Sharda Ispat Ltd Management Discussions

The objective of this report is to convey the Managements perspective on the external environment and steel industry, as well as strategy, operating and financial performance, material developments in human resources & industrial relations, risks and opportunities and internal control systems and their adequacy in the Company during the Financial Year 2025-26. 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 2025-26. This report is an integral part of the Boards Report.

INDUSTRY STRUCTURE AND DEVELOPMENT:

GLOBAL ECONOMY:

In 2025, the global economy grew at an estimated rate of 3.4% despite significant turbulence. The year was marked by record increases in U.S. tariffs and heightened trade policy uncertainty, a raft of trade deals the impact of which is yet to play out, and a surge in AI linked investments. Key factors impacting economic activity included the weaponization of trade, and the ongoing transition towards technology-driven growth, particularly in North America and Asia. A defining feature of Current Year 2025 was the protectionist trade policies, particularly renewed tariff actions led by the US. These actions created distortions in global trade flows, with some short-term front loading of exports but longer-term uncertainty for investment and supply chains. At the same time, geopolitical tensions including escalating conflicts in the Middle East contributed to volatility in energy markets, pushing up oil prices and inflation expectations, thereby tightening financial conditions globally. These challenges & uncertainties are continuing into Financial Year 2026-27.

Over the past few years, the world has faced several challenges across multiple fronts. While the Russia-Ukraine conflict continued to simmer, tariff barriers between major economies kept the business environment volatile, creating uncertainty across sectors. The global economy, however, showed resilience and inched up to 3.4% growth in 2025, keeping up the momentum from the previous year. Policy support in key economies, including rate cuts by central banks amidst easing inflationary headwinds and lower-than-anticipated impact of US tariffs supported growth. Ongoing conflicts and instability in key regions, including the Middle East, disrupted global energy markets and supply chains. At the same time, rising protectionist measures, particularly tariff actions in the United States (US), reshaped global trade dynamics. Towards the second-half of 2025, the global environment showed signs of stabilization, with major economies initiating negotiations and policy measures to ease trade tensions. While these steps provided near-term relief, structural challenges and geo-economics fragmentation continue to influence the global economic outlook.

Among major economies, the US is expected to grow at around 2.3%, supported by fiscal policy and the lagged impact of monetary policy rate cuts in Current Year 2025. Chinas growth is expected to remain relatively stable at around 4.4%, though weighed down by weak domestic demand and structural challenges in the real estate sector. In contrast, India continues to lead global growth, with projected growth of around 6.5%, driven by strong domestic demand, carryover of the strong momentum and decline in additional US tariffs on Indian goods from 50% to 10%, which outweigh the adverse impact of the Middle East conflict. Overall, while emerging economies would continue to anchor global growth, advanced economies are growing more slowly, and rising geopolitical tensions, energy market uncertainties, and trade disruptions pose significant downside risks to the global growth outlook.

INDIAN ECONOMY:

Despite global macroeconomic instability, India continues to stand out as the worlds fastest growing major economy. Indias real GDP growth was at 7.7% in FY 2025-26, surpassing the 7.1% expansion in the previous year, according to the advance estimates of the National Statistical Organization. Growth is being driven by robust domestic consumption, sustained infrastructure investments, digital transformation, easing inflation, and a continued push towards manufacturing-led expansion. Government initiatives, such as Make in India and Production Linked Incentive (PLI) schemes, have strengthened manufacturing capabilities & self-reliance. Private consumption and capital formation both recorded improved performance. Consumption was helped by supportive policy framework, with personal income tax concessions for the middle class and rationalization of GST rates, the latter especially helping the economy in the second half of the year. Imposition of steep US tariffs affected merchandise exports, which recorded a minor increase during the year. Services exports, however, recorded a robust growth. Although current account deficit widened to some extent, it remained at a comfortable level. Capital expenditure by the central and state governments expanded in FY 2025- 26, maintaining the momentum of public capex for infrastructure sectors.

