Karbonsteel Engineering Ltd Management Discussions

Management Discussion and Analysis

Indian Economy Overview

India continues to remain one of the fastest-growing major economies globally, supported by strong domestic consumption, favourable demographics, infrastructure investments, and sustained policy reforms. As per IMF projections, Indias GDP is expected to grow by approximately 6.4% in 2026 and 6.7% in 2027, significantly outperforming most major economies despite global geopolitical and economic uncertainties. Over the past decade, Indias nominal GDP has nearly tripled from USD 1.23 trillion in FY15 to an estimated USD 3.82 trillion in FY25, reflecting the increasing scale and resilience of the economy. The country is currently the worlds fourth-largest economy and is expected to become the third-largest by FY2030-31, with GDP projected to reach approximately USD 7.3 trillion.

Macroeconomic stability, easing inflation, fiscal consolidation, a resilient external sector, and rising employment opportunities are expected to support the growth momentum. At the same time, continued government and private-sector investments in railways, metro systems, highways, bridges, steel plants, refineries, power projects, industrial facilities, data centres, warehouses, and urban infrastructure are expected to drive demand for precision steel structures solutions.

The Precision Steel Structures Solutions industry plays a critical role in supporting the development of complex industrial and infrastructure projects by providing engineered steel structures designed for strength, durability, and execution efficiency. Increasing investments in manufacturing capacity expansion, railway infrastructure, renewable energy projects, urban development, and industrial facilities are expected to create sustained demand for heavy steel-fabricated structures, precision-engineered components, steel bridge structures, and pre-engineered building solutions. The growing preference for modular and engineered steel solutions, faster project execution timelines, and stringent quality requirements are expected to benefit organised players with advanced manufacturing capabilities, technical expertise, and proven project execution experience

Precision & Structural Steel Industry Overview

Indias transition towards a higher investment-led growth model is expected to create significant opportunities for the Precision Steel Structures Solutions industry. As capital expenditure shifts from traditional sectors towards emerging areas such as railways, renewable energy, data centres, industrial manufacturing, urban infrastructure, and advanced engineering projects, the requirement for precision-engineered and structural steel solutions is expected to witness sustained growth.

Indias average annual capital expenditure is expected to increase from approximately Rs.4.3 lakh crore during FY21-25E to Rs.7.1 lakh crore during FY26-30P, reflecting a significant expansion in infrastructure and industrial investment activity. This increase in capital deployment is expected to drive demand for engineered steel structures across large-scale infrastructure projects, manufacturing facilities, transportation networks, and industrial developments.

Precision and structural steel solutions are expected to play an increasingly important role in these projects due to their advantages in terms of faster execution, design flexibility, structural strength, and suitability for complex engineering requirements. The growing scale and complexity of upcoming infrastructure projects are likely to support higher adoption of specialised fabricated structures, including heavy steel structures, technological structures, steel bridge structures, and customised engineering solutions.

As Indias infrastructure ecosystem evolves towards larger and more sophisticated projects, companies with integrated manufacturing capabilities, technical expertise, quality certifications, and proven execution track records are expected to benefit from the expanding demand landscape.

The structural steel industry in India serves as a cornerstone of the nations economic and infrastructural growth, playing a critical role across sectors like buildings, bridges, and large-scale construction. With over 1 lakh people employed and more than 5,000 predominantly SME fabricators, the industry boasts strong backward linkages to the steel sector. Significant technological advancements, such as automated cutting and welding, 3D modeling, and plasma cutting, have enhanced efficiency, precision, and cost-effectiveness.

The outlook is promising, driven by government initiatives like "Make in India," the adoption of green technologies, and Industry 4.0 integration. Additionally, the rising demand for pre-engineered buildings (PEBs) underscores the need for cost-efficient and rapid construction solutions, further propelling the industrys growth. As a dynamic and evolving sector, structural steel is poised to remain integral to Indias progress.

Overview of Structural Steel Engineering & Product Landscape

Structural steel is a standardized, high-performance construction material engineered for infrastructure, commercial high-rises, and industrial projects where an optimal strength-to-weight ratio and structural resilience are essential. Its mechanical properties allow engineers to optimize material usage while maintaining superior ductility, seismic flexibility, and dynamic load tolerance against environmental forces.

