Shah Alloys Ltd Management Discussions

INDUSTRYSTRUCTUREANDDEVELOPMENTS:

World Economic Environment

In 2025, the global economy rebounded from the pandemic, with a growth rate estimated at around 3.0%, according to the International Monetary Fund (IMF). While this marked a significant improvement from the recession of 2020, growth rates varied widely among countries, with advanced economies recovering faster than emerging markets. In 2026, global growth was expected to moderate to around 3.1%, reflecting Global recovery is steady but slow and differ by region.

The baseline forecast is for growth to fall from 3.0 percent in 2025 to 3.1 percent in 2025, before settling at 3.0 percent in 2025. Advanced economies are expected to see an especially pronounced growth slowdown, from 1.8 percent in 2024 to 1.5 percent in 2025. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.3 percent in 2025 with advanced economy growth falling below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent in 2022 to 5.2 percent in 2024 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflations return to target is unlikely before 2025 in most cases. Source: www.imf.org

World Steel Scenario

The World Steel Association (worldsteel) has released its Short Range Outlook (SRO) steel demand forecast for 2024 and 2025. Worldsteel forecasts that this year, demand will see a 1.2% rebound to reach 1772 million (Mt.) Steel demand is forecast to grow by 1.2% in 2025 to reach 1,854.0 Mt. Manufacturing is expected to lead the recovery, but high interest rates will continue to weigh on steel demand. Next year, growth is expected to accelerate in most regions, but deceleration is expected in China. Source: www.worldsteel.org

Indian Steel Scenario

One of the primary forces behind industrialization has been the use of metals. Steel has traditionally occupied a top spot among metals. Steel production and consumption are frequently seen as measures of a countrys economic development because it is both a raw material and an intermediary product. Therefore, it would not be an exaggeration to argue that the steel sector has always been at the forefront of industrial progress and that it is the foundation of any economy. The Indian steel industry is classified into three categories - major producers, main producers and secondary producers.

India is the worlds second-largest producer of crude steel, with an output of 152.18 MT of crude steel and finished steel production of 133 MT in FY25.

This year began with the anticipation that runaway inflation, aggressive policy rate hikes, and high commodity prices might topple a few major economies into recession in 2025. We are halfway past 2025 and, while the world is still in the woods, the probability of a recession this year has trimmed. Labor markets in several advanced countries remain tight, while the largest economy, the United States, is seeing a rebound in consumer confidence and spending. Risk spreads are declining on both sides of the Atlantic after the recent banking crisis in the United States.

India, meanwhile, enjoys a Goldilocks moment as it sees its economic activity gaining momentum amid continuing global uncertainties. The last quarters GDP data was pleasantly surprising but not completely unexpected. The GDP growth in the fourth quarter has pushed up the full-year GDP growth of FY2024-25 to 7.4%, 200 basis points (bps) higher than the earlier estimate. The recently released Annual Economic Review for the month of May 2023 highlighted that the post pandemic quarterly trajectories of consumption and investment have crossed pre-pandemic levels.1

Evidently, economists and analysts are bullish about the Indian economy. Our growth forecasts for FY2025-26 remain similar to our April forecast, although higher-than-expected growth in FY2025-26 has raised our base for comparison. That said, we have raised our lower limit of the range given the buoyancy of the economy. We expect India to growth between 6% and 6.3% in FY2025-26 and have a stronger outlook thereafter. In fact, if global uncertainties recede, we expect growth to surpass 7% over the next two years.

The first-quarter data points to further building on the positive momentum in the economic data. We continue to remain optimistic about the economy this year and expect India to grow between 6.5% and 7.00% during FY2025-26 in our baseline scenario, followed by 6.6% and 7.2% over the next two years as the global economy turns buoyant (figure 6). However, if downside risks weigh on the economic fundamentals and outlook, we may see a substantial economic slowdown (Source - Deloitte Insights)

The annual production of steel is anticipated to exceed 300 million tonnes by 2030-31. By 2030-31, crude steel production is projected to reach 255 million tonnes at 85% capacity utilisation achieving 230 million tonnes of finished steel production, assuming a 10% yield loss or a 90% conversion ratio for the conversion of raw steel to finished steel. With net exports of 24 million tonnes, consumption is expected to reach 206 million tonnes by the years 2030-1931. As a result, it is anticipated that per-person steel consumption will grow to 160 kg. Source: www.ibef.org

Market Size

In FY25, the production of crude steel and finished steel stood at 137.96 (million tonnes) MT and 132.57 (Million tonnes) MT respectively.

