KIOCL Ltd Management Discussions

Indian Economic Overview:

Projections suggest that the Indian economy is likely to maintain a growth rate of 6.5% or higher for FY25, with some forecasts indicating a similar trend for FY26. This potential achievement, especially amid global economic challenges, reflects the resilience and promise of the Indian economy. This performance was driven by strong agricultural and service sector performance on the supply side and a steady increase in consumption and core merchandise and services exports on the demand side. All sectors are estimated to grow close to their trend rates. The International Monetary Fund, in its recent Article IV report published in February 2025, has stated that Indias prudent macroeconomic policies and reform-driven approach have positioned it as the fastest-growing major economy.

The global economy faces challenges in its post-Covid recovery, with recurring disruptions such as supply chain issues impacting trade, transportation, output, and inflation worldwide. Looking ahead, several trends will shape the economic landscape. The era of hyper-globalization in manufacturing is waning, although complete de-globalization isnt imminent. In essence, the challenges ahead for Indias economy include the difficulty of relying solely on exports for growth, emphasizing the need to reduce logistics costs and improve product quality to maintain and expand market share.

Another significant challenge is the energy transition, driven by global concerns about climate change and the push to reduce carbon emissions. While theres pressure on developing nations to shift to greener energy sources, the immediate trade-off between economic growth and energy transition poses challenges, particularly in the post-Covid global economy. India is navigating this balance adeptly, with a focus on steady economic growth while investing in climate change adaptation and mitigation.

The Indian economy is well-positioned to address these challenges, thanks to policies implemented over the past decade. The government has significantly increased infrastructure investment, with public sector capital investment steadily rising from H 5.6 lakh crore in FY 15 to H 18.6 lakh crore in FY 24. This substantial investment has led to tangible improvements in physical and digital infrastructure, including highways, airports, metro rail networks, and trans-sea links, driving transformative changes in the economy.

The pursuit of inclusive development reflects positively on Indian households financial health, with over 51 crore Jan Dhan Yojana bank accounts holding total deposits exceeding H 2.1 lakh crore, over 55% of which belong to women.

The economy has generated employment opportunities, with a decline in unemployment rates and an increase in labour force participation, particularly among women. Post-Covid, new subscribers to the Employee Provident Fund (EPF) have risen, especially among the youth, and more women are enrolling in tertiary education. Indias youth employability has increased to 51.3%, up from 33% a decade ago.

Inflation is under control, fiscal and current account deficits have reduced, and foreign exchange reserves cover nearly eleven months of imports, indicating stability and strength. The governments effective management of COVID and vaccination drives, along with prudent crude oil supply management, contributed to the economys swift recovery.

Geopolitical tensions, trade policy uncertainties, volatility in international commodity prices and financial market uncertainties pose considerable risks to the economic growth outlook, globally and locally. One offsetting positive is the outlook for commodity prices. Domestic private sector capital formation, focused on Indias solid fundamentals and economic prospects, will be an important driver of economic growth in FY26. Supportive fiscal measures, accommodative monetary policy, and the Union Budgets focus on longer-term development drivers and reform will bolster domestic economic resilience amidst significant global uncertainties (Source: Dept of Economic Affairs)

Industry Scenario:

Global Scenario:

In 2025, the global iron ore and steel industry faces a complex landscape with challenges and opportunities, including a potential steel production decline, oversupply concerns, and fluctuating prices, while Indias robust demand growth stands out.

The global steel industry stands at a pivotal juncture in 2025, characterized by evolving demand patterns, policy interventions, and the interplay of raw material costs. India emerges as a critical player in shaping the industrys trajectory, with its robust demand growth contrasting the sluggish recovery in other global markets.

2025 promises to be a year of recovery and resilience for the global steel industry, with India at the forefront of demand growth. While policy measures like safeguard duties offer protection to domestic players, global uncertainties and raw material dynamics necessitate strategic agility. As the industry adapts to evolving market conditions, Indias commitment to infrastructure and manufacturing growth will solidify its position as a key driver of the global steel economy (Source: Metals, Strategy & Growth).

