Orissa Sponge Iron & Steel Ltd Management Discussions

i. Industry structure and developments:

During FY 2025-26, the Indian sponge iron industry demonstrated moderate volume growth by production rose to the 60.36 million tons compared to 55.65 million tons compared to last fiscal year, supported by sustained domestic steel demand arising from infrastructure development, urbanization, housing, and increased government capital expenditure. Despite the positive demand environment, the industry faced significant challenges during the year. Prices of key raw materials, particularly iron ore and imported coal, remained volatile, while elevated power, freight, and logistics costs increased the overall cost of production. Additionally, tighter environmental compliance requirements and higher financing costs impacted the profitability of sponge iron manufacturers.

ii. Opportunities and threats:

Opportunities:

The Company was allotted Iron Ore Mines by the Central Government and the State Government of Odisha. However, the commencement of mining operations from the mines requires several approvals, clearances and fulfillment of conditions as specified in the respective documents. The company has received all approvals and clearances including Stage I Clearance from the Ministry of Environment and Forest vide Letter dated 21st September, 2016 and Compliance Certificate under the Scheduled Tribes and Other Traditional Dwellers (Recognition of Forest Rights Act) 2006 vide Letter dated 23rd June, 2016. The Company has also received approval under Section 2 (iii) of the Forest Conservation Act, 1980 for proceeding to execute the Mining Lease. Thereafter the Company has also deposited Rs. 28.96 Crores towards the NPV (Net Present Value) over the forest Land for which forest license has been accorded. However, the matter has gone to the Court. The Company is hopeful of getting favorable judgment for execution of mining lease in the near future.

Most recently in May, 2022, an application has been filed before Honble High Court of Odisha for an early disposal of the Companys Writ Petition. On May 18, 2022, Honble High Court of Odisha disposed off Companys application thereby stating that it was not inclined to fix any early date in this matter. Consequent to which the Company has filed a SLP before the Honble Supreme Court of India for early disposal of our application and vide order dated 09th Dec 2022 of The Honble Supreme court of India, directions have issued to High court of Orissa to dispose of this case on merits.

That Operation and Management Agreement (with Maa Tarinis Steel LLP) has played a pivotal role in the revival and stabilization of the Companys manufacturing operations. During the financial year 2025-26, the Company achieved significant operational progress, reflected in improved plant availability, enhanced capacity utilization, higher production efficiencies, and better operational discipline. The collaborative efforts under the agreement have enabled the Company to optimize resources, improve process efficiencies, and strengthen overall operational performance.

The improved performance of the DRI units, together with the successful commissioning of the SMS Plant, has established a strong operational foundation for sustainable growth. Going forward, the Company remains focused on improving productivity, optimizing costs, enhancing product quality, and achieving higher capacity utilization, which are expected to contribute positively to its financial and operational performance in the coming years.

Threats:

While the Operation and Management Agreement has significantly contributed to the stabilization and improvement of the Companys operations, it also exposes the Company to certain inherent risks. The Companys operational performance is dependent, to a considerable extent, on the operators ability to efficiently manage production, maintain plant availability, ensure regulatory compliance, and achieve targeted operational parameters. Any disruption arising from operational inefficiencies, non-performance, contractual disputes, manpower challenges, or failure to meet agreed performance standards by the operator could adversely impact production, profitability, and business continuity.

Further, upon the expiry or termination of the agreement, the Company may face transitional challenges in ensuring seamless continuity of operations unless appropriate succession and knowledge transfer mechanisms are in place.

Apart from these unforeseen events like natural disasters or pandemics that impact operations.

iii. Segment-wise or product-wise performance:

In accordance with Accounting Standard (AS) 17 - Segment Reporting, the Companys business activities continue to fall within a single primary business segment, namely Iron & Steel. For the last two financial years, the Company has been operating under an Operation and Management Agreement with Maa Tarinis Steel LLP (the "Operator") to ensure the smooth and efficient running of its business operations.

