Pradeep Metals Ltd Management Discussions

1. GLOBAL OUTLOOK

The global economic outlook for 2025 26 presents a mixed picture, characterized by moderate growth, persistent inflationary pressures and heightened policy uncertainty. Heres a comprehensive overview of the economic outlook based on the reports published by OECD, IMF, and World Bank:

OECD has projected that Global GDP will slow down to 3.1% in 2025 and 3.0% in 2026, down from 3.2% in 2024. This deceleration is attributed to increased trade barriers and policy uncertainty, which are dampening investment and household spending.

The IMF forecasts global growth at 3.3% for both 2025 and 2026, which is below the pre-pandemic average of 3.7%. The outlook remains subject to significant downside risks, including policy-induced disruptions and geopolitical tensions.

World Bank has predicted a growth in low-income countries is expected to average 5.8% in 2025 26, driven by improvements in some fragile and conflict-affected nations. However, risks such as intensi ed insecurity, lower global growth, and increased debt-service costs pose challenges.

2. INDIAN ECONOMY

India is poised to remain one of the worlds fastest-growing major economies in FY 2025 26, despite facing global uncertainties and some structural domestic challenges. Economic momentum is expected to be driven primarily by domestic consumption, increased capital expenditure and a stable inflation environment.

Indian economy is projected to grow at the rate ranging between 6.2% and 6.7%. This growth outlook reflects resilience in domestic demand, continued recovery in services and higher public and private investment. However, it also takes into account external headwinds such as global trade tensions and elevated interest rates in advanced economies.

Indias economy is well-positioned to navigate FY 2025 26 with solid fundamentals. The combination of moderate inflation, government-led investment, and resilient consumption provides a stable foundation for growth. However, delivering on structural reforms and managing global risks will be essential to unlocking long-term economic potential.

3. BUSINESS ENVIRONMENT

The Indian forging market was valued at USD 5.21 billion in 2024. The market is projected to reach USD 10.17 billion by 2033, with a CAGR of 7.71% from 2025 to 2033.

The major raw material for Forgings Industry is steel. Production of crude steel in India is anticipated to increase by 4 7%, reaching between 123 127 million tonnes in financial Year 2025-26.

The industry also faced some challenges. Finished steel imports surged by 24.5% in 2024, impacting domestic prices.

However, the steel and forging industries in India are poised for growth in 2025, supported by government initiatives, technological advancements and rising domestic demand. However, challenges such as import pressures and global competition necessitate strategic measures to sustain this upward trajectory.

4. BUSINESS SNAPSHOT

Pradeep Metals Limited (PML) showed an impressive growth and generated Rs. 29,439 Lakhs in annual sales through its products ranging from intricate closed die stainless, alloy, carbon and Nickel Alloy steel forgings as finished and semi- finished machined components. The strategy of specialization and catering to custom-made and small quantity orders continues to pay dividends and has made the Company the preferred supplier to its customers. The Companys expertise in making deliveries in short lead times, sometimes even 2 days, helps the customers to keep low level of inventories at their end.

Major customers of the Company are in India, USA, UK, Singapore, Sweden, Denmark, France, Germany, Italy, Mexico, New Zealand and Argentina. The Company uses state-of-the-art machinery with sophisticated tool-room equipment to manufacture its forgings and machined parts. It also employs hi-tech design, Deform Simulation and analysis software to create dies and tooling that play a key role in the production of forgings. The manufacturing plant is fully integrated with complete facilities for inspection, testing, cutting, dies and tool making, forging, heat-treatment, finishing, machining, cleaning, surface treatment and assembly.

The Company continues to enhance its machining capacity and capabilities by adding CNC Turning Centers, Vertical Machining Centers (VMC), Turn Mills / Mill Turns and other equipment to address the rising demand of finished machined components and sub-assemblies. In addition to in-house facilities, the Company has also made a significant e ort and developed dedicated vendors for machining, in order to supplement its machining capacity and capabilities.

The Company continues to upgrade its plant, equipment and infrastructure on a continuous basis.

