Shirpur Gold Refinery Ltd Management Discussions.

Investors are cautioned that this discussion contains forward looking statements that involve risks and uncertainties including, but not limited to, risks inherent in the Companys growth strategy, acquisition plans, dependence on certain businesses, dependence on availability of qualified and trained manpower and other factors. The following discussion with the Companys financial statements included herein and the notes thereto:

Indian Macroeconomic Outlook

India has been the growth leader amongst major economies, including Emerging Markets and Developing Economies (EMDEs) over the last few years. However, the momentum of the strong economic growth weakened gradually during FY20 due to the liquidity crunch, rising unemployment and weak consumer demand. GDP on GVA basis grew by just 4.2% in FY20 compared to 6.1% in FY19. An already slowing economy was hit by the whammy of COVID-19, like most of the countries around the globe. After the government announced a nationwide lockdown beginning 25th March, the economic activity came to a near complete shutdown. After two months of lockdown, economic activity resumed in a phased manner, with some restrictions still in place.

The impact of the shutdown and gradual opening will be felt sharply on the economy in the first half of FY21. While there is still uncertainty on how fast the economic growth would bounce back, most of the estimates suggest that Indias economy will shrink in the first half but as the impact of the pandemic subsides in the second half, the economic growth would return to its normal trajectory. The government has unveiled a Rs 20 trillion relief package to support economy. This package includes liquidity measures taken by the Reserve Bank of India (RBI), easing of lending to MSMEs, and specific measure for key sectors like manufacturing, agriculture, and infrastructure. The RBI, besides providing liquidity support and regulatory relief, also cut the lending rates twice to record lows. Apart from the relief package announced in May, the government has taken several steps to revive economic growth. Few steps like overhaul of the corporate tax rate structure, announcement of NIP (National Infrastructure Pipeline), far reaching reforms in agriculture sector, initiatives to boost Make in India, and recapitalisation of public sector banks would help strengthen the economy in the long run.

Unlike economic slowdowns over the past decade, the present deceleration in growth is driven by moderation in consumption growth. The growth in PFCE (Private Final Consumption Expenditure) in FY20 decelerated to 9% after several years of double-digit growth. The prospects of M&E industry have a high co-relation with consumption growth in economy and will therefore be impacted in FY21. However, it is expected that the slew of economic policies and liquidity measures introduced by the government will push PFCE and GDP growth back to previous levels in FY22. Indian consumption story is driven by strong secular trends of growing middle class, rising disposable income and increasing discretionary spends. The current slowdown is temporary and consumption growth would revive as the impact of governments initiatives start showing results.

Industry Structre And Developments

Gold is a clear complement to stocks, bonds and broad-based portfolios. A store of wealth and, a hedge against systemic risk, currency depreciation and inflation, gold has historically improved portfolios risk-adjusted returns, delivered positive returns, and provided liquidity to meet liabilities in times of market stress.

Investors have embraced gold in 2020 as a key portfolio hedging strategy. Looking ahead, expectations for a faster recovery (V-shaped) from COVID-19 are shifting towards slower recovery (U-shaped), or potential setbacks from additional waves of infections (W-shaped). Regardless of the recovery type, the pandemic will likely have a lasting effect on asset allocation. It will also continue to reinforce the role of gold as a strategic asset. And we believe that the combination of high risk, low opportunity cost and positive price momentum looks set to support gold investment and offset weakness in consumption from an economic contraction.

Global Scenario

Demand

Gold demand fell 1% to 4,355.7t in 2019 as a huge rise in investment flows into gold-backed ETFs was matched by the price-driven slump in consumer demand. It was broadly a year of two distinct halves: resilience/growth across most sectors in the first half of the year contrasted with widespread weakness in the second. Global demand in H2 was down 10% on the same period of 2018 as y-o-y losses in Q4 compounded those from Q3, notably in jewellery demand and retail bar and coin investment. High gold prices and a softer economic environment were the main culprits in the 11% decline in consumer demand in 2019.

Central bank buying was once again a major source of gold demand in 2019. A key event was the July announcement that the Central Bank Gold agreement (CBGA) would not be renewed by its signatories. The CBGA was an initiative that the World Gold Council helped launch 20 years ago when central bank selling of gold needed to be moderated. The worlds central banks are now very substantial buyers of gold and most are willing to publicly confirm gold is now an important element of their monetary reserves. There is no longer a need for an agreement to moderate sales.

