitory effects of demonetization on inflation, and the output gap. It also cited significant upside risks to inflation, such as rising crude prices and exchange rate volatility.

The agriculture sector recorded very high growth as the favourable monsoon led to high production of kharif crops and mounting supplies in the markets. The slowdown in the services sector was because of the drag in financial and real estate services. The slowdown in real estate is also reflected in the deceleration in construction growth. While the impact of de-monetization was not visible in the Q3 data, the slowdown in economic activity is reflected in data of the past three quarters. With a smart and pragmatic Budget, greater government-policy focus on rural development and efforts to widen financial inclusion also augur well for the future of consumption.

3. GLOBAL RENEWABLE OVERVIEW

At the end of 2016, global renewable generation capacity amounted to 2,006 GW. Hydro accounted for the largest share of the global total, with an installed capacity of 1,122 GW. Three-quarters of this was in large-scale plants of over 10 MW. Wind and solar energy accounted for most of the remainder, with capacities of 467 GW and 296 GW respectively. Other renewables included 110 GW of bioenergy, 13 GW of geothermal energy and about 500 MW of marine energy (tide, wave and ocean).

Similar to last year, renewable generation capacity increased by 161 GW or +8.7% during 2016, continuing the trend since 2009 of about 8-9% annual capacity growth. Solar energy took first place, with a capacity increase of 71 GW (+32%), followed by wind energy with an increase of 51 GW (+12%). Hydropower and bioenergy capacities increased by 30 GW (+3%) and 9 GW (+9%) respectively. Geothermal energy increased by just under 1 GW. Renewable capacity expansion continues to be driven mostly by new installations of solar and wind energy, although 2016 was the best ever year for growth in bioenergy generating capacity.

Asia accounted for 58% of new capacity again in 2016, resulting in a total of 812 GW (41% of global capacity). Asia was also the fastest growing region, with a +13.1% increase in renewable capacity. North America overtook Europe in capacity expansion, with an increase of 24 GW (+7.8%) compared to an increase of 21 GW (+4.4%) in Europe. Renewable capacity growth in Europe remains subdued, with more than half of European countries reporting little or no expansion in 2016. The other notable development was the installation of 4.1 GW of new renewable capacity in Africa (twice as much as last year), giving it second place in capacity growth in 2016.

4. INDIAN RENEWABLE OVERVIEW

The Union Government scaled-up the target of renewable energy capacity over 5 times to 175 GW by 2022. This includes 100 GW from solar energy, 60 GW from wind energy, 10 GW from bio-power and 5 GW from small hydro-power.

In 2016-17 financial year, renewable power projects output rose by 26%, which makes Indias renewable energy sector as the fastest growing in the world. India is expected to be the third biggest solar market from 2018 onwards after China and United States of America.

The latest data, provided by the Ministry of New and Renewable Energy (MNRE) and analysed by Mercom Capital Group, show a steady growth in renewable energy installations in India, which as of April 2017 account for 17.5 % of the total energy source.

Grid connected renewable energy has seen a growth of 91% with a capacity addition of 22.6 GW during the three year period between 2014-17. This is almost twice compared to the capacity added i.e. 11.7 GW between 2011-14. The total installed capacity of grid renewable power stands at 57.26 GW, which accounts for 17.5% of grid power from all renewable resources. This 57.26 GW grid renewable power installed capacity includes 32.3 GW from Wind power, 12.5 GW from Solar power, 4.38 GW from Small Hydro Power and 8.31 GW from Bio-Power.

However, solar is unparalleled in terms of the pace of installation growth. In April 2017, it reached 3.8% of total installed capacity up from 2.23% in April 2016. The surge in instalment comes on the wings of the rapidly falling solar tariffs, including the current record low of INR 2.44 ($ 0.037)/kWh accepted in the 500 MW Bhadla Phase-III Solar Park auction, successfully putting thermal behind solar on costs.

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.

