Shri Hare-Krishna Sponge Iron Ltd Management Discussions

CIN: L27109WB2003PLC096152 Scrip Code (NSE Emerge): SHKSIL ISIN: INE0NON01025 ANNEXURE TO THE DIRECTORS REPORT

1. Industry Structure and Developments

Shri Hare-Krishna Sponge Iron Limited (the Company 1 ) is engaged in the manufacture of Sponge Iron, M.S. Ingot, Steel Shots and Grits at its manufacturing facility located at Plot No. 106, Phase-II, Industrial Growth Centre, Siltara, Raipur, Chhattisgarh. The Companys registered office is situated in Kolkata, West Bengal, and its equity shares are listed on the NSE Emerge platform (SME segment) of the National Stock Exchange of India Limited under the scrip code SHKSIL with effect from July 1, 2025, following completion of its maiden Initial Public Offering during the year.

Sponge Iron, also known as Direct Reduced Iron (DRI), is manufactured by reducing iron ore using coal or natural gas without melting the ore, and serves as a key metallic input for Electric Arc Furnace (EAF) and Induction Furnace (IF) based secondary steel producers, who use it in place of, or in combination with, steel melting scrap to manufacture M.S. Ingots, billets and TMT bars. India continues to be the worlds largest producer of coal-based DRI, accounting for a substantial share of global sponge iron output, with production having grown at a healthy pace over recent years on the back of rising long steel (construction-grade steel) consumption driven by infrastructure and housing activity.

Chhattisgarh, where the Companys manufacturing facility is located, is one of the leading sponge iron producing States in the country, benefitting from its proximity to iron ore and coal reserves and an established cluster of secondary steel manufacturing units. The coal-based route, which the Company follows, continues to dominate domestic DRI production, although the industry as a whole remains sensitive to input cost movements, energy availability and evolving environmental norms applicable to coal-based processing.

The Companys product basket of Sponge Iron, M.S. Ingot, Steel Shots and Grits provides a degree of forward integration within the iron and steel value chain, enabling it to capture value across successive stages of processing. During the year under review, the Companys operations were also influenced by the temporary suspension of kiln operations on account of integration works with the waste heat recovery boiler of its Captive Power Plant under construction, and by a temporary delay in commissioning of the said Captive Power Plant, both of which are explained in greater detail elsewhere in this Report.

2. Opportunities and Threats Opportunities

• Continued Demand from Secondary Steel Producers: Sustained demand for Sponge Iron from Induction Furnace and Electric Arc Furnace based steel manufacturers, driven by construction, infrastructure and real estate activity across India, provides a stable base demand for the Companys core product.

• Backward Integration through Captive Power Plant: Completion and stabilisation of the Captive Power Plant being set up at the Siltara facility is expected to reduce the Companys dependence on grid power, lower per-unit energy costs and improve operating margins over the medium term, while also enabling better utilisation of waste heat generated from the kiln process.

• Forward Integration into M.S. Ingot, Steel Shots and Grits: The Companys ability to convert a part of its sponge iron production into higher value-added products such as M.S. Ingots, Steel Shots and Grits allows it to capture margin across multiple stages of the value chain and reduces dependence on merchant sale of sponge iron alone.

• Access to Capital Markets: Successful listing on the NSE Emerge platform and the funds raised through the IPO provide the Company with access to growth capital for capacity expansion, modernisation and strengthening of its balance sheet, as evidenced by the significant increase in net worth during the year.

• Government Infrastructure Push: Continued Government thrust on infrastructure development, affordable housing and industrial corridors is expected to sustain long-term demand for long steel products and, in turn, for sponge iron as a key raw material.

Threats

• Volatility in Raw Material and Fuel Prices: The Companys manufacturing cost is significantly influenced by the prices of iron ore, coal and other inputs. Adverse movements in these prices, or disruptions in their availability, may impact operating margins if such increases cannot be passed on to customers.

• Industry Overcapacity and Pricing Pressure: The sponge iron industry in India has, in recent periods, witnessed capacity additions outpacing demand growth in certain regions, including central India, resulting in periods of pricing pressure. Continuation of such trends could affect realisations.

• Project Execution Risk: Delay in commissioning of the Captive Power Plant, as has occurred during the year on account of procurement, transportation and logistics-related disruptions, may result in continued dependence on costlier grid power and deferred realisation of the anticipated cost benefits.

• Regulatory and Environmental Compliance: Coal-based DRI manufacturing is subject to evolving environmental regulations and pollution control norms. Additionally, notification of the Labour Codes by the Government of India, and the consequential need to assess their financial impact on employee benefit obligations, represents an evolving compliance requirement, as reflected in the qualified opinion of the Statutory Auditors on the financial results for the year.

• Competition from Scrap-Based Steelmaking: Increasing availability and price competitiveness of steel melting scrap as an alternative metallic input for EAF/IF producers could, over time, moderate demand growth for sponge iron.

• Operational Disruption Risk: As experienced during the year with the temporary suspension of kiln operations for integration with the Captive Power Plant, unplanned or extended operational stoppages can affect production volumes and raw material consumption patterns.