In FY24, the production of crude steel and finished steel stood at 143.6 (million tonnes) MT and 138.5 (million tones) MT, respectively. The consumption of finished steel stood at 136.29 (million tonnes) MT in FY24. In FY25, the consumption of finished steel proected to be around 111.49 (million tonnes) MT. Indias projected domestic finished steel consumption increased by 9%-10% in 2024-25, driven by increased demand from the automotive and infrastructure sectors.

In FY25, exports and imports of finished steel stood at 5 (million Tonnes) MT and 9.5(million tonnes) MT, respectively. In FY24, India exported 7.5 MT of finished steel.

The annual production of steel is anticipated to exceed 300 million tonnes by 2029-30. By 2029-30, crude steel production is projected to reach 255 million tonnes at 85% capacity utilisation achieving 230 million tonnes of finished steel production, assuming a 10% yield loss or a 90% conversion ratio for the conversion of raw steel to finished steel. With net exports of 24 million tonnes, consumption is expected to reach 206 million tonnes by the year 2030. As a result, it is anticipated that per-person steel consumption will grow to 160 kg.

(Source: https://www.ibef.org/industry/steeh

Opportunities:

Every industry has its own perks and challenges. When it comes to the steel industry, you face many challenges to overcome in order to manufacture or even recycle steel. Steel industry or steel per se has huge demand all over the globe which makes it all the more difficult to fulfil that need. There are many countries who export steel out which, China exports 50% of the worlds steel requirement. Today, we will talk about major challenges and opportunities in the steel industry. First, we will discuss challenges which provide opportunities to grow. The steel industry derives its demand from other important sectors like infrastructure, aviation, engineering, construction, automobile, etc.

• Capital Goods:- The capital goods sector accounts for 11% of steel consumption and is expected to increase 14-15% by FY2025-26 and has the potential to increase in tonnage and market share.

• Automotive Industry:- The Automotive industry accounts for around 10% of demand of steel in India. It is forecasted to grow in size to US$ 260-300 billion by 2026. Demand from the sector for steel is expected to be robust.

• Infrastructure sector:- The Infrastructure sector accounts for 9% of steel consumption and expected to increase 11% by FY2025- 26. Because of rising investments in infrastructure, the demand for long steel products would increase in the years ahead.

• Railways:- laying of tracks and construction of foot over bridges, rail coaches, railway stations will also drive the steel demand.

• Airport:-The number of operational airports stood at 103 as on 31st March 2019. Under union budget, Government is targeting more airports in the coming years. Development of new airports in Tier-II city would sustain consumption growth.

• Oil and Gas:- Indias primary energy consumption of oil and gas is expected to increase to 10 mbpd and 14 bcfd, respectively, by 2040. Under budget 2020, Government plans for the expansion of National Gas Grid to 27,000 Km from the present 16,200 Km. this would lead to an increase in demand, providing a lucrative opportunity to the steel industry.

Threats:

When we consider the impact of digital disruption on organisations, steel companies tend to be overlooked. However, the fact is that entire industry needs an upgrade to achieve its true potential moving forward, especially considering the various challenges the industry is facing. Continuous trade wars between the worlds major economies and the steel vs aluminium debate in auto manufacturing are some of the many well-known threats that the steel industry needs to develop strategies for. Likewise, unexpected threats, the surprises that arise through digital technologies and changing customer expectations also merit consideration. These new and possibly more disruptive improvements can challenge the traditional steel companys business models. Digital disruption will enable the steel industry to prepare itself for unexpected challenges and become more competitive.

The per capita labour productivity in India is at 90-100 tonnes which is one of the lowest in the world. The labour productivity in Japan, Korea and some other major steel producing countries is about 600-700 tonnes per man per year.

At Gallatin Steel a mini mill in the U.S. there are less than 300 employees to produce 1.2 million tonnes of hot rolled coils. A comparable facility in India employs 5,000 workers. Therefore, there is an urgent need to increase the productivity which requires retraining and redevelopment of the labour force.

