zodiac energy ltd share price Management discussions

The discussion hereunder covers Companys performance and its business outlook for the future. This outlook is based on assessment of the current business environment and Government policies. The change in future economic and other developments are likely to cause variation in this outlook.

- ECONOMIC OUTLOOK:

• Global economic overview:

Global economic growth slowed to 3.2% in 2022 compared to 6% in the previous year. Challenges such as the Russian invasion of Ukraine, high inflation, Chinas pandemic-induced slowdown, a sharp increase in interest rates and liquidity constraints affected spending, trade and energy costs. The New York Fedpublished SOFR (Secured Overnight Financing Rate) increased ~460 bps to 4.9%. Global equities and bonds saw a substantial value drawdown. Global trade expanded at a slower pace. The S&P GSCI TR index reflected declines in various commodities, including crude oil and natural gas.

Geopolitical events and government actions enhanced market awareness regarding the challenges associated with a dependence on imported energy, global competition for gas supply and pricing links between natural gas and renewables. Consequently, governments developed policies to promote renewable energy build out and investment, prioritizing energy security and climate change. The US Inflation Reduction Act, a significant piece of legislation, allocated $369 billion towards green technology development and commercialization, triggering international competition to enhance renewables sectors. The European Commissions relaxation of state-aid rules simplified subsidies for various renewable technologies and their components. Initiatives like REPowerEU aimed to bolster energy security in the European Union by replacing Russian gas imports with renewables, hydrogen and biomethane. The UK planned energy reforms and increased policy support for renewables. The COP27 international climate conference, held in December 2022, brought together world leaders with the key aim of attaining global net zero emissions by midcentury and limiting the global temperature increase to a maximum of 1.5 degrees Celsius. Concurrently, the conference focused on accelerating the phase-out of coal and mobilizing an annual climate finance of at least $100 billion to support developing economies. This concerted global effort towards decarbonization spurred major economies to augment investments and raise renewable energy targets.

(Source: PWC report, EY report, IMF data, OECD data)

• Indian Economic Overview:

In 2022-23, India showcased robust economic growth, emerging as the second fastest-growing G20 economy with a growth rate of 7.2%. It climbed to become the

worlds fifth-largest economy, surpassing the UK and surpassed China to become the most populous nation. While unseasonal rains affected wheat harvest, the agriculture sector displayed a mixed performance, with rice production maintained and increased cultivation of pulses and oilseeds. The auto industry witnessed growth, except for a decline in two-wheeler sales. Non-performing assets of banks decreased and the country experienced steady domestic demand, along with increased imports and exports. Although foreign exchange reserves declined, inflation eased and industrial output grew at a slower pace. Indias ranking in the Ease of Doing Business index improved and per capita income saw a rise.

India is well-positioned in the global landscape, benefiting from economic challenges faced by Europe and the US. The production-linked incentive program is bolstering downstream sectors, positioning India as an alternative industrial hub to China. Projections indicate that India is poised to become the worlds third-largest economy by the end of the decade. Despite geopolitical tensions, global financial conditions and slowing external demand, positive elements exist within the global economy. Key economies, including India and China, are projected to drive a significant portion of global growth. While challenges persist, there is optimism regarding Indias business outlook and private investment.

Indias electric power capacity has grown by about 8% annually. The National Electricity Plan focuses on solar energy, with a projected growth rate of 20%. Plans for expanding coal capacity have been scaled and there is an emphasis on energy storage to enhance the usefulness of renewable energy sources. This shift aims to align Indias energy generation with sustainable practices. The Indian governments proactive implementation of programs and policies promoting green fuel, green energy, green farming, green mobility, green buildings and green equipment is driving the reduction of carbon intensity in the economy.

• Union Budget FY 2023-24 provisions:

The Indian Government emphasized green growth through programmes across economic sectors. The Finance Minister mentioned that India was moving forward firmly towards the ‘panchamrit goal and net-zero carbon emissions by 2070 to usher a green industrial and economic transition.

