MANAGEMENT DISCUSSION AND ANALYSIS

SHRI MATRE POWER AND INFRASTRUCTURE LTD (SMPIL) formerly known as SHRI SHAKTI LPG LTD ( SMPIL) has been engaged in business of LPG marketing. The management discussion and analysis given below discusses the key issues concerning the LPG industry in general and SMPIL in particular followed by the recent developments wherein the company decided to diversify into power and infrastructure under the new identity of SHRI MATRE POWER AND INFRASTRUCTURE LTD (SMPIL)

Industry Structure and Developments :-

LPG marketing was the monopoly of the Government Oil Companies who had piled up a huge waitlist. The Government of India in 1993 permitted the private sector participation with a commitment that the subsidy enjoyed by the Government Oil Companies would be removed in a phased manner in the next few years. It had also committed that the commercial and industrial LPG markets in India would be reserved exclusively for the private sector, till the subsidy withdrawal in the domestic sector is completed. None of the promises were implemented as a result of which the private sector companies were unable to run the LPG business on a profitable basis due to the total absence of the level playing field.

The Government of India even failed to implement its G.O.Ms No 224 dated 27th November, 1997 wherein the Government committed phased withdrawal of subsidy on LPG over a period of 3 years ending with March,2001. This was subsequently shifted to end March,2002. Because of Government's failure to honour its commitments as above and the consequent absence of level playing field, the entire private sector industry was badly affected and became loss making.. The Ministry of Petroleum issued a notification stating the subsidies on LPG and kerosene will be removed in a phased manner by the year 2007 only. However, the same is yet to be implemented.

SMPIL were the pioneer in the filed of LPG marketing and established large integrated infrastructure to carry LPG from dock (Port) to the door of customers, which consisted of dedicated port facilities, large storage terminals, network of bottling plants and distribution and marketing networks. Your company was able to do well from the commencement of commercial operations in 1995 till 1999and became profitable. In fact your company emerged as the country's largest private sector LPG company. However, due to abnormal rise in crude oil prices during 1999 to 2000, the international LPG prices also shot up. Despite the big spurt in sourcing cost, it was not possible to proportionately increase the prices due to competition with the Government Subsidized gas by virtue of which the company incurred losses. This was further aggravated in the subsequent years due to the growing disparity in the prices between the private LPG operators and the PSU Oil Undertakings, on account of non-removal of subsidy as mentioned earlier. Because your company's dedicated customer base was much larger, it had to suffer greater losses as more sales meant more losses. Inspite of the difficult times, the company built a strong brand image viz SHAKTI GAS which is still quite popular.

SMPIL entered into LPG Auto Fuel market and develop for the first time patented technology for converting the 2 stroke engines of both 3 wheelers and 2 wheelers to run on LPG in collaboration with Automotive Research Association of India (ARAI). In June, 2007, SSLLPG received two patents jointly with ARAI for the above. The Government of India which agreed in principle to permit LPG as auto fuel, took a very long time to enact the legislative amendment. The highly potential auto fuel market which was to open by 1998, was not available till recently due to delay in finalization of norms by the Government and setting up of adequate number of LPG dispensing stations.

Opportunities and Threats :-

Your company has taken up a three pronged strategy for its turn around which was as follows :

a)One time Settlement (OTS) with term loan, working capital lenders and for unsecured loans wherein the entire accumulated interest along with considerable part of the principle amount is waived.

b)Tie up financial arrangements to raise the amounts required for meeting the OTS commitments.

c)Marketing Action Plan to aggressively sell LPG in the commercial, industrial and auto fuel markets in addition to extensive and accelerated marketing of Shakti Gas Auto kits in all the cities where it is mandatory to convert three wheelers to run on environment-friendly fuels at the earliest.

SMPIL achieved a major breakthrough when the company paid off all the term loans and working capital liabilities under the One Time Settlement (OTS) deal, wherein the Banks & Financial Institutions agreed to waive the interest and considerable part of the principal and accept the balance in full & final settlement of their tem loans and working capital loans. The company got a very good deal from all the three banks & financial institutions based on our strong contention that the company from the position of the acknowledged leader of the private sector LPG Industry, fell down and became loss making and sick only because the Government did not honour the commitments given to private sector LPG industry.

Outlook:-

As could be seen from the above, the Company had been badly let down by the Government of India who did not honour its commitments given to the Private Sector LPG Industry. Despite the best efforts being put in by all the team members, the company was not able to make much progress in reviving its LPG Business. It was primarily due to the fact that the Government could still not do much to withdraw the subsidy on LPG as committed by it. Over the years, the subsidy has further ballooned thereby substantially enlarging the gap between government subsidized gas and the private sector non subsidized gas.

As the future prospects in LPG business did not seem to be bright enough, it was decided to diversify.