Product Form	Common Configurations & Profiles	Key Engineering Applications
Beams	I-Beams, Wide Flange Beams (H-Beams), HP-Shaped Beams	Heavy load-bearing support in bridges, high-rise buildings, and industrial plant frameworks.
Channels	C-Channels, U-Channels, J-Channels, Hat Channels, Hemmed Channels	Secondary framing, window/door fabrication, transportation equipment, industrial signposts, and light supports.
Angles	Equal & Unequal Structural Angles	Trusses, bracing systems, brackets, transmission towers, reactor/vessel framing, and material handling machinery.
Flats & Plates	Structural Flat Bars, Heavy Plates, Slit Strips	Base plates, railway component fabrication, automotive structures, press working, and heavy equipment assemblies.
Hollow Structural Sections (HSS)	Square, Rectangular, and Circular Hollow Sections (SHS/RHS/CHS)	High-torsion structural columns, aesthetic architectural trusses, walkways, and conveyor galleries.

Structural Steel: Industry Categorization & Application Landscape

Structural steel is classified across four distinct tiers based on load-bearing capacity, dimensional specifications, and operational complexity.

	Primary Applications	Performance & Engineering Requirements	Target Sectors
	• Bridges: Long-span trusses, open-web girders, railway bridges,	• Engineered to withstand extreme static/dynamic loads and environmental stress
Heavy Structura Steel	FOB, ROB. • Energy & Power: Heavy turbine frameworks, boiler structures,	• High-tensile metallurgy, seismic resilience, and corrosion-resistant coatings	Infrastructure, Railways, Oil & Gas, Power Generation,
	substations	• Demands stringent quality	Heavy Industry
	• Industrial: Mega processing plants, refineries.	accreditations (e.g., RDSO, ISO) and strict dimensional tolerances
	• Industrial scaffolding and formwork systems	• Balances structural rigidity with modular versatility	Commercial Real
Medium Structural Steel	• Commercial shutters and secondary framing	• Designed for moderate load-bearing, ease of assembly, and site reconfigurability	Estate, Warehousing, Industrial Sheds, Contracting
	• Partition walls, mezzanine floors, and human supports
	• Light-gauge roofing trusses and purlins	• Lightweight, cost-effective structural integrity
Light Structural Steel	• Residential doors, window framing, and fixtures	• Standardized profiling for quick installation with basic	Residential Housing, Light Commercial, Architectural Fit-outs
	• Architectural furniture and secondary enclosures	load requirements

Company Overview

Karbonsteel Engineering Limited is an integrated structural engineering and fabrication solutions provider specializing in the design, heavy fabrication, precision machining, and assembly of complex steel structures. The company operates across high-growth industrial and infrastructure domains including steel plants, high-speed rail corridors, oil & gas refineries, chemical complexes, and high-rise commercial structures.

Business Vertical	Key Offerings & Components	Scope of Execution	Target End-Markets
Heavy Steel Fabricated Structures	Heavy columns, crane girders, rafters, pipe racks, conveyor galleries, walkways, heavy-duty support systems	Grade procurement, cutting, bending, CNC drilling, welding, shot blasting, painting, trial assembly, and site logistics	Steel plants, mega refineries, petrochemical units, high-rise buildings
Precision / Technological Structures	Furnace supports, intermediate accumulator towers, galvanized tubing handrails, tight-tolerance assemblies	High-precision machining, strict dimensional tolerance control, match marking, priming, and protective coating	Heavy process industries, chemical plants, specialized manufacturing plants
Steel Bridge Structures (Rail & HSR)	Open web girders, composite plate girders, built-up bridge sections, pier/pier-cap formwork, FOB, ROB	Multi-grade fabrication, precision welding, full-scale trial assemblies, match marking, and transport	High-Speed Rail (Bullet Train), Indian Railways, dedicated freight corridors
Pre-Engineered Buildings (PEBs)	Built-up structural frames, crane beams, purlins, roof trusses, cold-formed/hot-rolled	End-to-end design, custom profiling, automated fabrication, sand/shot blasting, and turnkey	Warehousing, logistics parks, industrial sheds, factory buildings
	framing, sheeting	delivery

Key Operational Strengths

Full Lifecycle Execution: Delivers comprehensive turnkey scope spanning metallurgical raw material procurement, high-tensile fabrication, advanced surface treatment (shot blasting, specialized multi-coat painting), and precision trial match-marking.

Stringent Quality & Engineering Approvals: Backed by RDSO certification for railway bridge girders and ISO 9001:2015 / ISO 14001:2015 management systems, qualifying the company for high-entry-barrier institutional contracts.