Renewable energy would lead the next phase of growth in power capacity addition, as the government would be keen to gradually cut on import of fuel for generation of electricity. The magnitude of success and achieving set targets would solely depend on Governments timely intervention and provision of incentives.

Source: CARE

5. GLOBAL SOLAR OVERVIEW

2016 was a record year for solar. A total of 76.6 GW was installed and connected to the grid in 2016. Thats a 50% year-on-year growth over the 51.2 GW installed in 2015 and the third highest rate recorded since 2010, though at much higher absolute levels.

In 2016, global solar power capacity exceeded 300 GW, after it took the 200 GW mark the year before, and the 100 GW level in 2012. The total installed solar PV power capacity increased 33% to 306.5 GW by the end of 2016, up from 229.9 GW in 2015.

Asia also took first place in global solar capacity last year, reaching a total of 139 GW (+50 GW). The global solar market in 2016 was even more dominated by one country than it was the year before China, which connected 34.5 GW to the grid, a 128% increase over the 15.1 GW it added the year before. The 2016 PV installations were equal to a global market share of 45%. At the end of 2016, China had a total of 77.9 GW installed PV, owning one quarter of all global solar power generation capacity. 2016 was a disappointing year for solar in Europe. With only 6.7 GW of newly installed PV capacity, the European solar power market shrank by 22% year-on-year. In 2016, Asia-Pacific has become the largest solar-powered region in the world with 147.2 GW of total installed capacity, equal to a 48% global market share. The European solar pioneers, which still owned the major global portion in 2015, are now ranked second with a cumulative PV capacity of 104.3 GW and a 34% share.

Despite the gigantic 50% leap that resulted in topping the 70 GW level of total global installed PV in 2016 from the 50 GW range in 2015, there is a good chance that the market will further grow in 2017, even passing the 80 GW mark.

The quickly decreasing solar power costs continue to improve solars competitiveness. Basically, all solar tenders awarded since 2016 are lower than the price guarantee the UK government signed for the Hinkley Point C nuclear power plant last year. A new world-record low 25-year solar power supply contract was awarded in Abu Dhabi in 2016 for 24.4 USD/MWh. The latest Levelized Cost of Electricity (LCOE) calculations of US investment bank Lazard Capital clearly demonstrate that utility-scale solar is today already cheaper than new combined cycle gas turbines (CCGT), coal and nuclear power plants.

Source: GMO

6. INDIAN SOLAR OVERVIEW

Solar technologies have improved by leaps and bounds over the last decade, and 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. Solar panels have become smaller and more effective than ever before. Their efficiency levels, which is measured by amount of sunlight absorbed and converted into electricity, have increased substantially on account of rapid improvement in light capture and conversion technology. Also, the new improved solar design provides greater architectural flexibility, better consistency and consumes less space.

Solar Power contributes approximately 12.5GW out of the total installed renewable energy capacity of 51.36 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 caused a fall in project capital cost from ~Rs.300mn/MW in FY08 to ~Rs.50mn/MW. 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.

Indias total installed rooftop solar capacity is estimated at 1,247 MW as of December 31, 2016. Capital Expenditure (CAPEX) route accounts for nearly 84% of total installed capacity but the Operating Expenditure (OPEX) model has been gaining ground in the last couple of years.

Source: IIFL, CARE, MNRE & Mercom India

a. Challenges and Opportunities i. Solar RPO Regulations

Through the amendments made in National Tariff Policy in 2016, the government increased its focus on renewable energy, especially solar. As per the amendments, the solar RPO target for FY22 has been increased to 8% of the total electricity consumption (excluding Hydro power) as against 3% earlier, which will act as an enabler for the solar power sector. However, enforcement of RPO and compliance of the same remains a key challenge as most of the states have been unable to meet the targets in recent years owing to poor financial health of majority of the state discoms.

Till March 2017, 27 states have signed the MoU under the UDAY scheme. Structural reforms for the discoms including the impact of the UDAY scheme on the operating performance and financial health of discoms would have an important bearing on the sector.

