Zodiac Energy Ltd 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 activity gathered further momentum in 2017, both in advanced and emerging market economies. Global growth is estimated to have grown 3.7% in 2017. IMF estimates global growth at 3.9% for 2018 and 2019, revised up from October forecasts reflecting rising growth momentum and the expected impact of the recently approved US tax policy changes. Growth recovery also coincides with the return of trade drivers across the world (save the recent unwarranted trade wars posturing, most of which is still evolving for now and unlikely to have major impact). IMF estimates that global trade volume in goods and services will grow 4.7% in 2018. World Trade Organization also foresees return of trade as a driver in global growth.

The US economy continued to make growth strides, albeit ending CY2017 on a slightly weak note appeared to have bounced back in Q1CY2018, aided by a robust improvement in labour market with hiring around multi-month high and commensurate rise in consumer spending. Risks of reflationary policies remain in the US and so are an ahead-of-anticipated rate hike moves by the US Fed.

A cyclical recovery is underway in most EMDE regions that host a substantial number of commodity exporters. Over the next two years, the upturn in these regions is expected to mature, as commodity prices plateau. Robust economic activity in EMDE regions with large numbers of commodity importers is forecast to continue. However, risks to the growth outlook continue to tilt to the downside in many regions.

Industry Structure and Developments:

The Indian renewable energy sector is the second most attractive renewable energy market in the world. The country ranks fourth in the world in terms of total installed wind power capacity. 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 biopower and 5 GW from small hydropower Indias utility solar capacity grew by a whopping 72% in 2017-18 over the previous year, says solar consultancy firm namely Bridge To India in its latest annual report on the sector. It installed 9.1GW of utility solar against 5.5GW in 2016-17. Government is on its way to achieving 175 GW target for installed Renewable Energy capacity by 2022. India attains global 4th and 6th position in global Wind and Solar Power installed capacity.

By November 2017, a total of 62 GW Renewable Power installed, of which 27 GW installed since May 2014 and 11.79 GW since January 2017. Historic Low Tariffs for Solar (Rs. 2.44/ unit) achieved through transparent bidding and facilitation. Ambitious Bidding Trajectory for 100 GW capacity of Solar Energy over the next 3 years laid down. Total solar installation was 10.4GW, the rest comprising rooftop solar plants and off-grid solutions, taking the countrys cumulative solar capacity to 24.4GW. Solar capacity addition in 2017-18 was higher than that of all other energy sources, both conventional and renewable, combined, the report notes. In comparison coal and wind only added 4.6GW and 1.7GW respectively.

The government is playing an active role in promoting the adoption of renewable energy resources by offering various incentives, such as generation-based incentives (GBIs), capital and interest subsidies, viability gap funding, concessional finance, fiscal incentives etc. The National Solar Mission aims to promote the development and use of solar energy for power generation and other uses, with the ultimate objective of making solar energy compete with fossil-based energy options. The objective of the National Solar Mission is to reduce the cost of solar power generation in the country through long-term policy, large scale deployment goals, aggressive R&D and the domestic production of critical raw materials, components and products. Renewable energy is becoming increasingly cost-competitive as compared to fossil fuel-based generation.

Ministry is implementing Grid Connected Rooftop and Small Solar Power Plants Programme which provides for installation of 2100 MW capacity through CFA/ incentive in the residential, social, Government/PSU and Institutional sectors.

Under the programme, central financial assistance upto 30% of bench mark is being provided for such projects in Residential, Institutional and Social sectors in General Category States and upto 70% of the benchmark cost in Special Category States. For Government sector, achievement linked incentives are being provided. Subsidy/CFA is not applicable for commercial and industrial establishments in private sector.

• So far sanctions for 1767 MWp capacity solar rooftop projects has been issued and around 863.92 MWp capacity has been installed.

• All the 36 State / UT ERCs have now notified net/gross metering regulations and/or tariff orders for rooftop solar projects

• Concessional loans of around 1375 million US dollars from World Bank (WB), Asian Development Bank (ADB) and New Development Bank (NDB) have been made available to State Bank of India (SBI), Punjab National Bank (PNB) and Canara Bank for solar rooftop projects.

• Suryamitra programme has been launched for creation of a qualified technical workforce and over11 thousand persons have been trained under the programme.

• An online platform for expediting project, approval, report submission, and monitoring of RTS projects has been created.

• Initiated geo-tagging of RTS projects, in co-ordination with ISRO, for traceability and transparency.

• Launched mobile app ARUN (Atal Rooftop Solar User Navigator) for ease of access of beneficiaries for request submission and awareness.

• MNRE has allocated Ministry wise expert PSUs for implementation of RTS projects in various Ministries/Departments.

• Published best practices guide and compendium of policies, regulations, technical standards and financing norms for solar power projects.

Opportunity and Threats:

Opportunity Threats
o Demand for electricity is expected to increase at a CAGR of 7 per cent to 1,894.7 TWh over the next few years. o Current production levels are not enough to meet demand; annual demand outstrips supply by about 7.5 per cent. o Change in Policy and Regulations o New entrants in the market and intense competition by existing players o Technology may become obsolete due to Innovation in Technology
o Various reforms being undertaken by the government are positively impacting Indias power sector. In wake of the surging domestic coal production, the countrys power sector is becoming increasingly stable.
o Liberalized the reformed policy on renewable energy and FDI Policy.

Outlook:

The need of the hour is to address issues and challenges hampering the growth of solar rooftops across the country as there are multi fold benefits associated with rooftop solar PV systems. For a developer if offers reduced land and interconnection costs, higher tariffs due to increasing commercial and industrial tariffs, and increased profitability. One of the biggest benefits is the reduction in peak demand during daytime for the Discoms that helps in cutting down the T&D losses as the power is consumed at the point of generation. Further, commercial benefits in avoiding investments in transmission system are huge. According to PwC analysis, more than 10,000 MU of electricity will be saved as avoidance of T&D losses alone in year 2022 alone if 40 GW of rooftop PV target is achieved.

Finally and most importantly, it reduces the dependence on grid power, diesel generators and is a long-term reliable power source for consumers. It has been almost 2 years since Indias ambitious solar scale up targets were put into place. The progress on implementation till now has been commendable. We can be confident that the sector has gained significant momentum and attention to reach a level from where it is very unlikely that its growth will slow down in the near future.

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.

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 Rs.)

Particulars F.Y. 2017-18 F.Y. 2016-17
Revenue From Operations 38,38,96,629 16,69,82,729
Other Income 7,26,279 4,46,879
Total Income 38,46,22,908 16,74,29,671
Less: Total Expenses before Depreciation, Finance Cost and Tax 35,31,49,055 15,89,62,702
Profit before Depreciation, Finance Cost and Tax 3,14,73,853 84,66,969
Less: Depreciation 13,00,702 9,18,852
Less: Finance Cost 26,79,764 40,40,092
Profit Before Tax 2,74,93,387 35,08,025
Less: Current Tax 78,45,000 10,95,921
Less: Deferred tax Liability (Asset) (3,11,131) (40,799)
Profit after Tax 1,99,59,518 24,52,903

Human Resources

The Company believes in establishing and building a strong performance and competency driven culture amongst its employees with greater sense of accountability and responsibility. The Company has taken various steps for strengthening organizational competency through the involvement and development of employees as well as installing effective systems for improving their productivity and accountability at functional levels. The Company acknowledges that its principal asset is its employees. Ongoing in-house and external training is provided to the employees at all levels to update their knowledge and upgrade their skills and abilities. As on March 31, 2018, the Company had total 35 full time employees. The industrial relations have remained harmonious throughout the year.

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.