During 2024, world crude steel production reached about 1,882.6 million tons, down by about 0.30% compared to 2023. Chinas crude steel production in 2024 reached about 1,005.1 million tons, down by about 1.7% on 2023. Indias crude steel production in 2024 was about 149.60 million tons, up by about 6.60% on 2023. Japan, the worlds third largest producer produced about 84million tons in 2024, down by about 3.40% compared to 2023. The global steel demand in 2024 is expected to decline by 0.9% compared to 2023 to 1.75 billion tons (source: WSA).

In 2024, global steel demand is estimated to have declined ~1%. Demand in China, the largest steel producer and consumer, declined ~3.5%, led by declining steel demand from real estate sector, despite conducive policy changes and release of support packages. Steel demand from Europe, Japan and the US also logged an estimated demand degrowth of 2-3%. However, demand growth in developing economies such as India and Brazil kept global demand from declining steeply. Demand is estimated to have increased 11% in India, 5.6% in Brazil and 2.7% in other steel consuming economies.

In 2025, global steel demand is expected to inch up by 0.5-1.5% on the back of easing financing conditions and pent-up demand from some key steel consuming economies, which will support manufacturing activities. An anticipated recovery in residential construction in economies such as EU, US and Korea in line with easing of financing conditions will support growth, too. India will continue to lead the pack in terms of demand (source: CRISIL, Platts).

Indian Scenario:

Steel production in India increased by 6% in 2024, to about 149.60 million tons. By 2030, it is planned to increase the steelmaking potential to 330 million tons per year in accordance with the state program National Steel Policy 2017.Indias steel demand is projected to grow by 8-9% in 2025, significantly outpacing the growth rates of other countries. This optimistic outlook reflects a strong trajectory for the Indian steel industry, driven by multiple demand-side factors. With markets in most regions of the world closed, India is becoming the most attractive market for steel products. Its import is growing amid an increase in local production and the commissioning of new steelmaking capacities. At the same time, prices for finished rolled products have positive dynamics.

In 2024, supply growth from Indias mills was at 5.2%. Aggregate crude production growth by the top seven players remained flat during the year. However, crude and finished steel production from medium and small players increased 14% and 11.3%, highlighting the consistent demand growth from long steel end-users.

Competitive imports and decline in exports also played a role in weaker production growth in 2024. While finished steel imports increased 24.5% to about 9.38 million tons, exports declined 6.4% to about 6.32 million tons, leading to additional availability of 3.2 million tonnes of finished steel apart from domestic production. This additional material availability accounted for ~2% of the total finished steel demand (Source, MoS, Reuter, ET).

Steel demand in India will continue to outpace other major steel consuming economies in calendar year 2025 with a growth of 8-9%, driven by a shift towards steel-intensive construction in the housing and infrastructure sectors along with better demand from engineering, packaging and other segments.

Domestic steel prices, meanwhile, declined in 2024, impacted by additional material availability due to increase in net imports. Domestic prices are under pressure due to global steel price decline and are expected to remain soft in 2025. Prices have a 4-6% upside potential hinged on implementation of the safeguard duty. As mills ramp up production volume from the newly commissioned capacities, increase in supply will reduce flat steel prices but will still be higher than average price of 2024 (source: CRISIL, a Company of S&P Global CRISIL, a Company of S&P Global)

Current market scenario of Iron Ore and Iron ore pellet:

Iron ore is an essential component of the global iron and steel industries. Almost 98% of mined iron ore is used in steel making. About 50 countries mine iron ore, with Australia and Brazil dominating the market share for export.

During the year 2024, iron ore prices have fluctuated wildly. For example, prices were at $143.95 per metric ton CFR China as on 03rd Jan24 and ended the year at US$ 100/DMT (31.12.2024); decrease of about 31%. Iron ore was one of the worst performing major commodities. The overall seaborne iron ore market was characterizedbystrongsupplyandweakdownstreamsteeldemand.