The Indian economy continued on a strong footing with robust growth momentum and low inflation until the Middle East crisis flared up. The strong fundamentals helped the economy navigate through the effects of the crisis, related to supply chain disruptions and export challenges. The government has undertaken several policy measures to absorb some of the pricing effects and support exporters. The crisis is likely to hit the growth momentum, increase inflationary risks and widen the current account deficit. The RBI has projected the economic growth to slow down to 6.9% in FY 2026-27 after three straight years of over 7% growth. While there is significant uncertainty with regard to the intensity and duration of the after-effects of the crisis, current projections indicate inflation rising above 4% and current account deficit widening to about 1.5% of the GDP. These shifts are directionally adverse, but the projected levels are still short of the levels that have caused macroeconomic instability in the past, and thus underscore the advantage of strong fundamentals at the outset of the crisis. The Indian Meteorological Department (IMD), in its preliminary assessment, has forecast below-normal monsoon rainfall in 2026 because of El-Ni?o effects. This poses some risks to the outlook for agriculture and rural economy, after a robust trend in rural indicators in recent quarters.

Notwithstanding the near-term headwinds, Indias medium-term growth prospects continue to be encouraging. Recent economic reforms, including labour codes and GST rationalization, bolster the competitiveness of Indian industries. The momentum of public capex continues, with the government budgeting 11.5% growth in capex to ?12.2 trillion in FY 2026-27. The backdrop for private capex continues to be favourable, with healthy balance sheets, pick-up in credit growth and improving capacity utilization levels. Conclusion of recent trade deals such as those with the UK, EU and the UAE and potentially one with the US, augur well for Indias exports, particularly of labor-intensive manufacturing sectors. These developments, together with the structural factors of urbanization, demography and expanding middle class, place India firmly on the path towards Viksit Bharat, despite a possible dent to growth in FY 2026-27.

STEEL INDUSTRY:

The global steel industry in Current Year 2025 saw a decline in crude steel production marked by lower demand, regional imbalances, and persistent structural challenges, particularly in China. Global steel production came down to 1,850 Million tons in Current Year 2025 from 1,887 Million tons in Current Year 2024, reflecting an overall decrease of nearly 2% to the previous year. Production trends were uneven; with several regions experiencing Year-on-Year declines due to weak end-use demand, energy costs, supply disruptions & rising commodity prices. A major drag on the industry was China, where a prolonged slowdown in the real estate sector reduced domestic steel consumption. Although production declined, China increased exports significantly, leading to global oversupply and downward pressure on prices. At the same time, global steelmaking capacity continued to exceed demand, keeping utilization levels subdued and intensifying competition across markets.

The Indian steel industry remained a shining bright spot in global steel industry in FY 2026 delivering a strong performance, reinforcing its position as the worlds second-largest steel producer, despite a challenging global environment marked by weak demand and trade disruptions. Crude steel production recorded robust growth, increasing by about 12.2% year-on-year to 168 Million tons, driven by strong domestic demand, capacity expansions, infrastructure spends and private capital spending. The Indian automotive industry demonstrated strong volume growth of 11.8% in FY 2026, reinforcing its position as the worlds third-largest automobile market. Growth was driven by robust domestic demand, rising exports, policy-led electrification, and a well-established manufacturing ecosystem. Exports also recorded healthy growth, driven by buoyant demand for cars, two-wheelers and commercial vehicles across Africa, Latin America, the Middle-East and ASEAN regions. This growth highlights Indias continued industrial momentum, especially as global steel production remained relatively weak. Trade dynamics in Current Year 2025 were increasingly shaped by protectionist measures, including tariffs and safeguard duties introduced by major economies to shield domestic producers. These measures led to fragmentation of global trade flows, higher compliance costs, and a shift toward regional trade patterns. Additionally, high energy costs and geopolitical tensions continued to impact production economics, particularly in energy intensive regions such as Europe.

