Shah Alloys Ltd Management Discussions

1. INDUSTRY STRUCTURE AND DEVELOPMENTS:

Global Economic Environment

The global economic environment during FY 2025–26 remained characterised by moderate economic growth, persistent geopolitical uncertainties, changing interest-rate expectations, commodity price volatility and uneven recovery across major economies. While inflationary pressures moderated from earlier elevated levels, the global operating environment continued to remain uncertain on account of geopolitical developments, trade-related measures, supply-chain disruptions and fluctuations in energy and raw-material prices.

For the steel industry, global demand continued to be influenced by infrastructure spending, manufacturing activity, construction, automotive demand and capital expenditure. At the same time, excess production capacity in certain regions, particularly Asia, and volatility in international steel prices continued to create competitive pressure on steel producers.

The global steel industry remains cyclical in nature and is sensitive to changes in economic growth, interest rates, raw-material prices, energy costs, international trade policies and capacity utilisation.

Indian Steel Industry

India continues to remain one of the worlds major steel-producing countries and the domestic steel industry remains an important contributor to industrialisation and infrastructure development.

Domestic steel demand continues to be supported by infrastructure development, construction, railways, automobiles, capital goods, renewable energy, oil and gas and other industrial sectors. Government-led infrastructure expenditure and continued investments in roads, railways, ports, airports, power and urban infrastructure are expected to remain important drivers of domestic steel consumption.

However, the industry continues to face challenges including volatility in steel prices, fluctuations in raw-material and energy costs, competitive imports, global overcapacity, technological changes and the need for continuous investment in modernisation and productivity enhancement.

The Company believes that the long-term fundamentals of the Indian steel industry remain favourable; however, the competitive and capital-intensive nature of the industry requires continuous technological upgradation, efficient capacity utilisation and disciplined capital allocation.

2. BUSINESS OVERVIEW AND SIGNIFICANT DEVELOPMENTS DURING FY 2025–26

FY 2025–26 was a transformational year for the Company.

During the year, the Company moved away from its earlier manufacturing-led operating model following the closure of its Iron & Steel Plant situated at Santej, Gujarat. The Board had approved closure of the entire plant on July 21, 2025, considering technological obsolescence, increasing production costs and continuing losses, which had resulted in the plant becoming commercially unviable without substantial technological upgradation.

The operations of the Santej plant were subsequently discontinued from August 2025. The closure materially reduced the Companys manufacturing activity and consequently its operating revenue during FY 2025–26.

The Company has thereafter focused on monetisation of identified assets, settlement of financial liabilities, divestment of investments and evaluation of various strategic alternatives in the best interests of the Company and its stakeholders.

The Company has also undertaken transactions involving sale of plant and machinery and other assets, transfer of technology/ technical know-how and divestment of its investment in S.A.L. Steel Limited.

3. ASSET MONETISATION AND STRATEGIC RESTRUCTURING

As part of the Companys strategy following closure of the Santej manufacturing operations, the Company undertook monetisation of certain assets.

During FY 2025–26:

- The Company sold its 16-inch Rolling Mill Plant for a consideration of Rs17.00 crore, resulting in a gain of approximately Rs16.92 crore, recognised as an exceptional item.

- The Company sold Plant and Machinery, including Capital Work-in-Progress, together with technical know-how and technology transfer for a consideration of Rs63.00 crore, resulting in a gain of approximately Rs53.48 crore, recognised as an exceptional item.

- The Company also divested part of its investment in its associate, S.A.L. Steel Limited, pursuant to the Share Purchase Agreement dated September 4, 2025. The transaction resulted in a realised gain of approximately Rs13.98 crore, recognised as an exceptional item.

These transactions represent the Companys efforts to unlock value from its assets and investments and strengthen its financial position following cessation of the Santej manufacturing operations.

The Company will continue to evaluate available strategic alternatives with the objective of optimising the utilisation and monetisation of its assets and improving long-term stakeholder value.