The price collapse was largely attributed to a drop in steel demand from China. The country purchases nearly two-thirds of the seaborne iron ore supply, which supports the businesses of major producers such as BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE). In addition, these companies have access to low-cost iron ore deposits and benefit from economies of scale. As they ramped up production, the market went into oversupply, which forced high-cost iron ore mines to scale back production.

Cost-cutting via lower iron content feed:

In 2024, high raw material costs increased the interest among Chinese buyers for sinter fines with a lower iron content of about 58% Fe and various other non-mainstream, off-specification cargoes. Moreover, miners continued to report strong prices on transactions of their 58% Fe and lower-grade material, reflecting heightened demand throughout the year. Major iron ore miners also adapted their sales strategies in 2024 to match the demand transition. The surplus of supply of both mainstream and nonmainstream brands in the secondary market amid constrained demand also contributed to the downward pressure on prices of iron ore.

The Seaborne Iron Ore Pellet market in China also depicted a similar trend that of iron ore fines during the year 2024. Asia iron ore pellet premiums were under pressure due to low steel margins and reduced downstream steel demand in China.

The CFR, China price of 63% Fe iron ore pellet has decreased by about 28% from its peak level of US$ 153.05/MT as on 03rd Jan24 to the level of US$ 109.55/MT as on 31st Dec24. The FOB, India price of 63% Fe iron ore pellet has decreased by about 28% during the above reference period of 3rd Jan24 to 31st Dec24 (i.e., from US$ 136.40/MT to US$ 98/MT).

It is reported that pellets right now are not the essential feed material for majority of blast furnaces in China, while sinter ore and lump remained the predominant materials used in the blast furnace burden mix at many steel mills. The decline in lump premiums has further diminished the cost-effectiveness advantages previously held by iron ore pellets. Most steel mills use iron ore pellets in relatively small proportions, with lumps being the primary feed material in the blast furnace. The year-on-year decline in the number of portside iron ore spot transactions was caused by import losses and overall declining consumption. (Source: Platts Report, Investopedia).

Future Outlook for Iron Ore Fines and Iron Ore Pellet Market/Industry:

Short - term outlook:

Commodity Insights analysts expect 2025 iron ore prices to come under further pressure with the iron ore trade balance moving into surplus on the likely ramp-up in seaborne supply and the anticipated first export from the Simandou project. Iron ore prices are forecast to maintain an average of $100/MT in 2025 as Chinas sluggish property sector continues to subdue demand. On the demand side, steel production in China, and thus demand for iron ore, still remains sluggish, with property sector weakness.

Long-term outlook:

Looking beyond 2024-2025, iron ore prices will likely follow a multi-year downtrend, as cooling steel production growth and higher iron ore output from global producers continue to loosen the market. In the long term, as per market forecast, prices to decline from an average of US$110/MT in 2024 to US$78/MT in 2033. Chinas slowing demand growth will be the main driver of lower prices, a trend that is now already in its early stages. A structural shift away from industrial, steel-intensive sectors towards services and less steel-intensive infrastructure will have a negative impact on iron ore demand. This shift in Chinas economic growth trajectory is expected to depress steel consumption and production growth rates. While domestic steel production was allowed to significantly outstrip steel demand over the past decade, with the resulting surplus exported, it is expected that production growth to be brought more closely in line with domestic consumption patterns in the coming years (Source: Platts Report).

Pellet Exports from India stood at about 6.9 million tons during 2024-25 as against 11.30 million tons in the previous year, down by about 39 % on Year – on -Year. Pellet Exports from KIOCL stood at about .155 million tons during 2024-25 as against 1.59 million tons in the previous year, down by about 90 % on Year – on -Year. KIOCLs market share in export of pellets from India is given in the following graph:

Marketing Efforts Made:

Expansion of Customer Base:

Efforts have been made to expand the customer base to de-risk our business only to a limited extent. During FY 2024-25, a total of 07 new customers were added to the list.