Source: CARE & Reconnectenergy

ii. Solar RECs

Renewable Energy Certificates (REC) is a market based instrument created to promote renewable energy and facilitate renewable purchase obligations (RPO).

Honorable 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 significantly from Floor Price of Rs 3,500 to Rs 1,000 and Forbearance Price of Rs 5,800 to Rs 2,400. Previously, in December 2014, the CERC had revised the solar REC prices from Rs 9,300 to Rs 13,400 to Rs 3,500 to Rs 5,800. The recent reduction was a result of falling tariffs in competitive bidding for solar energy and reducing costs for both solar and wind energy.

However, after this announcement, the Supreme Court has stayed trading in Renewable Energy Certificates (RECs), whose prices have been reduced by the Central Electricity Regulatory Commission (CERC). REC-generating companies had filed the petition in the court against the CERC action. The court also stayed the new price regime introduced by the CERC.

The matter has been moved to APTEL and it is expected that a favourable judgment will be passed shortly which will be in the benefit of improving RPO obligations.

The historical solar REC trading session is displayed in the table below:

iii. Transmission Infrastructure

The sectors growth and developers returns could be negatively impacted in case of curtailments or energy loss due to lack of transmission infrastructure to absorb the largely infirm renewable capacity addition. Therefore, investment in augmenting evacuation infrastructure to be abreast with the pace in renewable energy capacity coming up every year is very important. Investments and timely implementation of Green energy corridor, solar parks, success of the solar/wind hybrid policy in efficiently utilizing the transmission infrastructure are crucial.

iv. Change in Policy

Incentives currently offered by Government for the development of the Solar Energy sector include:

Solar components are exempt from excise duties and concession on import duties required to set up a solar plant.

Wheeling, banking and third party sales, buyback facility by states.

Guaranteed market through solar power purchase obligation for states.

Reduced wheeling charges as compared to those for conventional energy.

Special incentives for exports from India in renewable energy technology under renewable sector-specific SEZ.

A payment security mechanism to cover the risk of default by state utilities/discoms.

A subsidy of 30% of the project cost for roof top Photovoltaics (PV) and solar thermal projects.

Loans at concessional rates for off-grid applications.

From April 2017, the renewable sector will see the accelerated depreciation tax benefit at a maximum of 40 per cent under the Income Tax Act however benefit for a 10-year income tax holiday under section 80 IA which has been offered to solar projects so far has been withdrawn from April 2017 onwards. As solar has reached parity with conventional energy sources, which is evident in the accelerated adoption of solar power as an energy source, the management believes incentives are no longer required to sustain the industry. Thus, the management does not anticipate any significant impact from the reduction on the business.

Indias Finance Minister has confirmed a solar GST rate of 5

th

per cent at the 15 meeting of the GST Council held on June 03, 2017. The solar industry can now move forward and plan ahead based on the 5 percent rate. However, further clarification should be issued about what happens to current projects under development, including the change in law provisions. The management believes that the revised rate structure will not have any material negative impact on the industry because of the buffer afforded by sharp fall in equipment costs.

v. Rooftop Solar

Rooftop solar market in India has grown at a CAGR of 98% in the last four years. As of December 31, 2016, total installed capacity stands at 1,247 MW. Growth in this market is being primarily driven by improvement in price competitiveness of rooftop solar power vis-a-vis grid power.

Commercial and industrial (C&I) segment currently makes up for almost 63% of this market. The remaining 25% goes to residential and around 12% to government buildings. C&I segment has grown at a compounded annual growth rate (CAGR) of 103% in last four years.

Beyond the C&I segment, there is also a strong impetus on increasing rooftop solar deployment on government-owned buildings. The government rooftop solar segment has grown at a CAGR of 118% in last four years and now accounts of about 12% of the total rooftop market. Central government institutions have identified potential to install about 6 GW of solar capacity to meet their captive requirement for power.

In India, rooftop solar has maintained a 10-12% share of overall solar capacity. This is much lower than other key markets such as US, Germany, China, Spain and Australia.

