Ujaas Energy Ltd Management Discussions.

Global Economic Overview

The financial year 2020 started off with rising issues on trade between the worlds two largest economies - US and China. US and China together account for 40% of the global GDP and the trade disputes between them had an adverse effect on the global economy and sentiment overall. This impact was not only seen in the commodities and financial markets (equities, bonds, currencies), but it also impacted the output and profitability of firms, leading to deterred investment decisions of businesses. The global economy was struggling to regain a broad-based recovery as a result of the lingering impact of growing trade protectionism, trade disputes among major trading partners, falling commodity and energy prices. Brexit was the other major event that took place in January 2020, after the public referendum in 2016 and years of negotiations. The impact of Brexit is expected to hurt the UK economy, primarily due to 2020 having the weakest export growth since 2009 and business investments contracting by 0.7%.

The year ended with outbreak of Covid-19 pandemic. Covid-19 effects came in as a supply side shock first with disruption in global supply chains but with time, the shutdown of manufacturing units across the world had put challenges on the demand side where the availability of goods and services was impacted. Advanced economies as a group are likely to experience an economic contraction in 2020 of about 7.8% of GDP, with the U.S. economy projected by the IMF to decline by 5.9%, about twice the rate of decline experienced in 2009 during the financial crisis. The rate of economic growth in the Euro area is projected to decline by 7.5% of GDP. The IMF also argues that recovery of the global economy could be weaker than projected as a result of: lingering uncertainty about possible contagion, lack of confidence, and permanent closure of businesses and shifts in the behavior of firms and households. The global trade volumes are projected to decline between 13% and 32% in 2020 as a result of the economic impact of COVID-19.

Nevertheless, it has been a challenging time for governments and their citizens alike with fighting off against the spread of the virus and, passing huge stimulus packages to support people and businesses. Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health.

Sources:

https://seekingalpha.com/article/4330755-global-economy- plunged-recession-in-february-2020

https://asiatimes.com/2020/03/global-economy-faces-a-us2- trillion-hit/

https://economictimes.indiatimes.com/news/economy/indica tors/gdp-growth-in-q3-likelv-to-stav-flat-at-4-5- economists/articleshow/74327397.cms

https://economictimes.indiatimes.com/news/economy/indica tors/retail-inflation-hits-a-near-6-year-high-of-7-59-per-cent- in-ianuarv/articleshow/74101089.cms?from=mdr https://www.spglobal.com/en/research-insights/articles/the- u-s-china-trade-war-the-global-economic-fallout

https://www.livemint.com/news/india/us-china-trade-war- impact-india-gained-755-million-additional-exports-to-us-

11573047787150.html

Indian Economic Overview

The Indian economy started FY20 on a dull note owing to the ongoing liquidity crisis. In order to achieve the governments vision of making India a USD 5 trillion economy by 2025, the finance ministry slashed domestic corporate tax rates to 25.17% during mid-year. Considering the conditions attached to this rate, few companies have taken the benefit of the lower rate.

The Current Account Deficit narrowed primarily on account of lower non-oil, non-gold imports and robust services exports supported by software, travel and financial services. Indias crude oil import bill fell by 9% Y-o-Y to $102 billion in 2019-20 on account of price crash; though volumes remained fairly unchanged. Foreign fund outflows and the Feds grim prognosis for the US economy further weighed on the rupee as it touched 77 against US dollar in April 2020. The CPI inflation stands at 5.84% YoY in March 2020 higher from 2.86% Y-o-Y in March 2019. As per ICRA, CPI inflation is expected to cool to around 4.0% with downside bias in FY2021 from 4.8% in FY2020 due to likely muted demand for non-essential items, weak pricing power for producers and favorable base effect for food items. According to the Indian Budget 2020, the real GDP growth was estimated at 5.0% in the financial year 2019-20 but due to the recent COVID-19 crisis has ensured that FY2021 will be a challenging one for India and the world. As per Fitch ratings, Indias GDP growth is likely to slip to 0.8% for FY21 on account of expected fall in consumer spending to 0.3% from 5.5% a year ago and an expected contraction of 3.5% in fixed capital investments.