In 2019, global gold jewellery demand volumes fell 6% to 2,107t. Purely an H2 phenomenon, the weakness was primarily due to the big Q3 jump in the gold price, which impacted affordability. The price was well supported at elevated levels throughout the closing months of 2019, leading to a 10% y-o-y drop in Q4 demand to 584.5t. In India, Key factors behind the second half weakness were: higher gold prices (having reached record levels in Q3), domestic economic slowdown and muted rural demand. Weddings and retailer promotions checked the downfall to some extent. Much of the fall came from a sharp decline in the two largest markets: China and India.

Relatively weak performance in the traditional segment - which represents the lions share of Chinas jewellery market - dragged total jewellery demand down. But innovative products have been gaining market share as young consumers favour lighter pieces with fashionable designs. The higher margins associated with these products (which tend to be price on a per-piece basis, rather than by weight) make it easy for them to gain traction among retailers, further accelerating the structural change in the market.

Annual demand for gold bars and coins dropped 20% y-o-y to 870.6t - the lowest level since 2009. Much of the decline came from a sharp decline in the two largest markets: China and India. The drop off in investment was mostly a reaction to the price rally and higher price volatility with added pressure coming from a slowdown in the domestic economies of both countries. But weakness was by no means confined to China and India: investment was notably weaker across much of Asia, the Middle East and the west.

Supply

Total supply was slightly higher in 2019 - up 2% y-o-y to 4,776.1t. This growth was attributable to the price performance of gold over the year, primarily through its impact on recycling, but also on net hedging to a certain extent. While mine production fell by 1% y-o-y, a sharp increase in gold recycling to its highest level since 2012 (+11% y-o-y) helped boost higher total supply. Modest net producer hedging - the first year of net hedging since 2016 - also contributed to overall supply.

Gold mine production totalled 3,463.7t in 2019, 1% lower than in 2018 and the first annual decline in production since 2008. Production growth was largely from greenfield and brownfield development, with Russia, Australia, Turkey and West Africa all seeing higher mine output. But this was outweighed by declines elsewhere. Chinese mine output fell for the third-consecutive year, while industrial action and local disputes also curtailed production in South Africa and South America. But Indonesia - and the transition at Grasberg - had the biggest impact on global mine production in 2019.

Indian Scenario

Gold is used to protect and enhance wealth over the long-term and it operates as a means of exchange, because it has global recognition and is no ones liability. Gold is also in demand as jewellery, valued by consumers across the world. And it is a key component in electronics.5 These diverse sources of demand differentiate gold from other investment assets. They also give it a particular resilience: the potential to deliver solid returns in good times and in bad.

The gold market is also more liquid than several major Indian financial markets, including bonds and stocks, while trading volumes are similar to those of the S&P 500 and short-term US treasuries. Golds trading volumes averaged INR 10.3tn per day in 2019. During that period, over-the-counter spot and derivatives contracts accounted for INR 5.5tn and gold futures traded INR 4.6tn per day across various global exchanges. Gold trading volumes on MCX contributed to INR 61 billion (bn) per day. Gold- backed ETFs offer an additional source of liquidity, with the Indian-listed funds trading an average of INR 18mn per day. The scale and depth of the market mean that it can comfortably accommodate large, buy-and-hold institutional investors. In stark contrast to many financial markets, golds liquidity does not dry up, even at times of acute financial stress.

Indias gold demand in volume terms declined to 690.4 tonnes from 760.4 tonnes in 2018, out of which jewellery demand fell nine per cent to 544.6 tonnes from 598 tonnes, while bar and coins demand also dropped 10 per cent to 145.8 tonnes from 162.4 tonnes in the said period.

Festival demand received some support from advance wedding purchases and a dip in the gold price ahead of the November wedding season released some pent-up wedding-related demand, but volumes were nevertheless soft compared with 2018, it said, and added, the slowdown was less pronounced among the more organised national and regional chain stores.

High prices were a headwind for investment demand during Dhanteras. Although the festival boosted gold coin purchases, they ended around 10-15% lower y-o-y. Digital gold platforms however, witnessed a notable uptick in sales during the festival; low entry points for digital gold investments (as low as Rs. 1) helped combat the affordability barrier created by higher gold prices.