In India electricity is always in short supply. Despite the increase in new power generation plants, the gap between demand and supply has not reduced. The average per capita consumption of electricity in India is about 700 kWh which is far below the World average of 2300 kWh. The Indian government has set ambitious goals in the 11th plan for power sector owing to which the power sector is poised for significant expansion. In order to provide availability of over 1000 units of per capita electricity by year 2012, it has been estimated that need-based capacity addition of more than 100,000 MW would be required.

The Government of India recently announced Jawaharlal Nehru National Solar Mission (JNNSM) for promoting solar power projects in various parts of the country. The objective of the JNNSM under the brand "Solar India" is to establish India as a global leader in solar energy by creating the policy conditions for its diffusion across the country as quickly as possible. The Mission set a target of 20,000 MW and stipulates implementation and achievement of the target in 3 phases (first phase upto 2012-13, second phase from 2013-17 and third phase form 2017-22) for various components including utility grid connected solar power. Under this, it is proposed to harness the solar energy abundantly available in India and use the same for power generation to meet the ever growing demand for electricity across the county.

The above opens very good opportunity for diversification into solar power generation wherein the raw material is the solar radiation and there is one single customer - the Government through its specified agency viz, NTPC Vidyut Vyapar Nigam Ltd (NVVN) who would be buying the entire production through a Power Purchase Agreement (PPA) for 25 years.

Therefore it is decided to diversify into power generation and solar power to begin with. This would be followed up with a foray into the infrastructure arena. To enable your company to do the same, the Main Objects and Other Objects of Memorandum of Association of your Company have been changed along with the change of name to Shri Matre Power & Infrastructure Ltd after duly obtaining the shareholders approval through the postal ballot process and securing the requisite statutory approvals.

Shri Matre Power & Infrastructure Limited (SMPIL) is participating in various tenders for Solar Power Generation including the AP Government. In the AP Tender, SMPIL' s bid was the best at the location Amangal about 75 kms from Hyderabad. However due to the bifurcation of the state in the meantime, the tender was cancelled.

SMPIL is also working on promoting a 10 MW Solar Power Generation Plant under the Renewable Energy Certificate (REC) route wherein the solar power produced will be supplied to the State Government at their scheduled rate which is very low and the balance is made up through the sale of RECs which SMPIL would be earning. SMPIL is in the process of tying up for advanced technology with leading international technology providers. SMPIL is also evaluating various other options including foray into the hospitality industry.

SMPIL is also in the process of divesting its LPG assets so that it would be able to mobilize the required margin monies for its new projects.

Your Directors are optimistic that your Company would succeed in the above bid process and implement and operate the solar power project profitably.

Risks & Concerns :

The Management of the company analyses and evaluates on a continuous basis the various risks associated with the business and adopts Risk Management Practices to minimize the adverse impact of these risks. Both external as well as internal developments are assessed regularly.

The management constantly scans the environment covering areas like market scenario, Government policies, national as well as global developments, technological changes etc. Business risks and uncertainties are identified and prioritized. Appropriate strategies are planned and implemented.

Internal Control System :

The company has an effective Internal Control System with respect to purchase and sale of inventory, fixed assets and goods. It has an internal audit department wherein audit of the transactions of the plants and the corporate offices are done at periodical intervals in order to ensure that recording and reporting are adequate and proper. The internal audit also verifies whether internal controls and checks and balances in the system are adequate, proper and upto date corrective actions for any weaknesses in the system that are disclosed by the audit are taken.

The Audit Committee consists of eminent Independent Directors. It reviews the important observations of the Internal Audit and suggests corrective action for the management to implement. It also meets periodically to review and recommend quarterly, half - yearly and annual financial statements of the company. The Committee also holds discussions with the Internal Auditors, Statutory Auditors and the Management on the matters relating to internal controls, auditing and financial reporting. The Committee also reviews with the statutory auditors, the scope and results of the audits.

Financial performance Vs. Operations performance :

During the year, the company incurred cash profit of Rs 2,19,82,315 (brvious year cash profit of Rs. 2,65,49,228). After providing for debrciation amounting to Rs. 2,19,82,315 (brvious year Rs. 2,76,89,055), the total Loss for the year stood at Rs.54,73,231 (brvious year Loss of Rs. 11,39,827).

Human Resources & Industrial Relations :-

The Company continues to maintain cordial industrial relations. Retention of the workforce is a key challenge considering the exponential growth in the industrial sector.

The company has been consistently working on learning development of employees to enable them to take on larger responsibilities.

The company had on its rolls 7 permanent employees at the end of financial year 201415.

Cautionary Statement-

Statement in this Management Discussion & Analysis describing the company's objectives, projected estimates and expectations may constitute forward looking statement within the meaning of applicable laws and regulations Actual results might differ marginally or materially from those either exbrssed or implied.