Sources:

https://economictimes.indiatimes.com/news/economy/indicators/view-coronavirus-threat-could-spark-a-mega- recession/articleshow/74633541.cms?from=mdr

https://www.indiabudget.gov.in/doc/Budget at Glance/bag 1.pdf

https://www.ibef.org/economv/domestic-investments

https://www.livemint.com/market/mark-to-market/india-s-auto-industrv-braces-for-a-hit-on-import-of-parts- 11582481191524.html

https://www.forbesindia.com/article/leaderboard/coronavir us-puts-brakes-on-india039s-auto-sector/58175/1

Global Renewable Overview

The renewable generation capacity across the world increased by 176 gigawatt (GW) in 2019, up by 7.4 per cent, while solar energv took the largest share with an increase of 98 GW, according to the International Renewable Energy Agency (IRENA). Solar energy continued to lead capacity expansion, with an increase of 98 GW or an increase by 20 per cent, followed by wind energy with 59 GW. Hydropower capacity increased by 12 GW, and bioenergy by 6 GW. Geothermal energy increased by just under 700 MW, IRENA report said. Solar and wind energy continued to dominate renewable capacity expansion, jointly accounting for 90 per cent of all net renewable additions in 2019.

It added that in 2019 the global renewable generation capacity amounted to 2,537 GW where hydropower accounted for the largest share of the global total, with a capacity of 1,190 GW. Wind and solar energy capacities were at 623 GW and 586 GW, respectively. Whereas, other renewables included 124 GW of bioenergy, 14 GW of geothermal plus, and 500 MW of marine energy," the report added. Asia accounted for 54 per cent of new capacity in 2019, increasing its renewable capacity by 95.5 GW to reach 1.12 TW -- 44 per cent of the global total.

We can estimate that total global use of renewable energy will rise by about 1% in 2020. Despite supply chain disruptions that have paused or delayed activity in several key regions, the expansion of solar, wind and hydro power is expected to help renewable electricity generation to rise by nearly 5% in 2020. This growth is smaller than anticipated before the Covid 19 crisis, however. A faster recovery would have a minimal impact on renewable energy production, though it would enable more new renewables- based projects to be completed. If recovery is slower, renewable energy would still increase, making renewables the energy source the most resilient to the Covid 19 current crisis.

Source: https://www.iea.org/reports/global-energy-review- 2020/renewables

https://energy.economictimes.indiatimes.com/news/renewa ble/global-renewable-energy-capacity-grew-7-4-per-cent- in-2019-solar-takes-biggest-share/74958583

India Renewable Overview

Installed renewable power generation capacity has increased at a fast pace over the past few years, posting a CAGR of 17.33 per cent between FY16-FY20. India added a record 87 GW in renewable energy capacity in FY20. As on May 31, 2020, installed renewable energy capacity stood at 87.26 GW, of which, solar and wind comprised 34.91 GW and 37.75 GW, respectively. Biomass and small hydro power constituted 9.86 GW and 4.68 GW, respectively. The International Energy Agencys World Energy Outlook projects a growth of renewable energy supply to 4,550 GW in 2040 on a global basis.

Power generation from renewable energy sources (excluding large hydro) in India reached record 127.01 billion units in FY20. The country ranks fourth in the world in terms of total installed wind power capacity. Government of India is aiming to achieve 225 GW of renewable energy capacity by 2022, much ahead of its target of 175 GW as per the Paris Agreement. Government plans to establish renewable energy capacity of 500 GW by 2030.

Source: IBEF

Overview of the Global Solar Sector

Global solar installations will continue double-digit growth rates into the new decade, according to the new 2020 Global Photovoltaic (PV) Demand Forecast by IHS Markit. New annual installations in 2020 will reach 142 gigawatts (GW), a 14% rise over the previous year. The expected 142 gigawatts are seven times that of the entire capacity that had been installed by the start of the prior decade (20 GW in 2010). The growth has been substantial in terms of geographic reach as well. There were 7 countries with more than 1 GW of installed capacity in 2010, most of them confined to Europe. IHS Markit expects more than 43 countries to meet that threshold by the end of 2020.