Indias gold market continues to strive towards regulation and standardisation. The opening weeks of 2020 saw two important developments in the gold market: notification on mandatory hallmarking for gold jewellery and the introduction of Indian gold delivery standards for gold bullion. Effective from 15 January 2021, hallmarking will become mandatory for all gold jewellery sold as 14K, 18K or 22K.

Company Overview

Shirpur Gold Refinery Limited, a part of the Essel group, has the largest installed capacity in India of refining gold and silver from the raw gold (Dore) stage to 99.99% purity. The technical capabilities include achieving fineness of up to 999.9 parts per thousand for gold and silver, casting the refined bullion into bars of various denominations, minting of coins and manufacturing of Jewellery in various designs.

Refining of Gold from the raw gold (Dore) stage and Jewellery scrap to achieve the desired purity of 0.995, 0.999 and 0.9999 fineness is the principal business of the Company. The products manufactured under Companys Zee Gold brand consist of gold bars of 100g, 1 kg. gold and silver coins or different denominations of different purities as per market demand to the highest specifications of global standards.

The State of Companys Affairs/ Developments

The company continues to maintain its commitment to the highest level of production efficiency and excellence in quality. As such at the company has always kept abreast of the ever- changing technologies and processes.

Gold industry in India has always been greatly impacted by the government regulations and controls. Changes implemented by the regulatory authorities has been challenging for the industry and so for the company. The company is well compliant with all directions, changes and regulations implied by the government on gold industry from time to time.

STRENGTHS, OPPORTUNITIES, THREATS, RISKS & CONCERNS:

A) Strengths

(i) Product Range

Currently, The Company is selling its gold bars, Jewellery and coins in different denominations under the brand Zee Gold.

(ii) Product Quality

The company compares its quality standards with the best in the world. The products positioned are comparable with the highest levels certified and accepted internationally. The production processes and controls along with stringent quality control systems has ensured a Zero-defect record over the term.

(iii) Laboratory

The Companys laboratory is a NABL Accredited Lab (National Accreditation Board for Testing & Calibration Laboratories) Government of India for ISO / IEC 17025; 2005 in the discipline of chemical analysis and the scope covers testing of Gold and Silver by Fire Assay, Chemical and Instrument Assay. NABL Accreditation provides formal recognition to Companys lab, thus providing a ready means for users to find reliable testing and calibration services in order to meet their requirements.

(iv) Responsible Sourcing of Raw Material

The company follows acceptable standards of due diligence and responsible sourcing of raw materials. The company ensures adequate compliance following all international regulations covering anti money laundering and terrorist financing. The management is fully committed to establish and maintain strict adherence to international compliance standard for sourcing of raw material. Companys aim is to continually maintain and update its compliance policies with respect to procurement of dore, supply chain management and trading.

(v) Economy of Scales

The production processes established by the Company and continuous monitoring of the same ensures that the Company is in position to reduce the production time with economies of scale and cost reduction through modular structure.

(vi) Distribution network

Your Company has further strengthened the existing strong distribution network created over years. The necessary steps have been initiated to increase penetration in all the gold consuming centers. The company has already created a strong customer base in the international market by having strong and solid channel partners in main hubs of UAE and Hongkong.

(vii) Financial Strengths

The Company is financially sound and has been able to take the advantage in operations.

(viii) Strong operational, technical and management team

Standard Operational Procedures (SOPs) are implemented and policies are put in place by the management to ensure that the work force is adequately monitored and efficiency levels maintained. New trends and practices in the refining areas are evaluated and implemented under the able guidance of technical experts of the Company having on its panel.

B) Opportunities

The dynamics of Indias gold industry, with its thousands of small jewellers and millions of skilled artisans, predicate a bottom-up approach to reforms. These are not necessarily quick but are, nevertheless, sustainable. Following the parliamentary announcement in February 2018 by Indias then Finance Minister that the Government of India would create policies to establish gold as an asset class, Indias policy actions are beginning to generate trust and transparency in the gold market. Introduction of mandatory hallmarking will create significant economic benefits by enhancing employment opportunities in assaying and purity verification and by enabling jewellers to leverage Prime Minister Modis "Make in India" initiative in our aspiration to be seen as "Jeweller to the world."

