Sharda Ispat Ltd Management Discussions

The operating and financial review is intended to convey the managements perspective on the financial and operating performance of the Company for the financial year 20242025 and outlook for the current financial year. This report should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the Annual Report. This report is an integral part of the Boards Report.

INDUSTRY STRUCTURE AND DEVELOPMENT GLOBAL ECONOMY:

In 2024, the global economy grew at a rate of 2.8%. After continuously enduring multiple shocks in previous years - including geopolitical conflicts such as the Russia-Ukraine conflict, conflict in middle east, pandemic aftereffects, and supply chain disruptions, the global economy demonstrated steady & resilient growth. The global economy is expected to grow by 2.3% in 2025. The tension around trade and high levels of policy uncertainty are expected to have a significant impact on the economic activity. Global inflation is expected to moderate to 4.3% in 2025 and 3.6% in 2026, approaching central bank targets. While advanced economies are likely to contain inflation more effectively than emerging markets, rise in protectionism and geopolitical tensions around trade will significantly impact prices of domestic products especially in United States.

In Financial Year 2025, the global economy experienced moderated growth, influenced by persistent inflationary pressures, tight monetary policies in developed markets and geopolitical uncertainties. These factors contributed to cautious consumer spending and disrupted global trade flows. Amid trade uncertainties, global growth is expected to slow to 2.3% in 2025 from 2.7% in 2024.

In Current Year 2025, advanced economies are expected to experience diverse growth on the basis of domestic demand and differing policy responses. In contrast, emerging markets, including China and India, are expected to maintain a stable growth despite ongoing uncertainties in global markets. Advanced economies are forecasted to grow moderately at 1.9% in Current Year 2025 and 1.8% in the Year 2026. Although inflationary pressures have eased, there are still ongoing risks, including uncertainty surrounding policy decisions and heightened geopolitical tensions. The recent volatility in global markets was triggered by changes in U.S. tariff regulations, following the announcement of a 26% import tariff. Although the tariff was later suspended for a period of 90 days, the sudden policy reversal created uncertainty. This ongoing lack of clarity has continued to weigh on investor confidence and global market sentiment. Despite these challenges, economies are expected to adapt by leveraging technology and strategic planning to maintain resilience and stability.

INDIAN ECONOMY:

Amid economic environment including slowdown in manufacturing, geopolitical conflicts, and protectionist trade policy measures, India displayed steady economic growth. With its sustained GDP growth momentum, it has solidified its position as a frontrunner in the global economic race. Indian economy is estimated to have grown by 6.5% in Financial Year 2025 and emerged as the fastest growing major economies in the world consistently. Indias growth is expected to remain rangebound, 6% - 6.5%, in the next couple of years. The economy is expected to be driven by strong domestic consumption, government capital expenditure, and robust expansion in the services and manufacturing sectors.

India is one of the worlds fastest-growing economies, driven by strong domestic demand, a thriving services sector and ongoing structural reforms. However, the recent U.S. tariffs on Indian imports may slow GDP growth, impact key industries and prompt policy adjustments, while pushing India to strengthen trade ties with other partners. In Financial Year 2024-25, Indias GDP growth moderated to 6.5%, down from 9.2% in the previous year, reflecting the impact of global economic uncertainties, rising geopolitical tensions, tariff challenges, and persistent inflationary pressures. Despite this deceleration, the economy continued to grow steadily, underpinned by strong performance in manufacturing, a rapidly expanding services sector, and increased infrastructure spending. Government initiatives aimed at digital transformation, financial inclusion, and improving the ease of doing business contributed to economic resilience. The Production- Linked Incentive (PLI) schemes played a key role in bolstering domestic manufacturing and attracting foreign direct investment, particularly in sectors like electronics, automotive, and renewable energy. Additionally, rising urbanization and the expansion of the middle class continued to drive higher consumer spending, further supporting economic momentum.

The Government of India continues to prioritize fiscal consolidation, job creation, and enhanced capital investment to drive sustainable growth. The increasing share of capital expenditure in central government spending reflects a strategic focus on industrial development and infrastructure expansion. Higher investments in infrastructure and asset creation are expected to generate strong multiplier effects across the economy. The PLI scheme has successfully attracted investments and stimulated production across various industries. The Government is exploring further sectoral expansion to enhance domestic manufacturing and develop labor-intensive industries. Indias economic outlook remains positive, supported by strong domestic demand, proactive policy measures, and resilient sectoral performance. Strengthening trade relations with developed economies is expected to further bolster growth, with the India-UK trade agreement standing out as a significant step in this direction. By capitalizing on its domestic strengths and advancing strategic reforms, India is well-equipped to navigate global headwinds and sustain its momentum as a leading global economic powerhouse.