In China Solar demand in 2020 will be lower than historic installation peaks of 50 GW in 2017. Demand in China is in a transitional phase as the market moves towards solar being unsubsidized and competing with other forms of generation and there is some lingering uncertainty while awaiting the release of the new 14th Five-Year Plan to be announced next year. On the other hand, United States Installations are expected to grow 20% in 2020, consolidating the United States position as the worlds second largest market. California, Texas, Florida, North Carolina and New York will be key drivers of U.S. demand growth over the next five years. In Europe after nearly doubling installations in 2019, Europe is expected yet to continue growing in 2020, adding more than 24 GW—a 5% increase over 2019. Spain, Germany, Netherlands, France, Italy and Ukraine will be leading sources of demand, accounting for 63% of total EU installations in the coming year.

Considering ample resource availability, significant market potential and cost competitiveness, solar PV is expected to continue driving overall renewables growth in several regions over the next decade. From todays levels, IRENAs REmap analysis shows that solar PV power installations could grow almost six fold over the next ten years, reaching a cumulative capacity of 2,840 GW globally by 2030 and rising to 8,519 GW by 2050.

Source:

https://www.irena.org/- /media/Files/IRENA/Agencv/Publication/2019/Nov/IRENA

Future of Solar PV 2019.pdf

https://www.renewableenergyworld.com/2020/01/10/142-gw- of-solar-capacity-will-be-added-to-the-global-market-in- 2020-says-ihs/#gref

Overview of Indian Solar Sector

In 2019, India installed 7.3 GW of solar power across the country, establishing its position as the third-largest solar market in the world. Off-grid renewable power capacity has also increased. Due to its favourable location in the solar belt (400 S to 400 N), India is one of the best recipients of solar energy with relatively abundant availability. Growth in solar power installed capacity is expected to surpass the installed capacity of wind power, reaching 100 GW by 2022. A total of 42 solar parks were approved in India until May 2019.

Government initiatives

Union Budget 2020-21 Ministry for New and Renewable Energy allocated Rs 5,753 crore.

National Solar Mission: This mission has targeted to deployment of 100 GW of solar power by 2022. Various incentives are being offered under the scheme which are; Zero import duty on capital equipment, raw materials, Low interest rates and Priority Sector Lending and Single window mechanism for all related permissions.

Wind Bidding Scheme: This scheme allowed for setting up 1000 MW Inter State Transmission Systems (ISTS) connecting wind power projects. Projects of 50 MW and above will be connected to ISTS point. Inter-state distribution of wind power started in August 2018. As of December 2019, 15,100 MW of wind power projects were issued, out of which, projects of 12,162.50 MW capacity have been awarded.

Green Energy Corridor: This project refers to evacuation of renewable energy from generation points to the load centres by creating intra-state and inter-state transmission infrastructure. India received a US$ 1.15 billion soft loan from German Development Bank for implementation of green corridors project. 40 per cent of Intra state and 70 per cent of inter-state transmission schemes will be funded through the soft loan. IREDA plans to set up a Green Window with an investment of US$ 20 million to provide boost to the renewable energy sector.

Source: https://www.ibef.org/download/Renewable-Energy- June-2020.pdf

Rooftop Business

The Government of India has set a target of 40 gigawatts (GW) of rooftop solar capacity to be installed by 2022. As of December 31, 2019, total rooftop solar capacity stood at 5.4GW1, well below the installation rate required. Nonetheless, the basic framework including net metering policies for rooftop solar arrays now exists across all states and the implementation of rooftop solar power installations has started in a true sense. Given such momentum, this sector should be a key economic growth priority post the COVID-19 pandemic.

To promote the deployment of solar rooftop capacity, the Ministry of New and Renewable Energy (MNRE) implemented in 2015 the "Grid Connected Rooftop and Small Solar Power Plants Programme (Phase I)" under which a subsidy of up to 30% of the benchmark cost was provided for general category states, and up to 70% of the benchmark cost for special category states (the North Eastern States including Sikkim, Uttarakhand, Himachal Pradesh, Jammu and Kashmir and Lakshadweep, Andaman and Nicobar Islands) for installation across the residential, institutional and social sectors.