Increase in DTA Sale Quantity:

KIOCL is facing competition from merchant pellet manufacturers in India whose capacity has increase over the year. Domestic pellet manufacturers are based in and around mining areas and nearer to end users. Hence, they are able to offer pellets in the domestic market at a competitive price in comparison with KIOCLs pellets. Because of higher production cost, even iron ore pellets are not viable in the domestic market. To overcome the challenges faced in export market to maintain continuity in sales, focus has been given on domestic market. The details of iron ore pellets sold in the domestic market for the past four years is given below:

Domestic Pellet Production & Export vis-?-vis KIOCL Share:

For the Financial Year 2024-25, the cumulative sales for iron ore pellets were 4,96,670 MT against cumulative production of 3,33,700 MT. KIOCL has fallen short of target due to global slow down and reduced demand for Indian iron ore pellets in China. This has affected sales performance during FY:2024-25. The sales and production performance has been affected by the Conversion Job undertaken on behalf of NMDC from 26.12.2024 onwards.

Floating of Pellet sales tender in KIOCL SRM (SAP) Portal in place of MSTC:

KIOCL pellet Sale tenders were being conducted through MSTC. The requirements of MSTC were very stringent and many of our Overseas customers were facing difficulties in participating in the tender. The customers grievances were also not addressed promptly by MSTC. With proactive measure, the SRM Portal which is part of SAP S/4 HANA ERP system, has been used for conducting tenders for sale of iron ore pellets for ease of operation and also better participation by our registered customers, w.e.f., 01.04.2024.

Operation of Pellet Plant on Conversion basis with NMDC:

KIOCL has entered into a job work agreement with NMDC on 29.11.2024 for conversion of Iron ore fines into pellets for a quantity of 1.10 million Tons of Iron ore fines. Cumulative export of NMDC pellets produced under job work during the FY:2024-25 was 4,80,308 Metric Tons against 5,91,900 Metric Tons produced.

SWOT ANALYSIS

In the ever-changing business environment, your Company has identified the following Strengths, Weakness, Opportunities and Threats:

STRENGTHS

Mining Lease Deed executed between Govt. of Karnataka and KIOCL on 02-01-2023 for the grant of mining lease of Iron Ore and Manganese Ore over an extent of 388 ha for a period of 50 years

Niche Expertise

Expertise in handling iron ore from different sources (Magnetite/ Hematite) with different ore characteristics in pellet making.

Expertise in Mining, Beneficiation, Pelletization & Exploration

Material Handling advantage Proximity to National Highway, Railway line & Port, Shore based Plant with dedicated berth & mechanical ship loading facility.

Qualified, skilled and experienced manpower.

Well defined HR policies.

Authorized Economic Operator Export Oriented Unit

Strong environmental and social commitment

Committed Management team with high professional acumen

Risk Management Plan and its mitigation in place

WEAKNESS

Raw Material Sourcing

Lack of an operative captive mine since 2006.

Duetohighbasicpriceandstiffcompetition,uneconomical to procure IOF from Karnataka through e-auction.

Plant located away from mine head as well as domestic consumer locations.

High logistics cost for transportation of Iron Ore Fines.

Restricted to produce only BF Grade Pellets due to non-availability of high-grade ore indigenously and absence of beneficiation facilities.

SingleproductportfoliosinceBFUoperationissuspended.

Lack of forward or backward integration for its Blast Furnace Unit.

Non availability of deep draft berths/facilities to handle cape size vessels.

OPPORTUNITIES

Mining Lease Deed executed between Govt. of Karnataka and KIOCL on 02-01-2023 for mining of Iron Ore and Manganese Ore over an extent of 388 ha for a period 50 years

Export duty on Pellets levied by Govt. of India vide Customs Notice No. 29/2022 - Customs dated 21-05-2022 withdrawn on 19-11-2022

Anticipated strong growth in the Indian Steel Industry driven by the Govt.s focus on manufacturing and infrastructure.