A major highlight of FY 2026 was the sharp turnaround in the trade balance. India regained its position as a net exporter of finished steel, reversing the trend of the previous two years. Finished steel exports surged by ~36% to ~6.6 Million tons, while imports declined sharply by ~31.7% to ~6.5 Million tons. In FY 2026, India imposed safeguard duty of 12% on imports of non-alloy and alloy steel flat products to protect domestic steel producers from a surge in low-cost imports, particularly from Asian markets. The measure aimed to stabilize domestic prices and ensure fair competition, while supporting capacity utilization of Indian mills. On the demand side, finished steel consumption increased by ~7% reaching to ~164 Million tons, driven by strong infrastructure spending, revival in construction, railways, steady demand from automotive and capital goods sectors. The steel industry also witnessed continued investments to expand production capacity. Indias total steel capacity, reached to 220 Million tons in FY 2026 up from 205 Million tons in FY 2025, reflecting the sectors dynamic growth trajectory.

OPPORTUNITIES AND THREATS:

OPPORTUNITIES:

India has targeted steelmaking capacity of ~300 MTPA by FY 2030-31. Steel consumption in India is projected to grow 8–9% in 2026. Per capita steel consumption crossed 100 kg in 2025, a level typically associated with accelerated demand growth. The automobile industry, one of the key consumers of steel, ended FY 2025-26 with a strong momentum, spurred by lower Goods and Service Tax rates which accelerated the improvement in affordability for consumers. A double-digit growth in the governments capital expenditure and continuing infrastructure upgrade in FY 2026-27 is likely to support the momentum in the steel industry.

The Company sees significant growth opportunities arising from the continued expansion of the automotive, engineering, infrastructure, agricultural and transportation sectors. The growing demand for commercial vehicles, passenger vehicles, tractors and industrial equipment is expected to support the requirement for quality steel products, including spring steel flats. The Company intends to further strengthen its presence in the automotive and auto-component value chain by developing relationships with Original Equipment Manufacturers (OEMs) and their Tier-1 and Tier-2 suppliers, particularly manufacturers of leaf springs, suspension systems, chassis components, forgings and other critical automotive components. The Company can further leverage opportunities arising from increasing vehicle production and the growing requirement for high-quality and application-specific steel products. Obtaining vendor approvals and technical qualifications with leading automotive OEMs & their approved component manufacturers can enable the Company to establish long-term customer relationships and recurring business.

The Company may also pursue vendor approvals and technical qualifications with leading automotive manufacturers and component suppliers, thereby creating opportunities for long-term and recurring business. The Company also sees potential for increasing value addition through the development of application-specific grades, customized sizes, tighter dimensional tolerances & improved surface & metallurgical properties. Increasing emphasis on localization and import substitution provides further opportunities for domestic manufacturers capable of meeting stringent quality and technical requirements.

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, the Company is well positioned to capitalize on opportunities arising from government initiatives and increased infrastructure investments, supported by capacity expansion, operational scalability, and continued modernization of its manufacturing facilities.

THREATS:

The Company operates in a competitive and cyclical steel manufacturing environment and is exposed to various external and industry-specific risks. Volatility in the prices of key raw materials, including steel scrap, billets and other inputs, may impact the Companys cost of production and operating margins. Fluctuations in finished steel prices and the Companys ability to pass on increases in input costs to customers may also affect profitability. The Company is exposed to fluctuations in demand from key user industries, particularly the automotive, engineering, infrastructure & agricultural sectors. Any slowdown in economic activity, automobile production, commercial vehicle sales, infrastructure spending or industrial investments may adversely affect demand for spring steel flats. Further, changes in automotive technologies, including the increasing adoption of electric vehicles and evolving vehicle designs, may influence the demand for certain conventional automotive components and consequently impact the requirement for specific steel products.