To achieve the 40GW rooftop target by 2022, the government also introduced the Rooftop Phase II Programme in August 2019. Under this program, additional rooftop solar capacity of 18GW was targeted through incentives for distribution companies (discoms) and 4GW was targeted for the residential segment, with central financial assistance of 40% of project cost for a system size of up to 3 kilowatts (kW).

Source:

https://ieefa.org/wp-content/uploads/2020/07/Untapped- Opportunities-in-Indias-Rooftop-Solar-Market July-2020.pdf

Solar Park Scheme in India

Indias renewable capacity additions were expected to grow on average at 20-25GW in line with the target of 175GW by FY2021/22. However, less than 10GW of on-grid renewable capacity was added in FY2018/19. This was expected to grow to 12-13GW in FY2019/20, but have only managed to reach 9.4GW thanks to global lockdowns enforced from March 2020 because of the COVID-19 pandemic. (An additional estimated 2GW of behind-the-meter rooftop solar capacity was added in FY2019/20.)

Amid myriad policy and project execution issues, Indias utility-scale solar park model has firmly stood its ground. India now houses multiple ultra-mega solar parks with capacity of more than 1GW, and two of them are the largest commissioned in the world to date. The solar parks in India continue to attract global capital and some of the most renowned domestic and international renewable energy developers. India pioneered the concept of the ultramega power plant (UMPP) in a single solar industrial park.

Source: https://ieefa.org/wp-content/uploads/2020/05/Indias- Utility-Scale-Solar-Parks-Success-Story May-2020.pdf

Challenges & Opportunities

Challenges:

• Every state has different regulatory policy and framework definitions of an RPO. The RPO percentage specified in the regulatory framework for various renewable sources is not precise.

• Third party sale (TPS) is not allowed because renewable generators are not allowed to sell power to commercial consumers. They have to sell only to industrial consumers. The industrial consumers have a low tariff and commercial consumers have a high tariff, and SRCS do not allow OA. This stops the profit for the developers and investors.

• The initial unit capital costs of renewable projects are very high compared to fossil fuels, and this leads to financing challenges and initial burden.

• There are uncertainties related to the assessment of resources, lack of technology awareness, and high-risk perceptions which lead to financial barriers for the developers.

• Power purchase agreements (PPA) signed between the power purchaser and power generators on predetermined fixed tariffs are higher than the current bids.

Source:

https://energsustainsoc.biomedcentral.com/articles/10.1186 /s13705-019-0232-1

Opportunities

• India is estimated to have renewable energy potential of 900 GW from commercially exploitable sources - Solar energy: 750 GW; Wind power1: 102 GW; Bioenergy: 25 GW; and Small Hydro: 20 GW. Recognizing this potential, a target of 175 GW of renewable energy capacity by 2022 has been fixed. Renewable energy capacity is estimated 500 GW by 2030. In India, there is an estimated potential of about 8,000 MW of tidal energy. Around 15,000 MW of wind-solar hybrid capacity is expected to be added between 2020-2025.

• Indias power demand has been rising at a fast pace. It is estimated that India will require an additional power supply capacity of 450 GW by 2034. The peak power demand of the country reached 183.80 GW in FY20. It is estimated that this demand will rise to 295 GW by 2021-22 and 690 GW by 2035-36.

• It has been estimated that renewable will comprise 49 per cent of Indias power generation by 2040. Over the last few years there has been an increase in percentage contribution of renewable energy to total installed capacity. In 2013- 14, the contribution was 12.92 per cent, which increased to 23.51 per cent by March 2020. India aims to achieve a total of 175 GW of installed renewable energy capacity by 2022.