The Budget provided Rs 35,000 Crore for priority capital investments towards energy transition and net zero objectives and energy security. To steer the economy towards sustainable development, the Government will support the creation of battery energy storage systems with capacity of 4,000 MWH with Viability Gap Funding. Further, the Finance Minister announced that a detailed framework for pumped storage projects would be formulated.

It was reiterated that the National Green Hydrogen Mission, with an outlay of TI9/700 Crore, will facilitate transition of the economy to low carbon intensity, reduce dependence on fossil fuel imports and make the country assume technology and market leadership in this sunrise sector with a green hydrogen production target of 5 MMT by 2030. With this continued emphasis and these budget allocations, the renewable sector will be accelerated. The support for battery storage solutions will enable a faster adoption of renewable energy.

The Union Budget demonstrates support for the renewable energy sector. A budgetary allocation of Rs 7,327 Crore is designated for solar power projects, a substantial 48% increase compared to the previous year. The Ministry of New and Renewable Energy received funding of Rs 10,222 Crore. In the wind and other renewable energy programs, Rs 1,245 Crore was allocated, with an additional Rs 31 Crore dedicated to hydropower. The issuance of sovereign green bonds worth Rs 8,000 Crore reinforces Indias commitment to sustainable finance.

- GLOBAL RENEWABLE ENERGY SECTOR OVERVIEW:

Renewable capacity is poised to grow by 107 GW in 2023. This unprecedented surge exceeds Germany and Spains combined power capacity. The driving forces include robust policy support, energy security priorities and improved competitiveness against fossil fuels, outweighing challenges like higher costs and supply chain issues. Solar PV capacity dominates the global renewable capacity growth, contributing to two-thirds of the increase. Escalating electricity prices from the energy crisis prompted policymakers, particularly in Europe, to prioritize energy security and seek alternatives to imported fossil fuels. This shift favors solar PV, especially for quick installation of residential and commercial systems to meet surging demand for renewable energy.

By the end of 2024, the cumulative global renewable capacity is forecasted to surpass 4,500 GW, equivalent to the total power capacity of China and the United States combined.

As of now, renewable energy sources make up about 7% of the total global energy demand. However, this percentage is expected to increase significantly in the near future. Renewable energy sources are expected to surpass coal as the largest source of global electricity generation by early 2025. By 2026, the cumulative solar PV capacity is predicted to increase by almost 1,500 GW, surpassing natural gas as a source of energy. Furthermore, it is expected to overtake coal by 2027.

(Source: renewableenergyworld.com, UN Climate change, ETimes, statista, iea.org)

- INDIAN RENEWABLE ENERGY SECTOR OVERVIEW:

In November 2022, Our Honble Prime Minister, Shri Narendra Modi, announced Indias aim of achieving net zero emissions by 2070 at COP27 held in Glasgow. At the heart of Indias vision of a safe planet is a oneword Mantra - Lifestyle for Environment, that Prime Minister Modi set forth in our National Statement at COP26.

The governments COP26 objective:

• India will take its non-fossil energy capacity to 500 GW by 2030.

• India will meet 50% of its energy requirements from renewable by 2030.

• India will reduce the total projected carbon emissions by one billion tonnes from now till 2030.

• By 2030, India will reduce the carbon intensity of its economy by less than 45%.

• By the year 2070, India will achieve the target of Net zero.

India stands 4th globally in Renewable Energy Installed Capacity, 4th in Wind Power capacity and 4th in Solar Power capacity (as per REN21 Renewables 2022 Global Status Report).

In March, 2023, Ministry of New & Renewable Energy, Government of India, through its office memorandum has issued further granular targets to renewable energy implementation agencies for conducting renewable power bids/auctions. The target sets 50GW of annual bidding up to FY28 and specifically lays down quarterly targets for FY24. Besides, the Government announced Production Linked Incentive scheme (Tranche II) that could empower addition of 48 GW solar module manufacturing capacity in the next three years.