Share of utility scale solar vis-a-vis rooftop solar

The government has taken the following steps to promote rooftop solar addition in India:

Government is expected to become a major demand source for rooftop solar in the coming years. All building facilities under different central government departments are being urged to adopt rooftop solar and a potential of 6 GW capacity has been identified so far. SECI has already announced 500 MW of tenders for such buildings.

Ministry of New and Renewable Energy has sanctioned INR 50 billion ($ 750 million) funding for 30% capital subsidy for rooftop solar for residential and institutional consumer segments. In addition, up to 30% subsidy is also available for government projects.

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.

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.

Source: Bridge to India

vi. EPC business

Identifying the booming opportunity available, the Company ventured into solar EPC in FY17, while following the companys motto of being asset-light. The company has been extremely successful in this venture having commissioned over 43 MW in FY17 through EPC.

Recently, the company has won its biggest project in this vertical having received an order from Hindustan Aeronautics Limited of 15 MW (AC).

a) Segment-wise or product-wise performance

Your company have three segments of business wise Transformer, Solar Power Plant Operation and Manufacturing & Sale of Solar Power Systems. In Fiscal 2014, 2015, 2016 and 2017, revenue from solar power plant operation was INR 2,321.52 lakhs, INR 2,177.63 lakhs, INR

2,995.27 lakhs and INR 3,113.14 lakhs. Further, in Fiscal 2014, 2015, 2016 and 2017, revenue from manufacturing and sale of solar power system was INR 48,063.35 lakhs, INR 8,476.89 lakhs and INR 24,716.45 lakhs and INR 44,330.42 lakhs respectively.

b) Outlook

The global market outlook for solar power is bright. Never before, was solar power as competitive as it is today. Utility-scale solar is cheaper than new fossil fuel plants and nuclear power generation plants in most regions of the world today. If retail electricity is not subsidised, it is usually more economical to produce solar on your rooftop and consume the clean power in-house. The costs for solar power continue to decrease, making this technology attractive for many users and investors around the world.

Being a market leader in the solar sector and having won orders from respected customers such as Hindustan Aeronautics Limited, Moil Limited, Oil India Ltd, Rashtriya Ispat Nigam Limited andAirport Authority of India, we expect to continue excelling and winning significant tenders in the future. The managements vision to erect and maintain 5 GW of solar power for our clients out of the 100 GW target by 2022 is on track and remains unchanged.

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 been supplier/distributor problems and execution challenges and changes in government regulation, no major risks are foreseen.

Additionally, the company continuously monitors business and operations 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

Your Company has an effective internal control and risk- mitigation system, which are 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 & Associates (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 have successfully implemented SAP

Business solution as accounting software. Company 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 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

(INR. Mn)
Particulars FY11 FY12 FY13 FY14 FY15 FY16 FY17
Total Income* 339 370 2,480 5,332 1,133 2,795 4,790
Operating Expenses 305 336 1,972 4,341 688 2,146 4,044
EBITDA 34 34 508 991 445 649 746
EBITDA Margin (%) 10.03% 9.19% 20.48% 18.58% 39.28% 23.22% 15.58%
Finance Cost 19 10 50 91 180 155 181
Depreciation 3 4 19 47 81 80 81
Profit Before Tax 12 20 439 853 184 414 484
Taxation 4 11 169 479 67 205 121
Profit After Tax 8 9 270 374 117 209 363
PAT Margin (%) 2.36% 2.43% 10.89% 7.01% 10.33% 7.48% 7.58%
Diluted EPS (INR) 0.65 0.53 1.35 1.87 0.59 1.04 1.82

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

Your company has very strong board, first line management

nd

and 2 line management, comprising of various Business Heads, GM and Vice Presidents and below them we have effective teams of managers. Your 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

st

Company were 402 as on 31 March, 2017.

For & On Behalf of the Board

S.S. Mundra Chairman & Managing Director DIN : 00113199

Place : Indore Date : 14.08.2017