Source: https://www.ibef.org/download/Renewable-Energy-June- 2020.pdf

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. Between 2012-13 and 2018-19, the transmission line length grew at a compounded annual growth rate of over 7.5 per cent and substation capacity grew at about 11.8 per cent. The pace of expansion is expected to continue in the future to meet the governments renewable energy targets and 24^7 power for all consumers. A conductive policy framework has helped the transmission sector to develop consistently at a significant growth rate. The growth is likely to continue over the next few years to meet future peak load, which is expected to reach 235 GW by 2021-22. Further, significant renewable energy capacity is likely to be added in the next few years against the backdrop of the governments 175 GW by 2022 target.

Source: https://www.electricalindia.in/transmission-sector- on-the- move/#:~:text=The%20transmission%20network%20in%20 India,provide%20connectivitv%20to%20generation%20proi ects.&text=The%20power%20transmission%20segment%20 is,attractive%20infrastructure%20investment%20in%20Indi a.

EPC BUSINESS

In the EPC segment the company leverages extensive 37-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 is executing more than 67MW in the EPC till date while staying focused in its asset light model.

a. SEGMENTAL PERFORMANCE

Ujaas Energy has two segments of business Wise Solar Power Plant Operation and Manufacturing & Sale of Solar Power Systems. In fiscal 2016, 2017, 2018, 2019 & 2020 revenue from solar power plant operation was INR 2,995.27 lakhs, INR 4,285.67 lakhs, INR 3,155.84 lakhs, INR 4,507.40 lakhs & INR 2,918.10 lakhs respectively. Further, in Fiscal 2016, 2017, 2018, 2019 & 2020 revenue from manufacturing and sale of solar power system was INR 24,716.45 lakhs, INR 44,349.11 lakhs, INR 30,261.47 lakhs, INR 11,325.15 Lakhs INR & 1,818.82 lakhs respectively.

b. OUTLOOK

The Government is committed to increased use of clean energy sources and is already undertaking various large-scale sustainable power projects and promoting green energy heavily. In addition, renewable energy has the potential to create many employment opportunities at all levels, especially in rural areas. The Ministry of New and Renewable Energy (MNRE) has set an ambitious target to set up renewable energy capacities to the tune of 175 GW by 2022, of which about 100 GW is planned for solar, 60 GW for wind and other for hydro and bio among other. Indias renewable energy sector is expected to attract investment worth US$ 80 billion in the next four years. About 5,000 Compressed Biogas plants will be set up across India by 2023.

It is expected that by 2040, around 49 per cent of the total electricity will be generated by renewable energy as more efficient batteries will be used to store electricity, which will further cut the solar energy cost by 66 per cent as compared to the current cost. Use of renewable in place of coal will save India Rs 54,000 crore (US$ 8.43 billion) annually. Renewable energy will account for 55 per cent of the total installed power capacity by 2030.

Source:

https://www.ibef.org/industrv/renewable-energy.aspx

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 FY20 the company has faced difficulty due to ambiguity of tax rates applicable to Engineering procurement & construction (EPC) Contacts for Solar Power plants under GST Act, many retrospective changes in charges of Open Access, change in Net metering laws in Rooftop projects and many more.

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 M/s 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 Chairperson 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 Fl (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 regaids 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 FINANCIALPERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

(Figures in Millions)
Particulars FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Total Income* 370 2,480 5,332 1,133 2,795 4,907 3,374 1,617 545
Operating Expenses 336 1,972 4,341 688 2,146 4,156 2,938 1357 592
EBITDA 34 508 991 445 649 751 436 260 -47
EBITDA Margins (%) 9.19% 20.48% 18.58% 39.28% 23.22% 15.30% 12.92% 16.08% -8.59%
Finance Cost 10 50 91 180 155 184 169 165 139
Depreciation 4 19 47 81 80 81 82 83 79
Profit Before tax 20 439 853 184 414 486 185 12 -265
Taxation 11 169 479 67 205 121 15 (54) -131
Profit After tax 9 270 374 117 209 365 170 66 -134
PAT Margins (%) 2.43% 10.89% 7.01% 10.33% 7.48% 7.44% 5.04% 4.08% 24.64%
Diluted EPS 0.53 1.35 1.87 0.59 1.04 1.82 0.85 0.33 -0.67

including Other Income

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 124 as on 31st March, 2020.