MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis covering segment-wise performance and outlook is given below:

A. INDUSTRY STRUCTURE AND DEVELOPMENT

I. Petroleum Products:

Transformer oils are fluids used in oil filled electrical transformers as an insulating and cooling medium. The primary function of this oil is to insulate and cool the transformer windings and core. The global transformer oil market is expected to grow from USD 1.76 billion in 2013 to USD 2.73 billion by 2018, with a CAGR of 9.21%. Mineral oil based transformer fluid is anticipated to take a major share when compared to silicone and bio-based transformer oils for the next five years. The major factors responsible for the growth of the market are increasing power requirements in developing regions, rising investment, and enlargement of electricity grids in developed regions, and rising transition towards renewable energy resources.

Liquid Paraffin and White Oils are very highly refined mineral oils used in cosmetics and for medical purposes. They make an ideal blending base for cosmetics, personal care and pharmaceutical products. Their inert nature makes them easy to work with, as they lubricate, smoothen, soften, extend and resist moisture in many formulations. Growing demand for cosmetics, pharma and personal care products is expected to drive the White Oil market.

In Lubricating Oils, automotive applications dominate, but other industrial, marine and metal working applications are also big consumers. Liquid and solid lubricants dominate the market, especially the former. Lubricating Oils are generally composed of a majority of base oil plus a variety of additives to impart desirable characteristics. The demand for this sector is decided by the general industrial and economic conditions in the country.  This segment is extremely competitive because of the brsence of many domestic and well as multinational players.

II. Wind Power:

Power drives the economy. The Indian power sector is undergoing a significant change that is redefining the industry outlook. Market dynamics have changed drastically with greater focus on reducing the dependence on fossil fuels and promoting green sources of energy in order to address the issue of power shortage for economic growth and climate change. Sustained economic growth will play a major part in shaping the India of tomorrow and therefore focus of Renewable Energy is shifting from the fringe to the mainstream of sustainable development.

During the year, India has added wind power installed capacity of 2.34 GW against 2.1 GW capacity additions during the brvious year. The driver for growth is attributed to the reinstatement of Accelerated Debrciation (AD), Generation Based Incentive (GBI) scheme and extension of 10 year tax holiday upto 31st March 2017. As on 31.03.2015, the cumulative installed capacity for wind energy in India stands at 23.44 GW out of the total renewable energy installed capacity of 35.77 GW. Wind Energy accounts for 66% of the total renewable energy installed capacity.

B. OPPORTUNITIES AND THREATS

I. Petroleum Products:

India is the fourth-largest consumer of oil and petroleum products in the world. Its energy demand is projected to touch 1,464 million tonnes of oil equivalent (Mtoe) by 2035 from 559 Mtoe in 2011. Furthermore, the country's share in global primary energy consumption is anticipated to double by 2035. With India's economic growth closely linked to energy demand, the need for petroleum products is projected to grow further.

However, the extreme volatility in Crude Oil and in turn Base Oil prices and the weakening Indian Rupee vis-a-vis the US Dollar coupled with inadequate and slowly developing infrastructure, lack of awareness in safety issues and environmental issues can all hamper the projected growth in markets for petroleum products in India.

II. Wind Power:

As India grapples with power shortage problems, Government believes renewable energy will be a feed-in for power sector. An investment of USD 250 billion is expected during next five years out of which USD 100 billion will be in the renewable energy sector thereby opening up a bunch of opportunities. The potential for on-shore and off-shore is tremendous in India. With  better technology and MW series, Capacity Utilization Factor (CUF) has increased substantially. With increased FiTs (Feed in Tariffs) by all State Electricity Regulatory Commissions, sectoral finances at low rates, Generation Based Incentive (GBI) scheme @ Rs. 0.50/kwh, accelerated debrciation benefit, quick disbursement of funds for projects registered under GBI scheme, 10 year tax holiday, extension of validity period for Renewable Energy Certificates (RECs), the wind power sector is providing the right opportunities for growth.