STEEL INDUSTRY:

The steel sector has historically been a cornerstone of industrial progress, forming the foundation of economic development. However, the past year presented significant challenges for the industry, as global manufacturing activity remained subdued due to low household and business confidence, leading to cautious spending and investment. High input costs, geopolitical uncertainty, and tighter financing conditions have delayed capital investments. The lingering effects of inflation have further eroded purchasing power and consumer sentiment. Additionally, weak housing construction in major markets such as China, the United States, Europe, and Japan has adversely impacted steel demand. The automotive sector, a major consumer of steel, also experienced slowdown in 2024. However, investment in manufacturing facilities and public infrastructure provided some support to global steel demand. Sustained capital expenditure in these areas by major economies played a key role in offsetting weaker demand from traditional sectors.

Global steel prices declined in CY2024 due to weak demand, a struggling Chinese economy, geopolitical tensions and cautious market sentiment amid elections in major economies. While steel demand weakened in China and most developed economies, developing economies like India have demonstrated resilience. China, which accounts for nearly half of the worlds steel industry, recorded a 5% decline in consumption in 2024, mainly due to the structural challenges that its real estate industry is witnessing. India has been a key driver of global steel demand growth in recent years. The US administration has removed exemptions on its 25% tariff on steel imports (under section 232 for national security reasons) and brought derivative products under the coverage of tariffs. From an India perspective, the direct impact of the tariff action is likely to be negligible on steel exports, but there could be indirect effects of trade diversions and of increased tariffs on exports of steel-intensive manufacturing sectors, besides the negative macro impulse of tariffs on global steel demand.

According to WSA (World Steel Association) estimates on overall global production, the global steel industry witnessed diverse trends across key producing countries in December 24. Indias crude steel production saw a significant increase in December 2024, rising by 9.5% compared to December 2023 and by 9.7% compared to November 2024. For the year 2024, Indias production reached 149.6 million tons, marking a 6.3% growth over 2023. This growth highlights Indias resilience and continued strength in steel production despite global fluctuations.

OPPORTUNITIES AND THREATS:

OPPORTUNITIES:

India will continue to be one of the fastest-growing economies globally and is expected to become the third-largest economy by Financial Year 2030-31. The Governments continued focus on expanding the manufacturing sectors share of the GDP will play a key role in driving this growth. With growing urbanization, the Government is expected to invest significantly in infrastructure. The steel sector will play a crucial role in meeting the countrys infrastructure and industrial needs, driving Indias economic growth. India has emerged as the strongest driver of global steel demand growth for the past three years, with steel demand expected to rise by 8% annually through 2025, while global steel demand faces decline. Further, India is the worlds second-largest steel producer and the only major country reporting strong steel volume growth of 33% from 2019 to 2024. The Indian Government has taken initiatives like the National Steel Policy, Product Linked Incentive Scheme, and the Domestically Manufactured Iron & Steel Products policy to promote "Make in India" to boost the domestic growth. Such initiatives will give a push towards increasing production and expansion of the production capacity, and advanced manufacturing capabilities and automation present opportunities for smaller players to enhance productivity and compete with larger manufacturers through technological adoption. The National Steel Policy envisages per capita steel consumption to reach 160 kgs by 2030.

The primary demand drivers include growth in consumption sectors, urbanization, policy interventions and government initiatives such as the National Manufacturing Mission, the Smart Cities Mission, and Production Linked Incentives. CRISIL (March 2025 forecast) has projected Indias steel consumption growth to remain robust at 9-10% in FY 2025-26 with flat steel products (projected growth of 12-14%) leading the demand growth, in comparison to long steel products (projected growth of 5.5-7.5%).

Thus, the Companys strategic location in Nagpur, providing access to major automotive clusters and port connectivity, enhances our supply chain efficiency and responsiveness to key industrial regions. It also helps with catering to the increasing demand for specialized and high-strength grades of flats and other products in the automotive sector. Looking ahead, operational scalability through capacity expansion and ongoing modernization efforts will enable the Company to harness opportunities presented by government initiatives and infrastructure investments.

THREATS:

The global steel sector faces chronic overcapacity, tightening trade barriers, and rising geopolitical risk, with the US, European Union, and Japan imposing tariffs and quotas to shield domestic industries. Geopolitical tensions fueled by COVID-19, Russia-Ukraine war, U.S.-China relations, have strong effects on steel manufacturing operations, while the rise of nationalism and protectionism threatens cross-border economic engagement. Despite rapid steel consumption growth in India, higher imports are needed to meet demand, putting local firms under price pressure that erodes profit margins. The cyclical nature of the steel market and potential fluctuations in global demand necessitate continued vigilance and adaptive strategies to maintain resilience.