4. DIVESTMENT OF INVESTMENT IN S.A.L. STEEL LIMITED

During the year, the Company entered into a Share Purchase Agreement dated September 4, 2025 with Sree Metaliks Limited and other parties for divestment of its shareholding in S.A.L. Steel Limited.

The transaction formed part of the broader change in ownership and control of S.A.L. Steel Limited. Pursuant to the transaction, shares held by the Company were transferred to the acquirer in accordance with the terms and conditions of the Share Purchase Agreement and applicable regulatory requirements.

The divestment generated a realised gain of approximately Rs13.98 crore for the Company during FY 2025–26.

The transaction is an important part of the Companys strategy of unlocking value from non-core investments and improving liquidity following the closure of its manufacturing operations.

5. DEBT SETTLEMENT AND FINANCIAL RESTRUCTURING

During FY 2025–26, the Company also took steps towards resolution of legacy financial obligations.

On January 27, 2026, the Board approved a One-Time Settlement with HDFC Bank. Under the settlement arrangement, the Company agreed to pay Rs18.00 crore towards full and final settlement of dues against total liability of approximately Rs25.24 crore, resulting in a waiver of principal and interest of approximately Rs7.24 crore.

The settlement is expected to assist the Company in rationalising its outstanding financial obligations and reducing legacy liabilities.

Going forward, the Company intends to continue focusing on prudent financial management, efficient utilisation of available resources, settlement of legacy obligations and preservation of liquidity.

6. FINANCIAL PERFORMANCE

Following the closure of the Santej plant, manufacturing activity reduced substantially during FY 2025–26.

The Companys standalone revenue from operations declined to Rs37.27 crore in FY 2025–26 from Rs266.52 crore in FY 2024–25. The significant decline primarily reflects the cessation of manufacturing operations at the Santej plant during the year.

Standalone profit before exceptional items and tax was a loss of approximately Rs20.19 crore. However, the Company reported a standalone net profit of approximately Rs72.60 crore, principally due to exceptional gains arising from asset monetisation, divestment of investment and settlement of financial liabilities.

At the consolidated level, the Company reported a net profit of approximately Rs107.73 crore for FY 2025–26.

The reported profitability should therefore be viewed in the context of the Companys transition from an operating manufacturing business to a restructuring and asset-monetisation phase. The exceptional gains recorded during the year are substantially non-recurring in nature and should not be considered representative of recurring operating profitability.

7. KEY FINANCIAL RATIOS STANDALONE OPERATION AS PER SEBI LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS (AMENDMENT) REGULATIONS, 2018

Sr. No.	Ratio	As at 31st March, 2026 (%)	As at 31st March, 2025 (%)	% Change	Explanation for change in the ratio by more than 25% as compared to the previous year
A.	Current Ratio (times) = Current assets/ Current liabilities	0.50	0.18	177	Due to substantial decrease in Current Liability for the year
B.	Debt-Equity Ratio (times) = Total Borrowings/ Shareholders equity	0.56	1.96	-71	Due to increase in the Net profit
C.	Debt Service Coverage Ratio = Earnings available for debteservice/ Debtservice	1.40	0.18	-870	Due to substantial increase in the net profit for the year
D.	Return on Equity Ratio % = Net Profits after taxes Average shareholders equity	95.11	-74.68	-227	Due to substantial increase in the net profit for the year
E.	Inventory turnover ratio (times) = Revenue from operations/ Average inventory	0.75	4.84	-85	Due to decrease in Material Purchase/ Revenue for the year
F.	Trade receivables turnover ratio (times) = Net credit revenue from operations/ Average trade receivables	32.17	63.93	-50	Due to decrease in revenue for the year
G.	Trade payables turnover ratio (times) = Net credit purchases/ Average trade payables	0.39	1.78	-78	Due to decrease in Purchase/Revenue for the year
H.	Net capital turnover ratio (times) = Revenue from operations/ Working capita	-0.83	-1.66	-50	Due to decrease in Revenue for the year
I.	Net profit ratio % = Net profit/ Revenue from operations	194.80	-10.25	-2001	Due to substantial decrease in Revenue and increase in Net Profits for the year
J.	Return on capital employed % = EBIT/ Average Capital Employed	5.38	-23.92	-122	Due to Substantial decrease in the EBIT

The significant movement in the ratios is primarily attributable to the sharp reduction in operating revenue following closure of the manufacturing plant and the impact of exceptional gains recognised during the year.