SafeGold has proved a successful model with a robust technology platform, having crossed milestones set out at inception in terms of customers, transaction volumes and distribution partnerships. SafeGold promotes good governance by strict adherence to our Internet Investment Gold (IIG) Providers Guidance. The digital gold market in India as an opportunity for 15 to 20 tonnes growth over the next three to five years. Going forward, The World Gold Council plan to collaborate with SafeGold as a springboard to expand in southeast Asian and Middle Eastern markets.

At present only LBMA accredited Refiners are only allowed to deliver in the exchanges. Domestic Refiners in India are closely watching the policy developments of regulators and government bodies which is likely to boost the refining business in India. Regulators were showing interest to move towards a delivery method of settlement in Gold rather than cash settled in Exchange based trading.

C) Threats

The weak demand in the first half could drag down Indias gold consumption in 2020 to the lowest since 1994, when demand stood at 415 tonnes, Somasundaram said, adding that it is still difficult to provide an estimate for full-year demand as the coronavirus crisis is still unfolding.

An economic contraction will likely result in lower demand for gold in the form of jewellery, technology or long-term savings. This is particularly evident in key gold markets such as China or India. consumer demand to remain soft due to reduced economic activity, concerns about increasing unemployment, and income erosion. However, additional economic packages from the government and a forecasted positive monsoon season could help soften the negative impact of an economic deceleration.

D) Risks & Concerns:

(i) Market Risks

The Company is largely dependents on domestic customers. The Company continues to work towards diversifying its customer mix and to focus on building relationships with customers spread geographically.

(ii) Regulatory Risks

The Company is exposed to regulatory uncertainties facing the gems and Jewellery industry in India. Any changes in the duty, rules and regulations, Import and Export policies or requirements by the Government of India may require the Company to revise business strategies which may impact its financial position adversely. The Company in order to reduce loss of revenue and market share due to any changes in the policies of the Government of India, has diversified sales mix, product range, and raw material mix. However, the management cannot totally eliminate the risks involved in such volatile trades.

(iii) Operational Risks

The Company adopts a sustainable production platform. Continuous availability of gold dore and scrap is critical for the production plans of the company. The company has tied up with global miners for continuous supply of gold dore. The Company is also in process of entering into off-take agreements with miners for supply of gold Dore. The Company is also procuring SR bars and scrap materials from local markets. However, the management cannot totally eliminate the risks involved in such volatile trades.

(iv) Commodity Price Risks

The prices of Gold and Silver are largely governed by movements at major precious metal exchanges of London, New York, Tokyo and others. The local precious metal prices are an algorithm of these movements on spot basis and Indian currency Rates. Prices may fluctuate widely for all products affecting demands in the market. The Company has adopted adequate hedging mechanisms to effectively counter the risk that arises during operations. However, the management cannot totally eliminate the risks involved in such volatile trades.

(v) Currency Risk

This exposes the Company to metal and foreign exchange risks. The Company has established a dealing room and placed hedging policies and procedures for mitigating the risks in gold prices and foreign exchange transactions. However, the management cannot totally eliminate the risks involved in such volatile trades.

(vi) Competition Risk

Significant additional competition in the gold trade may result in reduced off-take and thereby negatively affect the Companys revenues and profitability. The Company may also face competition arising from new technology/ automation leading to new products acceptable to customers. For maintaining or increasing the market share, Company has taken initiatives of effective marketing, ability to improve processes, introducing new products & technology.

(vii) Internal Control Systems

The company follows a standard operating procedure in all its operations, documentation and trades which is best as per industry standards. The management ensure all the activities and operations are well informed to the concerned and risk management policies are followed in all its endeavors.

(viii) Attrition Risk

The Company has a strong management and technical team to oversee the operations and growth of its business. The Companys ability to sustain its growth largely depends, on its ability to attract, train, motivate and retain high skilled employees. An increase in the rate of attrition of experienced employees, would adversely affect the Company business. In view of above, to curtail attrition of high potential employees, the Company always strives to create conducive work environment, platform for innovation & creativity, creation of learning & growth opportunity and sense of belongingness. As a part of its retention strategy the Company is putting its endeavor to identify & ring fence of "High Potential Employees".

Segmental Performance

The Company is in the business of refining, manufacturing and marketing of precious metal which is considered as the only reportable segment.