Even with the developments on the rise and government initiatives, the steel industry and the Company are not free from threats. The Company has to compete with the import of low-cost steel from China to keep its market share at the current position. In addition to this, the trade wars and increased U.S. tariffs pose a threat to export opportunities of the Company. The steel industry faces transformation through hydrogen-based steelmaking, AI & automation, and additive manufacturing technologies. Companies failing to adopt these technologies risk losing competitiveness, while the investment required for technological upgrades strains smaller manufacturers resources. The need for continuous innovation to meet automotive industrys evolving requirements adds pressure on specialized manufacturers to invest in Research & Development and advanced manufacturing capabilities. To add more stress, the evolving regulatory landscape, including stricter quality standards, environmental compliance requirements, and changing trade policies, is creating ongoing operational challenges. Furthermore, Geopolitical tensions, competing industries demand for raw materials, and climate- related mining disruptions pose ongoing risks.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:

The Company operates in only one segment, i.e. iron & steel. During the financial year 2024-25, the company achieved production of steel product as under:

Own Unit (MT) - 26,445.76 (Previous Year 32,873.910)

Sales (Rs.) - 17,544.30 Lakhs (Previous Year 22,726.53 Lakhs)

OUTLOOK FOR STEEL INDUSTRY:

The global steel industry, a fundamental driver of industrial growth and infrastructure development, is expected to experience moderate growth in 2025 after navigating a series of challenges in 2024. The World Steel Associations latest forecast (Oct 2024) indicates that global steel demand will increase by 1.2% in 2025, reaching approximately 1,772 million tonnes (Mt). This recovery is expected after a period of subdued demand in 2024, driven by slower-than-expected economic growth in major steel-consuming nations. In contrast, India is expected to be a significant driver of global steel demand, with an anticipated 8% growth in 2025. This surge is primarily attributed to strong infrastructure development and expansion in manufacturing, bolstered by governmental policies to support industrialization and urbanization.

The key determinants of the global steel demand outlook for 2025-2026 will be the progress made in the stabilization of Chinas real estate sector, effectiveness of interest rate adjustments in spurring private consumption and business investment and the trajectory of infrastructure spending dedicated to decarbonization and digital transformation across major global economies. The Indian Steel Association expects continued growth in steel demand, with sector consolidation attracting investments, creating opportunities for global players. The Production Linked Incentive (PLI) scheme is anticipated to boost especially steel investments. While global steel demand is expected to grow modestly in 2025, Indias growth is set to lead due to weak demand from major producers like China and Europe. Domestic supply challenges, such as maintenance shutdowns and rising imports, may be addressed by a proposed safeguard duty, which could stabilize prices.

The overall evolution of steel demand remains subject to very high uncertainty. No improvement in apparent steel consumption is expected before the first quarter of 2026, and consumption volumes are expected to remain far below pre-pandemic levels. Overall, while the global steel demand is poised for recovery in 2025, the industry remains exposed to geopolitical, economic, and financial risks. India, however, continues to stand out as a high-growth market, supported by strong domestic demand and investment. The long-term outlook for the Indian steel industry remains optimistic, with continued infrastructure development, industrial expansion, and supportive government policies driving its growth. Effective trade policies, price stabilisation measures, and sustained investment will be crucial to maintaining Indias competitive edge in the global steel market.

RISK & CONCERNS:

The Company operates in a dynamic and increasingly complex environment, marked by volatility, uncertainty, and stringent regulatory and environmental standards. With a commitment to creating long-term value for its stakeholders, the Company focuses on embedding risk intelligence and strengthening organizational resilience. As part of this effort, it continuously identifies potential risks and assigns ownership for their ongoing monitoring, mitigation, and reporting. This proactive approach supports the achievement of the Companys strategic objectives. Key risks have been categorized across several areas, including financial, macroeconomic and market, operational, safety, commodity, supply chain, information security, regulatory, climate change, and community-related risks.

The Company has also mapped the severity of these risks and the likely impact on the Company and has developed mitigation strategies to eliminate or minimize the impact of the risks.

For instance, fast paced technological changes and shifting customer preferences may necessitate adoption of newer grades of steel and/or alternate materials.