Although India's wind energy sector has seen significant progress in the past decade, the sector is still faced with a number of issues that need to be addressed. There are some constraints such as state level issues that continue to impede development work. Impediments for rapid expansion of wind power development are unfavorable open access terms, opposition from state utilities for sale to industrial consumers under open access, non-availability of banking facility in states like Maharashtra, delay in land acquisition, imposition of scheduling and forecasting, non-uniform brferential tariff across various states, poor grid availability in high wind states like Tamil Nadu, weak transmission lines and lack of response from state utilities to procure RECs to fulfill their Renewable Purchase Obligation (RPO).

C. SEGMENT WISE PERFORMANCE

I. Petroleum Products:

The sales volume of Petroleum Products declined to 2,62,640 KLS/MTs during the year 2014-15 as against 2,72,805 KLs/MTs achieved in the year 2013-14. The sales of the Company suffered on account of unbrcedented fall in the price of Base Oil during the year under review because of unbrcedented fall in the price of Crude Oil (NYMEX) from USD 105 per barrel in July, 2014 to USD 48 per barrel in March, 2015 which resulted in high priced inventory with the Company. This adverse situation was further worsened by foreign exchange volatility, both resulting in uncertain/deferred demand for Petroleum Products in various markets.

II. Wind Power:

During the year, your company did not add any new projects to its portfolio. The total installed capacity in Wind Power Division of your Company stands at 54.15 MW.

During the year 2014-15, your Company's Wind Power Plants situated in the states of Maharashtra, Karnataka and Tamil Nadu generated 88.53 MU against 93.06 MU generated in the brvious year. The generation during the year was affected largely due to overall drop in the wind compared to brvious year and poor evacuation in the state of Tamil Nadu.

During the year, 6 MW Wind power project at Sangli was registered with IREDA (Indian Renewable Energy Development Agency) under GBI scheme.

D. FUTURE OUTLOOK

I. Petroleum Products:

The consistent falling prices of Crude Oil and Base Oil especially in the second half of year 2014 finally started showing signs of bottoming out in the first quarter of year 2015. Since then, these prices have shown a lot more stability which augurs well for your Company. In addition, there are early signs of recovery in the economic cycle, Power sector being revived by coal auctions which could make the coal plants operational, all that could result in increased demand for the products of your Company. The Rupee also has been more or less stable against the US Dollar which also is positive news for your Company.

II. Wind Power:

The performance of the renewable energy market has been sluggish for a long time. The new government has infused confidence in this market. The new government's focus on clean energy has been holistic and therefore a step in the right direction that will provide strong impetus for the industry. Their aim is to bridge the gap between conventional and renewable power apart from meeting India's energy security. The industry and the country have now entered into the new phase. Some of the policy bottlenecks to investments in wind sector have been removed. Wind power sector is back on track to achieve the targets supported by strong policy and regulatory measures including revocation of anti-dumping duties, revival of accelerated debrciation and Generation Based Incentive scheme, increase in clean energy cess on coal and removal of subsidy blockages.

Government has started the Green Energy Corridors (GEC) scheme for better and more effective integration of renewable and wind power in the grid. India's huge coastline of 7,600 km brsents great scope for off-shore wind power development. MNRE is also working on the National off-shore Wind Power Development policy.

With the thrust being given by the government, the stakeholders in the wind sector are confident of achieving the new targets of 8 to 10 GW annually and are poised to achieve greater heights.

E. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has an adequate system of internal controls to ensure that the resources of your Company are used efficiently and effectively, all assets are safeguarded and protected against loss from unauthorized use or disposition and the transactions are authorised, recorded and reported correctly, financial and other data are reliable for brparing financial information and other data and for maintaining accountability of assets. The internal control is supplemented by extensive programme of internal audits, review by the Audit Committee and then the Board of Directors, documented policies, guidelines and procedures.

F. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS

The industrial relations in your Company during the year under review remained peaceful and harmonious. Periodic reviews of the manpower numbers and costs at various locations and the head office were undertaken to ensure that manpower cost remains within the budget and the key manpower related ratios are maintained. As a continuous corporate practice, training of the workforce on various fronts continued during the year. Special emphasis was given on safety, equipment operations and maintenance training during the year. In addition, the Management has thought of engaging external agency(ies) for skills development plans and performance management programme to be put in place for adoption at different levels.

For and on behalf of the Board

Gautam N. Mehra

Chairman & Managing Director

(DIN:00296615)

Place : Mumbai

Date : 1st August 2015