Scalable Manufacturing Footprint: Centralizing operations at the flagship Umbergaon facility to scale capacity from 30,000 MTPA to 54,000 MTPA by October 2026, capturing operating leverage across large-scale industrial projects.

Product-wise Revenue Contribution (in %)

Particulars	FY26 (% of Revenue)	FY25 (% of Revenue)
Heavy Steel Structures	76.00%	68.85%
Precision Steel Structures or
Technological Structures	22.00%	27.00%
Steel Bridge Structures	2.00%	3.34%
PEB (Pre-Engineered Buildings)	0.00%	0.74%
Others (Scrap Sales)	0.00%	0.01%
Total (A)	100.00%	99.94%
Trading of Goods	0.00%	0.06%
Total (B)	0.00%	0.06%
Grand Total	100.00%	100.00%

Key Clientele

Some of the Companys esteemed customers include Arcelor Mittal Nippon Steel India Limited, Tata Projects Limited, John Cockerill India Limited, Ray Engineering Private Limited, JSW Severfield Structures Limited and Panametrics Engineering Private Limited.

Growth Drivers

Strategic Pivot to Pure-Play, High-Margin Manufacturing: The company has executed a deliberate structural transition away from commoditized trading operations (such as HR/MS plates, angles, rounds, and channels) to focus entirely on high-realization, precision manufacturing. By phasing out low-margin commodity turnover, trading revenue dropped from 0.06% in FY25 to virtually 0.00% in FY26, transforming the business into a 100% pure-play value-added manufacturer; this portfolio optimization eliminates trading-related margin volatility, enhances structural EBITDA margins, and drives superior return on capital employed (ROCE).

Aggressive Capacity Scale-Up & Strategic Asset Rationalization: The company is executing a transformative expansion to scale total operational efficiency, driving an 80% capacity surge at its flagship Umbergaon facility from 30,000 MTPA to 54,000 MTPA by October 2026 to meet surging demand for heavy precision steel structures, PEBs, and railway bridge girders. In parallel, management is executing a value-accretive asset consolidation by phasing out the sub-scale Khopoli unit (6,000 MTPA across 56,084 sq. ft.), eliminating operational overheads from smaller facilities unable to service large, complex institutional orders and centralizing high-margin execution at its mega, RDSO-certified Umbergaon hub to maximize operating leverage and economies of scale.

High-Entry-Barrier Approvals & Robust Quality Moat

The companys Umbergaon facility serves as a critical growth engine, backed by stringent accreditations and multi-grade fabrication capabilities that create substantial barriers to entry in high-margin infrastructure segments. Overdimensional and overweight components are made with tight tolerance inspite of manufacturing challenges, lifting capacities of up to 40 mt per component, and further expanding these capabilities

RDSO Approval as an Institutional Moat: Approved by the Research Designs and Standards Organisation (RDSO), Ministry of Railways, for fabricating critical steel bridge girders (including composite and specialized plate girders). This qualification positions the company in an elite vendor tier, unlocking direct exposure to long-term railway capex and mega infrastructure tenders.

Certified Operating Infrastructure: Operational since 2017, the facility operates under integrated ISO 9001:2015 (Quality Management) and ISO 14001:2015 (Environmental Management) standards, ensuring compliance, operational consistency, and institutional client retention.

Broad Metallurgical & Engineering Capability:

High-Performance Raw Materials: Advanced processing capability across diverse steel grades (E250, E350, E450, wear-resistant Hardox, and galvanised steel), structural sections (I-beams, H-beams, universal beams, hollow sections), and seamless/ERW piping.

Precision Joining & Fastening: High-tensile, fastening systems combined with specialized welding methodologies (SMAW, flux-cored wires, mixed-gas shielding) to meet high-load structural specifications.

Commercial Implication: The convergence of RDSO compliance, specialized material handling, and certified quality controls enables superior bidding power, higher order-book realization, and margin expansion through complex, mission-critical fabrication projects.

Robust Revenue Visibility & Strong Order Pipeline

The companys commercial momentum provides high medium-term revenue visibility, backed by an expanding executable order book and a solid bid pipeline.

Firm Revenue Visibility: The outstanding executable order book stands at Rs.253 Cr as of March 31,2026, anchoring near-term execution and top-line predictability.

Strong Bid Momentum: Active order pipeline of Rs.150 Cr under bidding/negotiation, positioning the business for sustained order inflow and market share gains.