The improvement in the debt-equity ratio is also attributable to reduction in financial liabilities and the impact of the profit reported during the year.

The exceptionally high net profit ratio and return on equity should be interpreted with caution as the reported profit was significantly influenced by non-recurring exceptional items.

8. OPPORTUNITIES

Despite the closure of the Santej manufacturing plant, the Company believes that opportunities may arise from efficient utilisation and monetisation of its existing assets and investments and from identifying suitable strategic alternatives.

The principal opportunities identified by the Company include:

1. Monetisation of identified surplus/non-core assets.

2. Reduction and settlement of legacy financial obligations.

3. Unlocking value from investments and strategic holdings.

4. Evaluation of alternative business opportunities and strategic options.

5. Efficient deployment of available financial resources.

6. Exploration of suitable opportunities in sectors where the Company can create sustainable long-term value.

7. Utilisation of the Companys existing experience, relationships and resources for future strategic initiatives.

The Company will evaluate such opportunities carefully, keeping in view capital requirements, expected returns, risks and long-term stakeholder value.

9. THREATS AND CHALLENGES

The Company is currently undergoing a significant business transition and therefore faces certain challenges.

The principal challenges include:

- Absence of regular manufacturing operations following closure of the Santej plant.

- Uncertainty regarding the timing and nature of future business operations.

- Dependence on successful monetisation of assets and investments.

- Liquidity and working-capital requirements.

- Legacy liabilities and settlement of outstanding obligations.

- Volatility in asset and commodity prices.

- Regulatory and legal requirements associated with restructuring and asset monetisation.

- Need to identify commercially viable future business opportunities.

- Potential impairment or reduction in recoverable value of assets.

- General economic and market uncertainties.

Management continues to monitor these matters and evaluate appropriate measures to protect the interests of the Company and its stakeholders.

10. OUTLOOK AND FUTURE STRATEGY

The immediate outlook of the Company is different from its historical manufacturing-led business model.

Following the closure of the Santej plant, the Companys immediate focus is expected to remain on:

- orderly implementation of the plant closure;

- monetisation of identified assets;

- settlement and rationalisation of outstanding liabilities;

- optimisation of available cash resources;

- evaluation of strategic alternatives;

- unlocking value from investments and other assets; and

- identifying suitable and commercially sustainable opportunities for the future.

The Company has already demonstrated progress in this direction through sale of plant and machinery, disposal of the 16-inch Rolling Mill Plant, divestment of investment in S.A.L. Steel Limited and settlement of HDFC Bank dues.

The Management will continue to explore various options in the best interests of the Company and its stakeholders. Any future business initiative will be evaluated based on its commercial viability, capital requirement, risk-return profile and potential to generate sustainable value.

Given the current transition phase, the Company does not presently consider the historical manufacturing performance to be an appropriate basis for projecting future operating performance.

11. MATERIAL UNCERTAINTY RELATING TO GOING CONCERN

The Companys existing Iron and Steel plant at Santej was shut down from August 2025 following the Boards decision to close the plant on account of technological obsolescence, high production costs and persistent losses.

The Independent Auditor, in the audit report forming part of the financial statements for FY 2025–26, has drawn attention to a material uncertainty relating to the Companys ability to continue as a going concern.

Management has represented that the Company is exploring various options in the best interests of its stakeholders and, accordingly, the financial statements have been prepared on a going-concern basis.

The Company is continuing to evaluate strategic alternatives and measures for preservation and optimisation of its financial and operational resources.