The governments encouragement to the renewable energy sector can be attributed to a variety of reasons and the growing population, urbanization and industrialization are certainly important factors. As the population of the country continues to grow, reaching an estimated 1.51 billion by 2030, the demand for energy is expected to rise rapidly. This will likely lead to an increase in greenhouse gas emissions and other negative environmental impacts associated with energy production. India will make up the biggest share of energy demand growth at 25% over the next two decades and it is expected to reach a value of 15,820 TWh by 2040. India has set ambitious targets to drive its transition to a sustainable future. These include reducing the carbon intensity of its economy by less than 45% by the end of the decade, achieving a cumulative 50% share of renewable energy in its electric power capacity by 2030 and aiming for net-zero carbon emissions by 2070.

To support these goals, India has outlined plans to produce five million tonnes of green hydrogen by 2030, facilitated by the development of 125 GW of renewable energy capacity. The country has also approved the establishment of 57 solar parks with a combined capacity of 39.28 GW. In addition, India aims to reach a wind energy target of 30 GW from offshore installations by 2030, with potential sites already identified. (Source: iea.org).

- INDUSTRY STRUCTURE AND DEVELOPMENTS:

India solar market is estimated to be at 79.07 GW by the end of this year and is projected to reach 195.11 GW in the next five years, registering a CAGR of 19.8% during the forecast period. Over the medium term, the Indian solar energy market is growing owing to the cost of solar power technology is declining, solar systems are becoming more flexible, and solar power is a greener way to make electricity. The market is also propelled by supportive government policies, particularly the Ministry of New and Renewable Energy (MNRE) plans to encourage renewable-based power generation. On the other hand, the solar energy market is restrained by issues like transmission and distribution losses and unpredictability in the continuity of power supply.

Nevertheless, India has a lot of solar irradiance and gets solar energy all year long. This means there are many places in the sunniest parts of the country, like Rajasthan, Gujarat, and Andhra Pradesh, where solar energy can be used. This, along with foreign investment and a lot of research and development projects to improve the technology, gives the Indian solar energy market a lot of chances to grow.

The solar PV segment is expected to have the biggest market share during the forecast period. This is because the cost of solar modules is decreasing, and these systems can be used for many different things, like making electricity and heating water. As per IRENA, Indias installed solar PV capacity was around 62.8 GW in 2022, up from 49.3 GW in 2021. This was an increase of around 31% over the year. India put in a lot of solar PV installations, especially for utility projects, which led to the growth. The Government of India has more plans to increase the solar PV installed capacity. The National Thermal Power Corporation Limited (NTPC) turned on a solar PV project near Hazira in Surat in August 2022. The Kawas solar PV project has a capacity of 56 MW; with this project, NTPC will increase its solar footprint to 68,454 MW of group-installed and commercial capacity. With the completion of these types of projects, the share of the solar PV segment in the Indian solar energy market is expected to increase in the forecast period.

In Recent years, the country planned various government initiatives to increase the solar energy share of Indias future renewable power generation mix. According to Ministry of New and Renewable Energy, as of February 2023, the solar energy constitutes 66.70 GW installed capacity in 2022.

According to the Ministry of New and Renewable Energys (MNRE) national wind-solar hybrid policy, this policy is a framework for promoting large grid-connected wind-solar PV hybrid systems. These systems will reduce the unpredictability of renewable energy generation and improve grid stability while using land and transmission infrastructure best. Some other schemes implemented by the Ministry of New and Renewable Energy (MNRE) over the last three years are the Solar Park Scheme, the 300 MW Defense Scheme, and the 500 MW VGF (Viability Gap Funding) Scheme. The Delhi government approved its Solar Policy 2022 plan in December 2022. The plan calls for the installed capacity to go from 2,000 MW to 6,000 MW by 2025.Delhis new solar policy aims to install 6,000 MW of solar capacity by 2025. This will likely bring the share of solar energy in Delhis annual electricity demand from 9% to 25% in three years.