Key Financial Highlights and Operational Performance Revenue Growth Despite Operational Headwinds

Karbonsteel Engineering delivered a resilient performance during FY26, with revenue from operations increasing to Rs.300.88 crore compared with Rs.273.05 crore in FY25, reflecting continued demand across infrastructure, industrial and engineering segments. The company maintained growth momentum despite temporary disruptions related to gas availability, elevated input costs, labour constraints and project execution challenges.

EBITDA And PAT Impacted By Temporary Cost Pressures

EBITDA declined to Rs.32.67 crore in FY26 from Rs.36.61 crore in FY25, while EBITDA margin moderated from 13.41% to 10.86%, primarily due to higher raw material and consumable costs, elevated energy prices, and temporary operational disruptions during the year. PAT declined to Rs.10.51 crore from Rs.14.16 crore in FY25, impacted by lower operating margins and a Rs.1.65 crore one-time bad debt write-off during FY26.

Underlying Profitability Remains Stronger Than Reported Earnings

The reported PAT for FY26 was impacted by certain non-recurring and transitional expenses associated with the Companys expansion initiatives and operational restructuring. These included a Rs.1.65 crore one-time bad debt write-off, Rs.2.40 crore rental cost associated with capacity expansion, and Rs.1.84 crore one-time rundown cost related to the consolidation of the Khopoli plant.

After adjusting for these exceptional and expansion-related costs, the companys normalised PAT for FY26 stood at Rs.16.56 crore, which is 57.6% higher than the reported PAT of Rs.10.51 crore. This highlights the underlying strength of the business and indicates that FY26 profitability was temporarily impacted due to strategic investments undertaken to support future growth.

With the commissioning of the expanded Umbergaon capacity, improving operating leverage, and ongoing automation initiatives, the company expects improved volumes, better cost efficiency, and gradual margin improvement over the coming years.

Key Financial Ratios

The Ratios as per the latest amendment to Schedule III are as below:

Sr No. Ratios	Numerator	Denominator	Current Period	Previous Period	Variance	Remarks
1 Current ratio	Current assets	Current liabilities	1.46	1.23	0.19	Higher current asset holdings and faster clearing of short-term liabilities.
2 Debt Equity Ratio	Debt	Shareholders Equity	0.48	1.19	-0.60	Significant debt repayment and increase in total equity base.
3 Debt Service coverage ratio	Net Operating Income	Debt Obligation	1.02	2.89	-0.65	Lower net operating cash flows available for debt service obligations.
4 Return on Equity Ratio	Profit for the year	Avg Shareholders Equity	7%	17%	-0.58	Decline in net profit combined with an increased equity base.
5 Inventory Turnover Ratio	COGS	Average Inventory	1.94	1.95	-0.01	Negligible change; steady inventory holding period.
6 Trade Receivables turnover ratio	Net Sales	Average Trade Receivables	1.36	1.27	0.07	Marginally improved collection speed from debtors.
7 Trade payables turnover ratio	Total Purchases	Average Trade Payables	1.84	2.27	-0.19	Extended payment terms and higher average supplier payables.
8 Net working capital turnover ratio	Sales	Avg Working Capital	3.85	5.47	-0.30	Higher working capital block-up relative to sales growth.
9 Net profit ratio	Net Profit	Sales	0.03	0.05	-0.33	Margin squeeze due to increased operational costs and overheads
10 Return on Capital employed	EBIT	Capital Employed	17%	26%	-0.33	Lower EBIT generated against a higher total capital base.
11 Return on investment	Net Profit	Investment	NA	NA	NA	NA

Growth Strategy: Building Capacity, Enhancing Efficiency And Driving Growth

Karbonsteel Engineering is positioned for its next phase of growth through a combination of manufacturing capacity expansion, stronger order visibility, sectoral diversification, and automation-led efficiency improvement.

The Company is expanding its manufacturing footprint at Umbergaon, Gujarat, with more than 80,000 sq. m. of manufacturing space, strengthening its ability to execute larger and more complex structural steel projects. The planned capacity enhancement will increase annual fabrication capacity to 54,000 MT by October 2026, creating a potential revenue opportunity of Rs.540+ crore at an average realisation of Rs.100/kg.

The company enters the next growth phase with strong revenue visibility supported by an order book of Rs.353 crore and an additional order pipeline of Rs.150 crore, providing execution visibility into FY27. The expanded capacity is expected to enable Karbonsteel to cater to rising demand across multiple end markets, including railways, data centres, power plants, and industrial infrastructure, supported by sustained infrastructure spending in India.