12. RISK MANAGEMENT

The Company has established processes for identification, assessment, monitoring and mitigation of risks.

In the present business environment, the key risks requiring continuous monitoring include:

Business and Strategic Risk

The closure of the manufacturing plant has materially changed the Companys business profile. The Company is therefore exposed to the risk associated with identifying and implementing an appropriate future business strategy.

Liquidity and Financial Risk

The Companys ability to meet its obligations and fund future activities depends on available liquidity, asset monetisation, settlement of liabilities and prudent financial management.

Asset Valuation Risk

The Companys strategy includes monetisation of assets. Changes in market conditions and asset values may affect the realisable value of such assets.

Market Risk

The Company remains exposed to fluctuations in steel prices, commodity prices, interest rates and broader economic conditions to the extent relevant to its remaining activities and investments.

Regulatory and Legal Risk

The Company continues to be subject to applicable corporate, securities, tax, environmental and other regulatory requirements.

Investment Risk

The value and realisation of the Companys remaining investments may be affected by market conditions and the financial performance of the respective investee entities.

The Management periodically reviews the risk mitigation framework and takes appropriate measures based on changing circumstances.

13. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has internal control systems and procedures commensurate with the size and nature of its activities.

The internal control framework is designed to provide reasonable assurance regarding reliability of financial reporting, safeguarding of assets, compliance with applicable laws and regulations and effectiveness of operations.

Following the closure of the manufacturing plant, the Companys control environment is also being aligned with its changed business profile, including asset monetisation, financial settlements, investment management and evaluation of strategic alternatives.

The Audit Committee periodically reviews the adequacy and effectiveness of the internal control systems.

14. HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Human resources continue to be an important part of the Companys organisational framework.

The Company maintains appropriate focus on employee engagement, compliance, safety and productivity. Following the closure of the Santej manufacturing operations, the Companys human-resource requirements and organisational structure are being aligned with the Companys revised operating profile.

The Company continues to maintain cordial relations with its employees and remains committed to compliance with applicable labour and employment requirements.

15. MATERIAL DEVELOPMENTS AFTER THE END OF FY 2025–26

Subsequent to March 31, 2026, the Company has continued to undertake measures relating to its corporate and governance framework.

In July 2026, Shri Ambalal C. Patel tendered his resignation as Independent Director with effect from the close of business hours on July 13, 2026, citing unavoidable personal reasons. The Company has initiated the necessary corporate and regulatory actions arising from the change in Board composition.

The Company continues to evaluate strategic alternatives following closure of the Santej manufacturing plant and the asset monetisation and financial restructuring measures undertaken during FY 2025–26.

16. FUTURE PLANS

The Company intends to focus on a disciplined and value-oriented approach during the coming period.

The broad areas of focus are expected to include:

1. Further evaluation and monetisation of non-core and surplus assets, wherever commercially appropriate.

2. Continued efforts towards settlement and rationalisation of legacy liabilities.

3. Preservation of liquidity and efficient deployment of available funds.

4. Evaluation of new business opportunities and strategic alternatives.

5. Optimisation of the Companys asset base.

6. Strengthening of corporate governance and internal control mechanisms.

7. Protection and enhancement of stakeholder value.

The Company will undertake new business initiatives only after evaluating their commercial feasibility, funding requirements, risk profile and long-term sustainability.

17. CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis describing the Companys objectives, expectations, estimates, projections and future plans may constitute forward-looking statements within the meaning of applicable securities laws and regulations.

These statements are based on the Companys present expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those expressed or implied due to various factors, including changes in economic conditions, market conditions, steel and commodity prices, asset values, availability of finance, regulatory developments, litigation, business restructuring, implementation of strategic initiatives and other factors beyond the Companys control.

The Company undertakes no obligation to publicly update, modify or revise any forward-looking statements on the basis of subsequent developments, information or events, except as may be required under applicable laws and regulations.