The Companys manufacturing plant had remained non-operational for more than ten years. Although the plant was subsequently revamped and production resumed, the Company continued to incur operational losses. In view of the continued losses and to improve operational efficiency, the Company entered into the aforesaid Operation and Management Agreement with Maa Tarinis Steel LLP. The arrangement is intended to leverage the Operators expertise in managing the plant efficiently, optimizing operations, and improving the Companys overall business performance.

During the year production of sponge iron was approx. 2.25 lakhs Metric ton whereas last year it was 1.63 lakhs metric ton. during the year the Company has purchased electricity from TPNODL amounting to Rs. 899.87 lakhs in comparison to last year it was of Rs. 547.74 lakhs).

iv. Outlook:

Our very first goal is to do all that is necessary action to obtain mining clearances so that mining operations from captive mines could commence as soon as possible. On achieving this goal efforts would be made to set up the project for production of 1 million tons of steel which will be a significant achievement for the company and company may perform magnificently in future.

As first phase of expansion, Company has successfully commissioned steel melting shop (SMS) which is also operational now. Further company is looking for more expansion of operations from SMS to TMT segment in future.

v. Risks and concerns:

As you know Sponge Iron industry is too much volatile due to their basic raw material prices i.e. iron ore, pellet and coal are dictated. This totally shatters the cost effectiveness and the industry operates under a razor thin margin or with no or negative margin. Price of sponge iron is sensitive to demand supply position of steel scrap and selling prices of products.

Contingent liabilities have been disclosed under Note No.40 of Notes on Financial Statements.

vi. Internal control system and its adequacy:

The Company has an adequate system of Internal Control commensurate with its size and nature of operations. It provides reasonable controls that all assets are safeguarded; transactions are authorized, recorded and reported properly. Internal Auditors, a firm of Chartered Accountants, conduct audit on various activities of the Company and reports to the Audit Committee constituted by the Board which Committee meets regularly and reviews audit issues and follows up implementation of corrective actions.

vii. Material developments in Human Resources / Industrial Relations front including number of people employed:

The Company firmly believes that, its manpower is the key to driving performance and developing competitive advantage. The emphasis has been on proper recruitment of talent and empowerment while devoting resources for their continuous development. The Company takes pride in the commitment, competence and dedication shown by its employees in all areas of business. Industrial relations in the organization continued to be cordial during the year under review. As on March 31, 2026 the Company had a strong team of 71 employees, who are aligned and dedicated towards the Companys goals.

viii. Significant Changes in Key Financial Ratios and Change in Return on Networth

In compliance with the requirements of Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, the details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with other key financial ratios and changes in Return on Networth of the Company (on standalone basis) including detailed explanations therefore are as under:

Particulars	2025-26	2024-25
Current Ratio	0.63	0.53
Debt-Equity Ratio	(10.30)	(8.98)
Debt Service Coverage Ratio	0.06	0.11
Return on Equity Ratio	(0.13)	(0.11)
Inventory Turnover Ratio	5.49	5.16
Trade Receivable Turnover Ratio	26.17	13.12
Trade Payable Turnover Ratio	4.82	2.78
Net Capital Turnover ratio	(11.31)	(10.86)
Net Profit Ratio	(0.1)	0.01
Return on Capital Employed	3.84	0.08

Change in Return on Networth:

During the FY 2025-26 and FY 2024-25, the Company net worth is negative in both the years.

ix. Cautionary Statement:

The Management Discussions and Analysis describing Industry Structure, Developments, Opportunities, Threats etc. aims at a forward-looking approach based on present applicable Laws & Regulations. Actual Results may differ from such expectations, projections etc. whether expressed or implied. Important factors that can influence and can make a difference in Companys operations include effect of demand and supply leading to price differentials in both domestic and international markets, changes in the regulations, tax laws and other statutes and other factors like infrastructure facilities, natural calamities etc. over which the Company do not have a direct control.