GEI Industrial Systems Ltd Management Discussions.

A. Overview

Managements perspective on the financial condition and the operational performance of the Financial Year 2014- 15 is explained below. The following discussion of the Companys financial condition and result of operations should be read in conjunction with the Companys financial statements, schedules and notes thereto and the other information included elsewhere in the Annual Report. The Companys financial statements have been prepared in compliance with the requirements of the Companies Act, 2013, guidelines issued by the Securities and Exchange Board of India (SEBI) and the Generally Accepted Accounting Principles (GAAP) in India.

B. Macroeconomic Environment

Indian economy is going through times. The Power sector has witnessed the worst ever slow down in the recent past. Other sectors which also showed slowdown are steal, dis-com and highways.

Persistent uncertainty in the global outlook, caused by the crisis in the Euro area and general slowdown in the global economy, compounded by domestic structural constraints and inflationary pressures, resulted in a protracted slowdown. The country is witnessing the worst ever slowdown in the recent past in the infrastructure and Capital goods sector.

With the Governments initiative of Make-In- India the investment climate is likely to improve and the overall macroeconomic environment will show signs of growth more so due to expected infrastructure projects and unleashing of stalled projects. Industry is expected to revive and growth can accelerate gradually over the next two years.

C. Industry Scenario

The US-based industrial classification of IIP estimates identifies the capital goods segment as the weak performer in the manufacturing sector. The capital goods segment has been hit by the steady deceleration in fixed investment in the past three years. The slow pace of mega projects implementation and a decline in the number of new projects has adversely impacted the capital goods segment.

The power sector was growing phenomenally from 2010 onwards with many private power producers getting license to set up small and medium size power plants. The demand of Air Cooled steam Condensers for thermal power plants increased and it was found to be revolutionary in terms of water saving as compared to conventional water cooled steam condensers. Looking into the increased demands of Air Cooled Steam Condensers we invested in the plant, machinery, manpower and allied resources. GEI received orders of these Condensers for plant capacities up to 150 MW and executed orders for four such units.

It was during the same time that the slow down started in the power sector due to shortage of coal as a result of the coal scam, dis-com pricing, environmental clearances and gas pricing issues. The trouble deepened with RBI issuing advisory to the banks to go slow on the Companies exposed to the power sector. As a result of this, fund inflow into the projects got delayed and the projects in the private sector got stalled due to the accounts becoming NPA.

We were also hit badly in this process as huge amount of receivables got held up with majority of the clients in the power sector. The cash flow got severely affected and the Company went into financial strain.

With the new initiative of Make-in-India by the Government of India the market is showing few good signs and projects are getting cleared. With the re-allocation of the Coal Blocks based on the Supreme Court directives we are hoping that availability of Coal should not pose problem for the power producers. We have started receiving fresh request for quotations for new and upcoming projects and finding it difficult without a valid certificate for ISO 9001:2008.

Strategy

Your company has worked out a multi-pronged strategy to overcome the crisis that has engulfed the whole sector. The strategy can be summed up as follows:

I- Focus on exports - Even when Indian market stagnated, global market has been growing robustly. A diversified market-base in geographic terms can safeguard the company against future shocks.

II. Oil & Gas Sector - The crisis of past two years has been primarily a crisis of new thermal power plants. Your company is focusing on oil and gas companies to offset the shocks from the thermal power sector.

III. Nuclear Power - Nuclear power sector in India is growing fast after the bottlenecks faced by rhe sector have been removed in the wake of Indias nuclear treaties with various countries. Your company has undertaken technological challenges to develop new products for this sector. Nuclear Power Corporation of India Ltd. has already recognized your companys significant work in the field.

IV. Technological Innovations - Your company is firmly of the belief that the best way to face tough challenges is by new innovative products. The company has been working with its clients to develop import substitution products which are expected to add substantially to the companys bottom-line in the years to come. Some of these products will be introduced for the first time in India and thus will also contribute to the technological progress of the country. Discussions are on with few leading technology providers which will pave way for the Company to enter into new areas with a perspective for growth in future using companies core competence.

D. Outlook

Your company is hopeful that the strategy adopted by it combined with support from the banks and financial institutions (who have always stood with the company) will help the company to revive itself and come out of the crisis which had been caused by the negative developments in economy in general and new thermal plants in particular. State Bank of India, IDBI Bank and Axis bank has already restructured the banking facilities, the bilateral documentation has already been executed and facilities implemented. The turnaround process is expected to show first visible signs in the second half of year 2015-16 with significant results in the financial year.

Your company is operating in three sectors such as Petroleum Refining, Oil & Gas and Power. With scarcity of water and policy makers push for water conservation demand of Air Cooled Vacuum Steam Condensers for sub-critical and super critical thermal power plants are going to increase in a big way. Your Company is also actively considering entering into Super Critical Water Oxidation system (SCWO) drawing companys experience in the Waste Management and up gradation Plant of Nuclear Power Project. SCWO is an environmentally safe method for disposal of organic waste and has got wide application in Petroleum, Petrochemical and Fertilizer sector. This product will be manufactured using the existing state of the art facilities in the company. Discussions on technological tie up are in the advanced stage. With the new strategy of serving different sectors in India as well as globally, your company is confident of not merely coming out of the present crisis but also in its ability to withstand any future shocks.

E. Risks. Opportunities and Threats

Your Company is aware of the risks and concerns likely to affect its operations such as political and economic disturbances in the form of structural changes, policies and procedures or unexpected economic down turn etc. In particular, the Company has realized that it should broaden its markets both geographically as well :: in terms of industry segments. The Companys strategy mentioned above takes into the need for risk mitigation.

In order to be in a state of constant preparedness to face risks, the Company has identified key risks and the remedial actions to be initiated on their emergence through a well documented procedure. The risk management system is critically evaluated on a continuous basis and changes are made considering the dynamics of the industry, markets and the prevailing economic situation.

Your Company is optimistic about the growth of Indian economy during the next five years. Economic growth cannot happen without large investments in the sectors in which your Company is operating. The investments are likely to throw up significant opportunities, which your Company is well prepared to benefit from.

F. Internal Control Systems

Your Company has a separate internal audit department headed by a qualified professional that is responsible for internal control systems and their adequacy. The Company has well researched and documented system to ensure adherence to standard policies and procedures of the Company in all its operations and functional areas.

G. Human Resources

The most important aspect of the Companys business is its emphasis on human resources as the core of its operations. The emphasis on employees pivotal position in the organisation manifests itself in various forms such as employee engagement, evaluation, training & development, rewards, welfare schemes etc. This harmonious integration of management thinking and employee response has ensured that the industrial relations remained cordial throughout the Companys existence, an achievement the management is quite proud of.

H. Cautionary Statement

Statements in the Management Discussion and Analysis describing Companys projections, estimates, expectations or predictions may be viewed as forward looking statements within the meaning of applicable security laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that may make a difference to the Companys operations include demand & supply conditions, raw material prices, changes in Government regulations, tax regimes, economic developments within the country and abroad, and similar other factors.

C E Fernandes

Chairman & Managing Director