The Company uses its in-house upgraded metallurgical laboratory, process control, continuous improvement principles to manufacture quality products. The quality assurance systems have been approved by Global Original Equipment Manufacturers including nuclear grade and high-pressure equipments in Europe, USA and Southeast Asia. The Company is certified by ISO 9001:2015 & Pressure Equipment Directive 2014 / 68 / EU (PED). The Company continues to improve its capabilities to serve highly quality conscious markets to maintain its niche position in the industry. The Company has been concentrating on exports for long-term growth and exports about 50% - 55% of its finished goods. It has received ISO 14001:2015, ISO 45001-2018, Marine, Norsok, ISMS & AS 9100D certifications, etc. which are available on the website of the Company. Recently, the Company has also embarked on a journey to improve its productivity and profitability by employing TOC techniques in the process.

5. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Standalone financial performance of the Company is summarized below: -

(Rs. in Lakhs)

* Excluding Solar Power income which is used for Captive consumption

6. SEGMENT WISE AND PRODUCT WISE PERFORMANCE

Business verticals such as Valves, General Engineering, Instrumentation & Flanges and Defense contributed 32%, 31%, 33% and 4% respectively, to the total sales of the Company.

7. KEY FINANCIAL RATIOS (Standalone)

* Interest includes finance cost and bank charges.

8. FUTURE OUTLOOK

The Management is planning to expand the Machining capacity further and also replace some of the old forging equipments. This will be one of the focus areas this year. Considering the Governments policy of encouraging green energy, benefits being derived from the operation of a 2.1 MW Windmill plant, the Company has acquired and installed a 3 MW Land Based Solar Plant, on turnkey basis, at the cost of about Rs. 1,200 Lakhs. The power generated through Solar Plant is substantially lower compared with the MSEBs tariff . The pay-back period for Plant is expected to be 5 years whereas the Plant is guaranteed to generate power for 25 years with small degeneration of 5 % per year.

9. OPPORTUNITIES AND THREATS

Opportunities:

Following new opportunities have emerged to develop new overseas Customers.

Developing trend among Countries of decreasing the dependence on China in the Post-Covid Scenario.

Signing of Free Trade Agreements (FTA) between India and various Countries.

New products and customers development is a focus area, which helps us to mitigate the risk of obsolete product range.

The Companys ability to support customer demand within the shortest possible lead time helps us to meet the ever-shrinking expected lead time due to the uncertain market conditions.

Threats:

Labour intensive process, which can get hit during pandemics like Covid-19 and availability of skilled labour.

Tariff s war impacting the international trade.

Hike in the prices of Steel, Consumables, Freight, etc.

The Company has a diverse portfolio of products, spread over a large number of customers and across geographies. This insulates it against industry risks. As steel is the major input with volatility risk, the pass-through contracts provide protection against volatility in steel prices. People risks are mitigated with motivation initiatives and engagement with employees.

The Company has a sound internal control system which ensures that

a) its financial reports are reliable;

(b) its operations are effective and efficient;

(c) its activities comply with applicable laws and regulations; and

(d) accountability of assets and protection against loss through unauthorized use. The internal control systems are further supplemented by an internal audit carried out by an independent firm of Chartered Accountants and periodical review by the Management. The Internal Audit process is designed to review the adequacy of internal control checks in the system and covers all the significant areas of the Companys operations. Implementation of ERP is under process and its completion will further strengthen the financial controls.

The Audit Committee of the Board of Directors regularly reviews the adequacy and effectiveness of the internal control systems and tracks the implementation of corrective actions. Significant audit observations and corrective actions taken by the Management are presented to the Audit Committee. To maintain its objectivity and independence, the Internal Audit reports are submitted to the Chairman of the Audit Committee. The Audit Committee plays a key role in providing assurance to the Board of Directors.

The Companys philosophy is to engage with its employees at all levels. Dedication and commitment are encouraged and rewarded. The Company provides in-house training to its employees and sends them to obtain training from various organizations. The Company had a total of 572 employees on its payroll as on 31 March 2025

Cautionary Statement:

Details provided hereinabove relating to various activities and future plans may be ‘forward-looking statements within the realm of applicable laws and regulations. Actual performance may differ substantially or materially from those expressed or implied. The Company may need to change plans or other projections due to changes in Government policies, tax laws, market conditions and other incidental factors.