Intense competition from established domestic manufacturers as well as regional and smaller players may exert pressure on product prices, margins and market share. Customers, particularly OEMs and their Tier-1 & Tier-2 suppliers, continue to have stringent requirements relating to product quality, consistency, dimensional accuracy, delivery schedules and pricing. The Company therefore needs to continuously enhance its manufacturing capabilities, quality standards and product offerings to retain existing customers and secure new business opportunities. Changes in government policies, trade regulations, import duties, environmental regulations and other regulatory requirements may also affect the Companys operations and competitiveness. Increased availability of imported steel or changes in the domestic trade environment may place pressure on domestic steel prices and realizations. At the same time, evolving environmental and sustainability requirements may necessitate additional investments in energy efficiency, pollution control, waste management and other compliance measures.

The Companys manufacturing operations are also exposed to energy costs, availability of utilities and supply-chain disruptions. Fluctuations in electricity, fuel costs, interruptions in power supply, transportation constraints, delays in procurement of raw materials & logistics-related disruptions may impact production schedules, operating costs & timely delivery to customers.

Further, the steel industry is witnessing increasing emphasis on energy efficiency, decarbonization & sustainable manufacturing practices. The evolving environmental regulations & growing sustainability expectations of customers, particularly large OEMs & institutional buyers, may necessitate continued investments in technology, processes, and infrastructure to ensure compliance and maintain competitiveness.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:

The Company operates in only one segment, i.e. iron & steel. During the financial year 2025-26, the company achieved production of steel product as under:

Own Unit (MT) – 27,471.38 (Previous Year 26,445.76)

Sales (Rs.) – 16,879.39 Lakhs (Previous Year 17,544.30 Lakhs)

OUTLOOK FOR STEEL INDUSTRY:

The World Steel Association forecasts that global steel demand will grow by 0.3% this year, reaching 1.72 billion tons. In 2027, accelerated growth of 2.2% is expected, reaching 1.76 billion tons. Steel demand in China is expected to decline by 1.5% in 2026 as the housing market correction nears its bottom. Infrastructure investment in the country is expected to increase this year thanks to efforts by local authorities to support GDP growth. Steel demand in the countrys manufacturing sector will maintain moderate growth in 2026 as exports continue to expand. However, a more challenging global trade environment remains a significant risk and could potentially slow growth in the coming years. In 2027, the association expects steel demand in China to remain virtually unchanged compared to 2026 levels. The forecast is based on the assumption that the prolonged correction in the real estate sector will largely be over by that time, easing the severe downward pressure that has dominated the industry since 2021.

India maintains its position as the worlds fastest-growing major steel market—demand there is expected to grow by 7.4% in 2026 and accelerate to 9.2% in 2027. This will drive broad potential across all key steel-consuming sectors. These include infrastructure-focused steel construction and the automotive sector, which is supported by growing demand for freight transport. Growth in steel demand in developing countries (excluding China) will slow to 2.5% in 2026, which is significantly lower than the approximately 5% annual growth recorded in recent years. This will be primarily driven by a sharp decline in the Middle East. The outlook for 2027 is more optimistic—growth is expected to rebound to 5.1%. Steel demand in developed countries rose by 0.2% in 2025, marking the end of a three-year consecutive decline since 2021. World steel expects this stabilization to pave the way for a gradual recovery—1% in 2026 and 2.3% in 2027.