Alongside capacity expansion, the company is focusing on automation and operational efficiency improvements to enhance productivity, reduce labour dependency, improve process consistency, and support sustainable margin improvement. Automation-led initiatives are expected to strengthen manufacturing capabilities and improve the companys ability to execute high-value precision steel structure projects efficiently.

Through a combination of increased manufacturing scale, diversified sector exposure, strong order visibility, and technology-driven operational improvements, Karbonsteel aims to strengthen its position in the growing Precision Steel Structures Solutions industry and capitalise on Indias expanding infrastructure and industrial development cycle.

Strategic Response: Automating For The Future

To address the operational challenges experienced during FY25-26 and enhance long-term manufacturing efficiency, Karbonsteel Engineering has initiated automation-led transformation across critical production processes. These initiatives are aimed at improving productivity, reducing operational dependencies, enhancing quality consistency, and supporting sustainable margin improvement as the Company scales its Precision Steel Structures Solutions business.

The automation strategy is built around three key pillars:

HD Plasma Cutting Machine:

The adoption of plasma cutting technology (Cutting/Drilling/ Bevelling) is expected to enable faster cutting cycles, reduce scrap and rework, and lower dependency on gas-based cutting processes. This will improve material utilisation and enhance overall production efficiency.

Automatic Beam Fit-Up & Welding Centre:

Automation in beam fit-up and welding processes is expected to improve productivity, ensure consistent weld quality, and reduce labour dependency. This will strengthen the Companys ability to execute complex structural steel projects with improved precision and efficiency.

Automatic Blasting Facility:

The automated blasting facility is expected to enhance throughput, improve surface quality, and reduce material wastage during finishing operations, leading to better process control and higher-quality output.

The automation initiatives are expected to deliver measurable operational benefits, including approximately 15% improvement in labour efficiency, around 25% reduction in labour costs across automated processes, significantly lower gas and consumable dependency, and improved output quality consistency through automated fit-up and blasting operations.

Through these investments, Karbonsteel aims to structurally enhance its manufacturing capabilities by improving productivity, reducing labour and gas dependency, strengthening quality standards, and supporting sustainable margin expansion. The company expects automation and sustainability initiatives to contribute approximately 1% improvement in operating margins from FY28.

Risk Management

During the financial year under review, the Company has identified and evaluates elements of business risk. Consequently, a Business Risk Management framework is in place. The risk management framework defines the risk management approach of the Company and includes periodic review of such risks and also documentation, mitigating controls and reporting mechanism of such risks. The framework has different risk models which help in identifying risks trend, exposure and potential impact analysis at a Company level as also separately for business.

Internal control systems and their adequacy

The Company has an adequate system of internal control to ensure that the resources are used efficiently and effectively so that:

• assets are safeguarded and protected against loss from unauthorized use or disposition.

• all significant transactions are authorized, recorded and reported correctly.

• financial and other data are reliable for preparing financial information.

• other data are appropriate for maintaining accountability of assets.

The internal control is supplemented by an extensive internal audits programme, review by management along with documented policies, guidelines and procedures.

Human resource

The companys continued success depends on the ability to attract, develop and retain the best talent at every level. The Companys Human Resource (HR) Management practices are deep-rooted in ensuring a

fair and reasonable process for all- round development of its talent. The Company strives to maintain a skilled and dedicated workforce, representing diverse experiences and viewpoints. The Companys HR Policy is focused on supporting employees well-being. The Company finds it imperative to follow policies and regulations that produce an unbiased work and safe work environment.

Cautionary Statement

A cautionary statement is a disclaimer commonly included in corporate reports, presentations, or public communications to notify stakeholders of potential risks and uncertainties that could influence future outcomes. It underscores that certain forward-looking statements, projections, or expectations are based on assumptions and may be subject to change due to various factors, including market conditions, regulatory developments, economic fluctuations, or unforeseen events. The primary purpose of such a statement is to ensure that investors, analysts and other stakeholders are aware of the inherent risks and uncertainties related to the provided information, thereby safeguarding the organisation from liability if actual results differ from anticipated outcomes. Focusing on self-reliance, adaptability and global trends, the country is strategically positioned for sustained long-term growth and economic stability. Key government initiatives, including Make in India, infrastructure development and continuous policy reforms, remain central to driving economic progress.