With the upcoming government projects and supportive policies, solar energy developments are expected to boost the Indian solar energy market in the coming years. The Government of India, Solar Energy Corporation of India Limited (SECI), and the World Bank signed agreements for a USD 150 million International Bankfor Reconstruction and Development (IBRD) loan, a USD 28 million Clean Technology Fund (CTF) loan,

and a USD 22 million CTF grant to assist India in increasing its power generation capacity through cleaner and renewable energy sources. The agreement reaffirmed Indias goal of reaching 500 gigatons (GW) of renewable energy by 2030.

- GROWTH DRIVERS:

• Demand for energy:

India is now the worlds third largest energy consumer, with a significant increase in senergy consumption since 2000. As the country recovers from the pandemic, it faces a dynamic phase in energy development. Rising incomes and improving living standards will drive the demand for appliances, air conditioners and vehicles. With a growing population and increasing urbanization, India needs to expand its power system equivalent to the size of the European Union to address rising electricity needs. (Source: IEA)

• Climate change:

Indias climate vulnerability is evident from its ranking in the Global Climate Risk Index. To tackle environmental challenges, the Indian government implemented energy-efficient initiatives like the Gram Ujala program, providing affordable LED bulbs to rural areas. With a focus on self-reliance, India aims to generate 500 GW of non-fossil green energy by 2030, reducing dependence on fossil fuels and mitigating climate change. These efforts align with Indias commitment to a sustainable and resilient future.

• Cost effective:

Renewable energy is cheaper than traditional energy sources, with no procurement costs and easy recovery of installation costs through generated revenue, due to declining transmission costs.

• Scalable:

Renewable energy is a scalable and effective solution to combat global warming. It is a clean and sustainable energy source that is easier to install than traditional sources.

• Government support:

The Indian government actively encourages the adoption of renewable energy and acknowledges its potential to meet the countrys growing power demand while ensuring environmental sustainability. It has introduced solar parks under the ‘Make in India initiative, provides customs and excise duty provisions for solar rooftops and offers incentives to promote private sector investments.

- INDIAN GOVERNMENT INITIATIVES:

Indias government is committed to promoting clean energy through large-scale sustainable power projects and incentives for green energy. Renewable energy has the potential to create employment opportunities at all levels, especially in rural areas.

• In less than a year since implementing the Late Payment Surcharge (LPS) Rules in June 2022, the outstanding dues of electricity distribution utilities (discoms) have significantly decreased. The total outstanding amount has been reduced by approximately one-third, reaching around Rs 93,000 Crore as of May.

• The Indian government has announced a waiver of Inter-State Transmission System (ISTS) charges for solar and wind power projects that are commissioned by 30 June 2025 and for the interstate sale of power generated from these projects.

• The National Electricity Plan (Generation) for 2022-23 outlined the growth and market share of renewable energy sources. Till March, 2023, solar PV capacity was estimated at 66.8 GW (16% market share). By March, 2027, it is projected to increase to 185.6 GW (30% market share) and by March 2032, it is expected to reach 364.6 GW (40% market share). For wind energy, the capacity was 42.6 GW (10% market share) till March, 2023, projected to reach 72.9 GW (12% market share) by March, 2027 and 121.9 GW (14% market share) by March, 2032.

- RISK AND CONCERNS:

The Company is exposed to business risks which may be internal as well as external.

The Company has a comprehensive risk management system in place, which is tailored to the specific requirements of its business considering various factors such as size and nature of inherent risks and the regulatory environment of the Company. The risk management system enables it to recognize and analyse risks early and to take the appropriate action. The senior management of the Company regularly reviews the risk management processes of the Company for effective risk management. The major risks identified by the businesses are systematically addressed through mitigation actions on a continual basis.

- INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Internal Control system and adequacy Internal Control measures and systems are established to ensure the correctness of the transactions and safe guarding of the assets. Thus, internal control is an integral component of risk management. The Internal control checks and internal audit programmers adopted by our Company plays an important role in the risk management feedback loop, in which the information generated in the internal control process is reported back to the Board and Management. The internal control systems are modified continuously to meet the dynamic change. Further the Audit Committee of the Board of Directors reviews the internal audit reports and the adequacy and effectiveness of internal controls.