Outlook

Gold is likely to play an important role for investors as they consider how to adjust their portfolios to account for a climate- impacted economy. In contrast to many other mainstream asset classes, gold is likely to be more resilient and less volatile as climate change impacts the global economy. Whilst there is more to do to fully understand how to construct an investment portfolio that is robust given a changing climate, it is evident that gold will play a leading role, particularly given that on-going emissions associated with gold bullion is negligible.

The COVID-19 pandemic is having a devastating effect on the global economy. The IMF is currently projecting a 4.9% contraction in global growth in 2020, with high levels of unemployment and wealth destruction.

In the coming years, growth in gems and jewellery sector would largely be contributed by the development of large retailers/ brands. Established brands are guiding the organised market and are opening opportunities to grow. Increasing penetration of organised players provides variety in terms of products and designs. Online sales are expected to account for 1-2% of the fine jewellery segment by 2021-22. Also, the relaxation of restrictions of gold import is likely to provide a fillip to the industry. The improvement in availability along with the reintroduction of low- cost gold metal loans and likely stabilisation of gold prices at lower levels is expected to drive volume growth for jewellers over short to medium term. The demand for jewellery is expected to be significantly supported by the recent positive developments in the industry.

India continues its efforts to regulate and standardise the gold industry. The BIS recently announced standards for delivery of a range of items, including gold. Under the good delivery standards, gold processed by domestic refineries that meet the requirements will now be eligible for delivery on the domestic Multi Commodity Exchange (MCX). The introduction of good delivery standards will help pave the way for bullion banking and gold spot exchange in India.

The Blueprint for a gold spot exchange in India, a report prepared with the support of 27 leading industry members including global bullion banks, has altered the course of debate from "if" to "when." A series of industry meetings on logistics and good delivery, and trade visits to markets such as China, UK and Turkey, have taken place as the industry awaits the announcement of the implementation roadmap. This has been followed up by a syndicate of leading exchanges and legal practice working on a legal framework along with membership norms for formation of a central gold body.

Bullion banking in India is small and non-core, limited by regulations and a lack of infrastructure. We want to ensure that this large market is well supported and India is able to tap its market potential of US$300-500 million. To aid this objective, a full suite of product offerings will be launched to trade and consumers over the next few years. This will also meet the government objective to make gold an asset class whilst balancing macro-economic concerns.

It is expected the following trends in next 6 to 12 months :

• Financial and geopolitical uncertainty combined with low interest rates will likely continue supporting gold investment demand

• Net gold purchases by central banks will likely remain robust even if they are lower than the record highs seen in recent quarters

• Momentum and speculative positioning may keep gold price volatility high

• Gold price volatility and expectations of weaker economic growth may result in softer consumer demand near term

• But structural economic reforms in India and China will support demand in the long term.

As looking ahead into 2020, it is believed that investors will face an increasing set of geopolitical concerns, while many preexisting ones will likely be pushed back rather than being resolved. In addition, the very low level of interest rates worldwide will likely keep stock prices high and valuations at extreme levels. Within this context, we believe that there are clear reasons to have higher levels of safe-haven assets like gold.

One of the key drivers of gold, especially in the short and medium term, is the opportunity cost of holding it relative to other assets such as bonds. Unlike bonds, gold does not pay interest or dividends because it does not have credit risk. This perceived lack of yield often deters some investors. But in an environment where a quarter of developed market sovereign debt is trading with negative nominal rates and, once adjusted for inflation, a whopping 70% trades with negative real rates, the opportunity cost of gold almost goes away, even providing what can be seen as a positive "cost of carry" relative to sovereign bonds.

While consumer demand may be soft and speculative activity could amplify price movements, overall, it is likely that investment demand will remain robust and central banks will continue their net purchasing trend.

Zee Gold DMCC, Dubai (100% subsidiary) is actively engaged in the precious metals trading business and tapping opportunities in countries like Middle East, Africa, Indian sub—Continent, South East and Central Asia, The Americas, Turkey and the former CIS countries.

The central location of Dubai and a time zone that facilitates trading with all global markets provides an ideal base from which to develop a major precious metals business. The business is focused on Wholesale physical bullion trading, incorporating sales of the full range of the companys physical gold and silver products, including value added investment bars and coins. Sourcing of both primary and secondary supplies of gold and silver.