Production-linked incentive for steel manufacturing.

Sustained Demand for value added products like Pellet, DISP etc.

Potential growth through JVs with other steel majors in India and overseas.

Best located for serving Steel plants in Middle East, China under Make in India.

THREATS

Change in Govt. of India policy on export duty on pellets.

Fluctuations in IOF price due to monthly pricing under LTC with NMDC.

Severe competition in the Pellet Industry.

Commissioning of captive pellet plants by all integrated steel plants.

Inflow of Pellet and high-grade lump from overseas at lower rates.

Constrained development due to continuation of policy, regulatory and environmental limitations.

Volatility in raw material prices on account of policy and regulatory actions.

Threat of substitutes viz., use of sinter or lumps in place of Pellets.

Highly dependent on China for selling of Pellets.

INTERNAL CONTROL SYSTEMS

The Risk Based Internal Audit (RBIA) is in place in the Company since 2011. It helps to strengthen the Internal Control Systems of the Company which is very important to ensure compliance of audit related regulatory guidelines, to bring the desired improvement and give timely feedback to the Top Management for taking-up immediate corrective steps. The report of Internal Auditor is placed before the Audit Committee on quarterly basis. However, due to the resignation of Dr. Usha Narayan and Shri. Changdev S Kamble, Independent Directors, w.e.f 31.10.2024, the Audit Committee has not been reconstituted. Hence, the report is placed directly at the Board Meeting.

SUCCESSION PLANNING

As part of Succession Planning, during the Financial Year 2024-25, 4 Lateral Entry were recruited under Group ‘A. However, there is no recruitment in any of the groups ‘B, ‘C, ‘D & D(S) (Supervisors and Non-Executives).

KEY FINANCIAL RATIOS:

Ratios	2024-25	2023-24	% Variance	Reason for variance
Current Ratio (in times)	3.56	4.41	(19.38)	Decrease in current liability due to repayment of current borrowings.
Debt - Equity Ratio (in times)	0.00	0.03	(100)	During the current year, the Company has re-paid whole current and non-current borrowings.
Debt Service Coverage Ratio (in times)	(8.70)	(0.90)	869.80	Increase of operating Loss during the year.
Return on Equity Ratio (in %)	(11.27)%	(4.25)%	165.24%	Increase of operating Loss during the year.
Inventory Turnover Ratio (in times)	1.66	4.62	(64.10)	Decrease in revenue from sale of product
Trade receivables turnover ratio (in times)	22.28	9.47	135.25	Account receivable increased due to sale of service
Trade payables turnover ratio (in times)	0.63	2.04	(69)	Reduction in credit purchase during the year.
Net Capital Turnover Ratio (in times)	0.65	1.69	(61.50)	Decrease in revenue from operation.
Net Profit Ratio (in %)	(34.64)%	(4.49)%	671.17%	Increase of operating Loss during the year.
Return on Capital Employed (in %)	(16.21)%	(3.43)%	372.96%	Increase of operating Loss during the year.
Return on Investment- Liquid Mutual Fund (in %)	7.17%	6.83%	4.98%

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH

The return on Average Net-worth during the year was (11.27)% as compared to (4.25)% during the previous year.