- FINANCIAL PERFORMANCE AND REVIEW OF OPERATIONS:

(Amount in Lakhs)

Particulars	F.Y. 2022-23	F.Y. 2021-22
Revenue from Operations	13,765.92	14,297.05
Other Income	83.70	97.58
Total Income	13,849.62	14,394.63
Less: Total Expenses before Depreciation, Finance Cost and Tax	13,015.91	13,409.50
Profit before Depreciation, Finance Cost and Tax	833.71	985.13
Less: Depreciation	77.38	61.40
Less: Finance Cost	318.13	160.04
Profit Before Tax	438.20	763.69
Less: Current Tax	125.00	219.47
Less: Deferred tax Liability	(5.73)	(1.80)
Less: Pervious year tax adjustment	-	-
Profit after Tax	318.93	546.02
Other comprehensive income	(5.13)	4.64
Total Comprehensive Income	313.80	550.66

During the year under review, your Company has recorded total Revenue from Operations to the tune of R13,765.92 Lakhs during the financial year 2022-23 compared to R14,297.05 Lakhs in the corresponding previous financial year.

Your Company has recorded total income of R 13,849.62 Lakhs during the Financial Year 2022-23 as compared to R14,394.63 Lakhs in the corresponding previous financial year.

During the year, your Company has generated earnings before interest, depreciation and tax (EBIDTA) of R 833.71 Lakhs as compared to R985.13 Lakhs in the previous year. The net profit after tax for the financial year 2022-23 stood at R318.93 Lakhs as compared to R546.02 Lakhs during the previous financial year 2021-22 which states decrease of almost 41.60% in the profit of the Company.

Profit of your Company has decreased due to decrease in Turnover of the Company as well as addition in Finance Cost of the Company. As compared to that there is reduction in Cost of material consumed and in Comission / Sales promotion expenses in other expense. Hence, at the result of that profit of your Company has increased at robust growth.

- HUMAN RESOURCES:

Zodiacs human resource practices helped reinforce market leadership. The Company invested in formal and informal training as well as on-the-job learning. It emphasised engagements with employees by providing an enriched workplace, challenging job profile and regular dialogues with the management. The Company enjoyed one of the highest employee retention rates in the industry; it created leaders from within, strengthening prospects. As on March 31, 2023, the Companys employee base stood at 90.

DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS, ALONG WITH DETAILED EXPLANATIONS THEREFOR:

Ratios	2022-23	2021-22	Difference	Change in %	Remarks
Debtors Turnover Ratio	3.84	5.24	(1.40)	(26.74)	Due to Increase in Accounts Receivables.
Inventory Turnover	5.11	5.08	0.03	0.44	--
Interest Coverage Ratio (EBIT/Interest)	2.68	7.50	(4.82)	(64.27)	Due to increase in interest expense.
Current Asset Ratio	1.64	1.97	(0.33)	(16.70)	--
Debt Equity Ratio	1.27	0.54	0.73	136.16	Due to increase in working capital Loan.
Operating Profit Margin (%)	5.08	6.21	(1.13)	(18.20)	Due to decrease in sales.
Net Profit Margin (%)	2.32	3.82	(1.5)	39.34	Due to Decrease in net profit of the Company.
Return on Net Worth	16.77	13.28	3.49	26.28	Due to increase in EBIT.

CAUTIONARY NOTE:

Statements in this Report, describing the Companys objectives, projections, estimates and expectations may constitute forward looking statements within the meaning of applicable laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events. These statements are subject to certain risks and uncertainties. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The actual results may be different from those expressed or implied since the Companys operations are affected by many external and internal factors, which are beyond the control of the management. Hence the Company assumes no responsibility in respect of forward-looking statements that may be amended or modified in future on the basis of subsequent developments, information or events.