OUTLOOK:

India remains a bright spot in the global steel industry and the steel demand in the country is expected to show a healthy growth of 7.4% and 6.4% in 2025 and 2026 compared to a global growth of 1.5% and 1.6%, respectively, according to Short Range Outlook of The World Steel Association. The world steel forecast comes against the backdrop of the countrys macro-economic fundamentals like manufacturing and services PMIs, IIP, core infrastructure growth, remaining steady and strong and it is expected to register a GDP growth ranging from 6 to 6.4% in fiscal 2024-25, as estimated by different agencies including the RBI, IMF & World.

• China remained the leader in world crude steel production with an output of 259..33 mt in January-March 2025 period, registering a growth of 4.8% yoy. The country accounted for 55% of world crude steel production during the first three months of 2024.

• Further, China and India were the only countries among the top 10 steel producing countries in the world which registered growth inproduction during January-March 2025.

• India was the 2nd largest producer of crude steel with an output of 40.12 mt in January March 2025, showing a yoy growth of 6.8%. The country accounted for 7.2% of world crude steel production during the first quarter of calendar year 2025.

• Japan was the 3rd largest producer of crude steel with an output of 20.393 mt in January March 2025 period, growth by 2.6% yoy. Japan accounted for arround 4.5% of world crude steel production during the period.

• With crude steel production of 19.72 mt(down 4.0% yoy), the USA was the 4th largest producer of crude steel during January-March 2025

• Russias crude steel production stood at 17.74 mt in January-March 2025 period and the country was the 5th largest producer of crude steel.

RISKS AND CONCERNS

Your Company continuously monitors and revisits the risks associated with its business. It has institutionalized the procedure for identifying, minimizing and mitigating risks and the same are reviewed periodically. The Companys Structured Risk Management Process attempts to provide confidence to the stakeholders that the Companys risks are known and well managed. The company management has a Risk Management Team comprising of Functional heads as Champions and accountable for risks associated in their areas. The company has review mechanism of risks at regular intervals. The management of the Company has identified some of the major areas of concern having inherent risk, viz. Foreign Currency Fluctuation, Client Concentration, Technology Risks and Credit Control. The processes relating to minimizing the above risks have already been put in place at different levels of management. The management of the Company reviews the risk management processes and implementation of risk mitigation plans. The processes are continuously improved.

Risk Management comprises three key components which are as below:

i. Risk identification

ii. Risk assessmentand mitigation

iii. Risk monitoring and assurance

Your Company has identified the following aspects as the major risks for its operations:

i. Market Risk - in terms of Price increase of Raw Material

ii. Foreign Exchange Risk

The risk mitigation plans are reviewed regularly by the Management and Audit Committee of your Company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Company has in place internal control systems and procedures commensurate with the size and nature of its operations. Internal control processes which consist of adopting appropriate management systems and implementing them are followed. These are aimed at giving the Audit Committee a reasonable assurance on the reliability of financial reporting and statutory & regulatory compliances, effectiveness and efficiency of your Companys operations. The Internal Control Systems are reviewed periodically and revised to keep in tune with the changing business environment.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year under review Total revenue from Operations and from other operating income decreased from Rs. 634.63 crores in the previous year to Rs. 267.28 crores. Company has registered a Loss of Rs. 27.30 crores in comparison to the profit of Rs. 2.58 crores during previous year.

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

DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT:

The human resource philosophy and strategy of your Company have been designed to attract and retain the best talent, creating a workplace environment that keeps employees engaged, motivated and encourages innovation. Your Company has fostered a culture that rewards continuous learning, collaboration and development, making it future ready with respect to the challenges posed by ever- changing market realities. Employees are your Companys most valuable asset and your Companys processes are designed to empower employees and support creative approaches in order to create enduring value. Your Company maintains a cordial relationship with its employees. Its emphasis on safe work practices and productivity improvement is unrelenting. Your Company has more than 200 employees on its permanent rolls as on 31st March, 2025.

DISCLOSURE OF ACCOUNTING TREATMENT:

The Company has followed all relevant Indian Accounting Standards while preparing the financial statements.

CAUTIONARY STATEMENT: Statement in this "Management Discussion and Analysis" describing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian demand and supply conditions, finished goods prices, input materials availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the Company conducts business and other factors such as litigation and labour negotiations. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise.