Abha Power and Steel Ltd Management Discussions

Industry Structure and Developments

Global Economy:

As of 2025, the global iron and steel casting industry remains on a stable growth path, driven by sustained demand across key sectors such as construction, renewable energy, automotive, railways, and heavy machinery. The market was valued at approximately USD 173.7 billion in 2024 and is projected to reach USD 182.3 billion by 2025, growing at a compound annual growth rate (CAGR) of 4.9-5.!%. Asia-Pacific continues to dominate the global market with over 53% share, led by industrial expansion in China, India, Japan, and South Korea. India, in particular, stands out with a 33% increase in steel production between 2019 and 2024, becoming a key player in global supply chains. Major producers such as Arcelor Mittal report positive earnings, driven by resilient global steel demand, estimated to grow 2.53.5% annually (excluding China). Technological advancements like automation, robotic molding, and sustainable casting techniques?alongside the adoption of electric arc furnaces (EAFs)? are reshaping production efficiency and environmental compliance.

However, the industry faces ongoing challenges due to fluctuating raw material and energy prices, tightening environmental regulations, and capital-intensive operations. Global inflationary pressures, high interest rates, and the economic impact of geopolitical disruptions?such as the Russia-Ukraine conflict?continue to affect investment and productioncosts. Additionally, the casting sector is seeing increasing competition from lightweight alternative materials like aluminum and composites, especially in automotive and aerospace applications. Supply chain vulnerabilities and labor shortages also present operational constraints in some regions. Despite these obstacles, the long-term industry outlook remains positive, supported by urbanization, infrastructure modernization, and a global push toward low-carbon technologies? all of which continue to drive demand for high- quality cast iron and steel components.

Indian Economy:

In the financial year 2024-25, Indias iron and steel casting industry has continued its upward trajectory, supported by strong domestic demand, favorable government policies, and rapid industrial growth. India remains the second- largest producer of crude steel, with output reaching approximately 150 million tonnes, marking a significant increase from previous years. The casting industry?comprising grey iron, SG iron, and steel castings?has benefited from robust demand across infrastructure, railways, power, heavy machinery, automotive, and defense sectors. The governments continued focus on infrastructure development has created steady demand for cast components such as rail parts, industrial valves, gear housings, and machinery parts. Additionally, Indias increasing export potential, especially to Europe and the Middle East, has opened new opportunities for large and mid-sized foundries.

However, the Indian iron and steel casting sector faces several challenges in FY 2024-25. Raw material costs?especially for pig iron, scrap, ferroalloys, and energy?have remained volatile, impacting profit margins, particularly for small and medium enterprises (SMEs). Environmental regulations and global sustainability trends are also prompting foundries to shift from traditional coke-fired and coal-based melting to induction and electric arc furnaces, which require significant capital investment. The sector continues to grapple with labor shortages, high logistics costs, and outdated infrastructure in smaller industrial clusters. Despite these issues, Indias casting industry is poised for long-term growth, driven by rising domestic consumption, increasing mechanization in agriculture and manufacturing, and growing investments in digital technologies and automation. The governments emphasis on decarbonization, skill development, and supply chain integration is expected to further strengthen the industrys global competitiveness in the coming years.

Business Model & Strategy

About Products manufactured:

Our company specializes in manufacturing both standardized and customized products that serve a wide range of industries. We operate two in-house foundries?SG Iron and Steel? at our manufacturing facility located in the Silpahri Industrial State, Bilaspur, Chhattisgarh, spread across 7.32 acres. Our facility is ISO 9001:2015 certified for designing, developing, manufacturing, supply of all iron and steel castings and assemblies for steel, power and cement industries, and also parts for Indian Railways such SGCI inserts, adopters (of all types), valve castings, and other similar casting items. Further, the facility is also ISO 14001:2015 and ISO 45001:2018 certified for design, development, manufacturing, supply of all Iron and Steel (High and Low alloy) Castings and Assemblies for Steel, Power, Mining, Oil & Gas, Defense and Cement Industries and components for Indian Railways such as SGCI Inserts, Adapters (all types), other castings and mechanical items.

Our plant infrastructure includes modern melting, sand handling, pouring, mould and core making, heat treatment, fettling, and comprehensive testing facilities, ensuring an efficient and controlled production process. All machinery is owned outright by the company, with no second-hand equipment in use. Raw materials and consumables are sourced from reputed vendors, thoroughly inspected by our quality assurance team, and only conforming materials proceed to production. Every casting undergoes rigorous non-destructive testing (UT, MPI, DP), hammer testing, dimensional inspection, surface defect checks, and processes like machining, assembling, tumbling, and shot blasting as required. This robust quality control ensures that only defect-free, dimensionally accurate castings are packed and dispatched to our clients.

Operational Performance including Product-wise performance

The year has been a good one with us utilizing almost 45% (6450MT) of our capacity, while navigating complex market scenarios in terms of fluctuating raw material prices, supply chain issues and other broader uncertainties. Our newer products like adapters have increased in volume both in production and sales (over 1000 MT).

Steel Foundry has also been able to achieve production of critical components of steel plants as well as for Indian railways (Via Reputed OEM). Our robust infrastructure saw little to no unplanned maintenance. Raw material inflow was steady throughout the production cycle thanks to our timely sourcing and supply chain partners. With the deployment of a continuous sand mixer towards the end of the year we were able to significantly improve our moulding sand

Financial Performance Summary and Financial ratios and details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

During FY 2025, the Company delivered a strong performance, with revenues rising to ^70 crore compared to ^52 crore in FY 2024, reflecting a healthy growth of 35.6%. This improvement was driven by better market traction and operational efficiency. Profitability also strengthened, with EBITDA margins at 15.3% and PAT margins at 8.9%, indicating improved cost management and a favorable product mix. In absolute terms, profit after tax increased by nearly 50% over the previous year, underlining the scalability of our operations. While capacity utilization currently stands at 45%, we see significant headroom to enhance output and improve operating leverage in the coming years. Our performance remains broadly in line with, and in certain aspects better than, industry benchmarks, reinforcing our position as a competitive player in the sector.