FUTURE OUTLOOK

The following projects are in different stages of implementation: -

DEVELOPMENT OF DEVADARI IRON ORE BLOCK

Brief	Develop Iron Ore Mine of capacity 2.0 MTPA.
	Set up 2.0 MTPA capacity Beneficiation Plant.
CAPEX	H 882.46 Crs for Phase-I operation.
Status	KIOCL Ltd has been granted Devadari Iron Ore Block, (Sandur Taluk, Ballari District) under reservation by GoK in Jan 2017 under section 17A(2) of MMDR Act, 1957. On obtaining all statutory Clearance viz Mining Plan approval, Environment
	Clearance, Forest Clearance and Consent for Establishment, KIOCL executed Mining Lease Deed of Devadari Iron Ore Mine with Director, Mines and Geology, Govt. of Karnataka on 02-01-2023 for 388 ha area for a period of 50 years for Iron Ore and
	Manganese Ore (ML No. 020 of 2023). Mining Lease Deed registered in the Sub-Registrar Office, Sandur on 18-01-2023 and paid H 329.18 crores towards Stamp Duty Fees. Govt. of Karnataka issued Government Order on 11-04-2023 for diversion of forest land for Devadari Iron Ore Mine.
	Forest Department, GoK is not entering into a Forest Lease Agreement for handing over of diverted forest land to KIOCL for commencement of mining activities due to linking the legacy of forest issues of closed Kudremukh Mine at Kudremukh.
	KIOCL with various communications requested Forest Dept, GoK to execute Forest lease agreement and to handover diverted forest land to KIOCL for commencement of Mining activities without linking with the regularization of forest issues of erstwhile
	Kudremukh Iron Ore Mine. However, KIOCL has already submitted application for regularisation of Kudremukh Mine pending
	issues and it is under consideration/processing at State Forest Department for further needful actions.
	As per Section 4 A (4) of the MMDR Act, 1957, KIOCL is mandated to commence production and dispatch of iron ore within two years (extendable by one year) from the date of lease execution, failing which the mining lease shall lapse. To ensure compliance with the statutory timeline, KIOCL filed WP 34073/2024 on 12.12.2024 in the Honble High Court of Karnataka to direct Forest Dept, GoK for execution of Forest Lease Agreement and handing over of diverted Forest land to KIOCL for mining Since this project having all statutory clearances.
The case is scheduled to hear on 14.07.2025 and so matter is under sub-judice.
After handing over the diverted forest, KIOCL will commence the mining activities at site like, approach road development,
detailed exploration, mine development and production, etc.

Installation and Commissioning of Coke Oven Plant under Backward Integration Project at BFU

Brief	Setting up of 2.0 LTPA DISP Plant under forward & 1.80 LTPA Coke Oven Plant under backward integration projects by KIOCL Limited and carrying out the necessary modifications to the Blast Furnace Unit of KIOCL to make the unit economically viable. H 218.30 Crores
CAPEX
Status	KIOCLs Board and the Public Investment Board (PIB) have approved the project with a total capital outlay of H 836.90 crores. The Ministry of Environment, Forest and Climate Change (MoEF&CC) granted environmental clearance (EC), and the Karnataka State Pollution Control Board (KSPCB) provided consent for the expansion in June 2021, valid until June 2026. M/s MECON has been appointed as the EPCM consultant for the project. The main technological components include an NRHR-type Coke
	Oven Plant, a Waste Heat Recovery Power Plant, a Ductile Iron Spun Pipe Plant, a Pulverised Coal Injection (PCI) Plant, Oxygen and Nitrogen Plants. The captive coke oven and PCI system will significantly reduce the raw material costs for Blast Furnace operations.
	The agreement for the Coke Oven Plant was signed with M/s Tuaman Engineering Ltd, Kolkata, in November 2021. A Tripartite agreement was also executed among KIOCL, M/s Tuaman Engineering Ltd, and M/s CIMFR, Dhanbad, the technology provider under the Atmanirbhar Bharat Initiative. The total project cost for the Coke Oven Plant is H 218.30 crores, inclusive of GST. Construction of the Coke Oven Plant is currently underway, with a physical progress of 70% as of 31st March 2025.

CAUTIONARY STATEMENT

Certain statements in this report regarding our business operations may constitute forward-looking statements. These include all statements other than statements of historical fact, including those regarding the financial position, business strategy, management plans and objectives for future operations. Forward looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and that may be incapable of being realised, and as such, are not intended to be a guarantee of future results, but constitute our current expectations based on reasonable assumptions. Actual results could differ materially from those projected in any forward-looking statements due to various events, risks, uncertainties and other factor We neither intend to nor assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.