Alongside identification of risks, the Company has a continuous process of monitoring and leveraging opportunities presented by the external and internal environment. For mitigating the risk of statutory compliances, the Company has the procedure in place for monthly reporting of compliance of statutory obligations, and has reported to the Board of Directors at the Board meetings.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Internal control systems are an integral part of any organization to safeguard its assets & interests and the Company always puts greater emphasis on strengthening and reviewing its control systems in place for continuous improvement. The company has well established and effective system of internal controls corresponding to its size, nature of business & complexity of operations. The system provides a reasonable assurance in respect of providing financial and operational information, complying with applicable statutes, safeguarding of assets of the Company and ensuring compliance with corporate policies.

The internal control system is supplemented by internal audits and its review by the management on a periodic basis. The Company has availed the services of independent professional firms for Internal Audit, which checks the effectiveness of the internal controls with an objective to provide an independent, objective and reasonable assurance of the adequacy and effectiveness of your Companys risk management, control and governance processes. Such audit ensures and evaluates the effectiveness of the internal control structure on a regular basis. Such controls have been assessed during the year, after taking into consideration the essential components of internal controls stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by The Institute of Chartered Accountants of India.

The scope and authority of the internal activity are approved by the Audit Committee. The Internal Auditor reports directly to the Audit Committee of the Board. Based on the report of the Internal Auditor, process owners undertake corrective actions in their respective areas and thereby strengthen the control. Audit Committee periodically reviews the Internal Audit Reports and issues guidance and advice. Minutes of the Audit Committee are put up to the Board of Directors. The Companys Audit Committee reviews adherence to internal control systems, internal audit reports and legal compliances. This committee reviews all quarterly and yearly results of the Company and recommends the same to Board for its approval.

DISCUSSIONS ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

During the fiscal year 2024-25, the Company achieved the sales turnover of Rs. 17,544.30 Lakhs (26,445.76 MT) as against Rs. 22,726.53 Lakhs (32,873.910 MT) during the previous year. After providing depreciation of Rs. 84.03 Lakhs in the Current Year and Rs. 84.99 Lakhs in the Previous Year and interest of Rs. 149.58 Lakhs in the Current Year and Rs. 138.48 Lakhs in the Previous Year and further adjusting Rs. 261.58 Lakhs for taxation (net), the Company posted a net profit after tax of Rs. 758.55 Lakhs as against Rs. 1397.25 Lakhs during the last year. During the year under review, the Company has not done any conversion work. Financial Year 2025 was largely driven by external global shocks including Chinas policy measures induced volatile commodity & raw material prices, fluctuating demand etc. However, tight focus & vigilance on market helped the Company to continue its profitable journey. The Company will develop new sizes to meet the evolving requirements of Original Equipment Manufacturers (OEMs). With expected approvals from OEMs, these new sizes are anticipated to drive repeat orders. In the coming year, the Company plans to engage new raw material suppliers, which is expected to ensure smoother production processes and uninterrupted supply to customers. If market conditions remain favorable, the Company will be able to operate at optimal production capacity, leading to improved plant utilization, reduced fixed overheads, and access to more competitively priced raw materials.

KEY FINANCIAL RATIOS:

The details of significant changes in the key financial ratios as compared to previous year are stated below:

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT, INCLUDING A NUMBER OF PEOPLE EMPLOYED:

The Company recognizes that human capital is a key driver of success. Our Human Resource Vision is to cultivate a high-performing organization where every individual is inspired to reach their full potential, contributing to both personal growth and the achievement of organizational goals. To this end, we continuously work to enhance our work ethics and culture, aligning our workforce with a unified vision. We are committed to maintaining a positive work environment and fostering constructive relationships with all employees, with a strong focus on productivity and efficiency. We believe that our people are the heart of our success. By nurturing talent and preparing our workforce for the future, we aim to grow responsibly while making a meaningful impact on society.

Current workforce of the Company is rightly poised to navigate through the current volatile, uncertain, complex situation and to always maintain industry leading quality standards while maintaining the highest service levels. The Company continues to focus on upgrading knowledge and skill levels among its employees through various Learning & Development, training activities to enable them to move up the ladder. The Company has well defined Human Resource policies in place which enables it to build a strong performance-oriented culture, belongingness and commitment to work. During the year ended 31^st March, 2025, the total number of employees employed by the Company was 28 (Twenty-eight) and 49 (Forty- nine) workers on contractual basis.

CAUTIONARY STATEMENT

The above Management Discussion and Analysis, describing the Companys objectives, projections, estimates and expectations 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 external economic conditions affecting demand/supply, influencing price conditions in the market in which the Company operates, changes in government regulations, tax laws and other incidental factors.