The companys Return on Net Worth (RONW) decreased from 23.29% in FY 2023-24 to 18.22% in FY 2024-25, primarily due to the dilution effect of the Initial Public Offering (IPO) undertaken during the year, which increased the equity base and consequently impacted the ratio, reflecting a temporary adjustment to the fresh capital infusion, as the company leverages the proceeds to fuel future growth initiatives and strengthen its financial position.

Research & Development /innovation

The majority of our items in steel foundry are customized to the specific needs of our customers, our New product development team is continuously working hard to meet the ever-changing needs of our customers. Some significant products helped our customers in various ways by reducing down time, increasing life of wear parts and a cost effective alternative to imports.

Our commitment to innovation ensures that we remain agile and responsive to changing market conditions. Ultimately, our tailored solutions empower customers to achieve their strategic objectives and stay ahead of the competition. With a deep understanding of industry trends, we continue to innovate and adapt.

Sustainability &

Our captive solar power plant helps us in reducing approximately 3400MT of carbon emissions yearly, while reducing our energy costs. This also allows us to reduce our carbon footprint, which is a dire need of todays environment. Our customers can also reduce their carbon footprint by sourcing from us.

Our ISO 14001:2015 certified facility ensures compliance to all norms.

Threats, Risks, concerns management

Our business operates in a dynamic environment where raw material costs, energy supply, competition, and regulatory changes can have a significant impact. To address the volatility in raw material and other input prices, we focus on long-term supply contracts, diversify sourcing across multiple markets, and rely on effective inventory management and forward purchase agreements to shield operations from sudden spikes. At the same time, we continuously pursue process efficiencies and cost optimization to reduce our dependence on volatile inputs.

Ensuring reliable access to energy and water is equally important for maintaining operational stability. We mitigate this risk by maintaining multiple supply arrangements, investing in energy-efficient technologies, and monitoring consumption patterns closely, enabling quick corrective action in case of disruptions. On the competitive front, we remain committed to enhancing efficiency and keeping our cost structure lean while also exploring opportunities in renewable and alternative energy to diversify our business mix and remain future-ready.

We also recognize the importance of navigating legal, regulatory, and operational challenges. A strong compliance framework enables us to stay aligned with evolving government policies, tariff structures, and environmental norms. Operational risks are mitigated through preventive maintenance programs, timely technology upgrades, and comprehensive employee training, with a strong emphasis on workplace safety and environmental standards. Collectively, these measures strengthen our ability to manage uncertainties while ensuring business continuity and long-term growth.

Material developments in the Human Resources / Industrial Relations front, including the number of people employed

The Company considers employees as its vital and most valuable assets. Your Company considers manpower as its assets and understands that people have been the driving force for growth and expansion of the Company. Through our learning and development initiatives, the Company continues to upskill our employees for their jobs. The Company is into the process of continuous improvements based on feedback and inputs from multiple stakeholders, past experiences and industrys best practices for giving better employee experiences.

Our Company gives due importance to the human resource. Industrial relations remained cordial throughout the year. During the year under review, there were a total of 100 employees in the payroll of our Company.

Opportunities & Outlook

The Railway industry is growing at a very fast pace in India, led by the significant expenditure of the Indian government. Being a RDSO certified vendor for critical components has been a great opportunity booster for us. The modernization of our facilities will not only help us in reducing costs but will also enable us to get certified by RDSO for even much more critical items like bogies and couplers for Indian Railways.

The state of the art facility will lead to a better capacity utilization and the benefits of modern and latest technologies like PLC and thy is for controlled furnaces, sand systems, etc. will lead to the best quality product while making us more cost effective. Being a Class A approved foundry by RDSO means compliance to stringent quality norms. Our exposure across various sectors like Railways, Steel, Cement and Mining prepares us to weather all the cyclical conditions of the market. Most of our revenue comes from Indian Railways either directly or indirectly (Supplies to Railway OEMs), going forward we are looking to increase the size of our business with Indian Railways. Expected capital expenditure in this sector is supposed to grow exponentially and we want to capitalize on this opportunity.

Governance & Stakeholder Engagement including Internal control systems and their adequacy

The Company has in place an adequate system of internal control commensurate with its size and nature of business. The system provides a reasonable assurance in respect of providing financial and operational information, complying with applicable statutes, safeguarding of assets of the Company and ensuring compliance with corporate policies. The Company has a business planning system to set targets and parameters for operations which are reviewed with actual performance to ensure timely initiation of corrective action, if required.

The Company has availed the services of independent professional firm for Internal Audit, which checks the effectiveness of the internal controls with an objective to provide an independent, objective and reasonable assurance of the adequacy and effectiveness of the Companys risk management, control and governance processes. The scope and authority of the Internal Audit activity are approved by the Audit Committee. The Internal Auditor reports directly to the Audit Committee of the Board. The Audit Committee reviews the Internal Audit Reports and issues guidance and advice. Minutes of the Audit Committee are put up to the Board of Directors.

The Companys Audit Committee reviews adherence to internal control systems, internal audit reports and legal compliances. This committee reviews half-yearly results of the Company and recommends the same to the Board for its approval. The Company has appointed external professional firms for thorough review of existing internal financial controls and updation thereof.

Forward looking Statement

The above Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include external economic conditions affecting demand/supply influencing price conditions in the market in which the Company operates, changes in Government regulations, tax laws, and other incidental factors.