The long-term growth outlook for the Indian auto industry remains positive, driven by strong economic fundamentals, progressive government initiatives, rapidly improving infrastructure, and a young, aspirational population. While the outlook for the industry remains promising, when compared to FY19 pre-COVID levels, it has achieved 95% recovery in commercial vehicles. Passenger vehicles, which had already recovered to pre-COVID levels last year, crossed the 4.3 million mark in FY25. The Indian auto industry today is sharply focused on accelerating the transition to cleaner mobility, and enhancing road safety. Recognizing the evolving global and domestic imperatives around carbon neutrality and technological self-reliance, the industry has made significant strides in the indigenization of key automotive technologies. The Government of India has introduced a series of initiatives to accelerate green mobility and establish India as a global hub for EV (electric vehicle) manufacturing. The newly approved E-Vehicle Policy and the PM E-DRIVE Scheme, with an outlay of Rs. 10,900 crores over two years (FY25–FY26), aims to drive the adoption of advanced EV technologies, boost domestic manufacturing under the Make in India initiative, promote healthy competition, and achieve economies of scale. These efforts are expected to reduce crude oil imports, lower the trade deficit, & improve environmental outcomes. Additionally, the Voluntary Vehicle Modernization Program is creating a supportive ecosystem for phasing out older, polluting vehicles and enhancing road and vehicular safety.

RISK & CONCERNS:

The Company operates in the steel-processing industry & is exposed to various business and industry-related risks. The principal risks include volatility in the prices and availability of key raw materials, fluctuations in steel prices, competitive pressure from domestic & imported products, & changes in demand from the automobile, engineering, infrastructure and other industrial sectors.

The Companys profitability may also be affected by increases in power and other manufacturing costs, particularly where such increases cannot be fully passed on to customers. Maintaining consistent quality and meeting stringent customer specifications for Spring Steel Flats remain critical to sustaining customer relationships and market position.

The Company is also exposed to working capital & receivable risks arising from inventory requirements and credit periods extended to customers. Operational risks, including machinery breakdowns, production disruptions, lower capacity utilization, and safety incidents, may adversely impact production and profitability.

In addition, changes in government policies relating to steel imports, duties, quality standards, environmental requirements and other regulatory matters may influence the competitive environment and cost structure of the business. The Company continues to monitor these risks and take appropriate measures to mitigate their potential impact.

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 and 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 & thereby strengthen the control. Audit Committee periodically reviews the Internal Audit Reports & 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.

The Audit Committee ensures that the Companys books of accounts are properly maintained and that transactions are recorded in accordance with applicable accounting standards, laws, & regulations. The Company recognizes the fact that any internal control framework would have some inherent limitations and hence has inculcated a process of periodic audits and reviews to ensure that such systems and controls are upgraded at regular intervals.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

During the fiscal year 2025-26, the Company achieved the sales turnover of Rs. 16,879.39 Lakhs (27,471.38 MT) as against Rs. 17,544.30 Lakhs (26,445.76 MT) during the previous year. After providing depreciation of Rs. 85.35 Lakhs in the Current Year and Rs. 84.03 Lakhs in the Previous Year and interest of Rs. 251.07 Lakhs in the Current Year and Rs. 149.58 Lakhs in the Previous Year. Further adjusting Rs. 219.48 Lakhs for taxation (net), and Rs. 261.58 Lakhs for taxation (net) in the previous year. The Company posted a net profit after tax of Rs. 620.24 Lakhs as against Rs. 758.55 Lakhs in the financial year 2024-25. During the year under review, the Company has not done any conversion work. The financial performance during the year was influenced by the prevailing market conditions in the steel industry, including fluctuations in steel prices & realizations. While domestic steel consumption remained strong during FY 2025-26, the industry continued to experience pricing pressures and volatility.

Financial Year 2026 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 believes that human capital is a critical factor of success & hence constantly strives to strengthen its work ethics, work culture, and align the workforce towards the common goal. 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 & the achievement of organizational goals. To this end, we continuously work to enhance our work ethics & culture, aligning our workforce with a unified vision. We are committed to maintaining a positive work environment & 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 developing talent & equipping our workforce with the skills needed for the future, the Company seeks to pursue responsible growth while creating a positive and 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 that enable it to foster a strong performance-oriented culture while promoting a sense of belonging and commitment among its employees. During the year ended 31st March, 2026, the total number of employees employed by the Company was 36 (Thirty-six) & 64 (Sixty-four) 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.