3. Outlook

The outlook for the Company remains constructive, notwithstanding the operational and execution challenges witnessed during the year under review. Revenue from Operations and Profit After Tax for FY 2025-26 were lower than the previous year, primarily on account of the temporary suspension of kiln operations pending integration with the Captive Power Plant and the consequent impact on production and sales volumes. The Board and management view this as a transitional phase associated with a significant capacity and cost-efficiency initiative rather than a structural decline in the Companys underlying business.

The Companys near-term priority is the completion of testing, commissioning and stabilisation of the Captive Power Plant at Siltara-Raipur, which is expected to reduce energy costs, improve the reliability of kiln operations through better integration with the waste heat recovery boiler, and support margin improvement once fully operational. A substantial part of the IPO proceeds allocated for this project has already been deployed, with Rs. 1,874.59 lakhs utilised out of the allocated Rs. 2,300.00 lakhs as on March 31,2026.

Following its listing on the NSE Emerge platform and the equity infusion through the IPO, the Companys net worth and overall balance sheet strength have improved materially during the year, providing it with greater financial flexibility to fund the ongoing capital expenditure programme and future growth initiatives. The Company continues to maintain a healthy liquidity position, with cash and bank balances of Rs. 3,864.49 lakhs as at March 31, 2026.

The management remains focused on completion of the Captive Power Plant, normalisation of kiln operations, disciplined working capital management and continued compliance with applicable regulatory requirements, and believes the Company is well placed to benefit from sustained demand for sponge iron and downstream products once these initiatives are completed.

4. Risks and concerns

• Raw material risk: the prices and availability of iron ore, coal and dolomite are subject to market and regulatory conditions. The Company manages this through advance procurement arrangements and by maintaining adequate raw material stocks.

• Project risk: the commissioning and stabilisation of the captive power plant remains subject to the timely receipt of equipment and to satisfactory trial run performance. The Company monitors project progress on a continuing basis.

• Price and demand risk: sponge iron is a commodity product and realisations are linked to steel prices, which are cyclical.

• Concentration risk: the Company operates a single product line at a single location, and any disruption at the facility affects operations as a whole.

• Regulatory and environmental risk: the Companys operations are subject to environmental, mining and industrial regulation, and to periodic renewal of consents and licences.

• Financial risk: the Company has availed fund-based and non-fund-based facilities from its bankers and is exposed to movements in interest rates. Borrowings remain conservative in relation to net worth.

• Regulatory change: the Company has not assessed the financial impact of the New Labour Codes effective from 21st November, 2025, particularly on employee benefit obligations arising from the revised definition of wages, and no additional liability has been recognised in this regard, as stated in Note 2.41 to the audited financial statements.

5. Internal Control Systems and their Adequacy

The Company has in place internal control systems and procedures commensurate with the size, scale and nature of its operations, designed to safeguard its assets, ensure accuracy and reliability of accounting records, and promote adherence to management policies and applicable laws and regulations, including the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

The Board of Directors and the Audit Committee periodically review the financial results, accounting policies and internal control processes of the Company. The audited financial results for the half year and year ended March 31, 2026 were reviewed by the Audit Committee and approved by the Board of Directors at its meeting held on May 29, 2026, and were audited by the Statutory Auditors, M/s A. C. Bhuteria & Co., Chartered Accountants.

The Statutory Auditors have issued a qualified opinion on the audited financial results solely in relation to the Companys non-assessment of the financial impact of the Labour Codes notified by the Government of India vide notification dated November 21,2025, on account of which the Company has not been able to quantify the resulting impact, if any, on employee benefit provisions and accruals. This qualification does not extend to, and does not indicate any deficiency in, the Companys internal financial controls or the overall reliability of its books of account. The Company is in the process of assessing the implications of the Labour Codes and the rules to be framed thereunder, and will give appropriate accounting effect once the impact can be reasonably estimated.

The Board is of the view that, other than the matter specifically qualified by the Statutory Auditors, the Companys internal control systems are adequate and operating effectively for the size and nature of its operations.

6. Discussion on financial performance with respect to operational performance Operations

The year under review was a year of transition for the Company. Kiln operations were temporarily suspended during the year for the integration of the kiln with the waste heat recovery boiler forming part of the captive power plant. The suspension was a planned consequence of the Companys expansion, and not a reflection of any weakening of demand for its products. Consequently, revenue from operations stood at Rs. 6,664.19 lakhs against Rs. 8,047.00 lakhs in the previous year, and the cost of materials consumed reduced correspondingly to Rs. 5,074.33 lakhs from Rs. 6,227.89 lakhs. The Company recorded a profit after tax of Rs. 619.60 lakhs for the year.

Financial position

The Companys financial position strengthened materially during the year. Net worth increased by 44.91% to Rs. 10,663.94 lakhs as at 31st March, 2026 from Rs. 7,359.18 lakhs as at 31st March, 2025. Cash and bank balances stood at Rs. 3,864.49 lakhs. The current ratio stood at 5.04 times and the debt-equity ratio at 0.27 times, and the Company had no contingent liabilities as at 31st March, 2026. The Company sells its products on cash terms, and trade receivables as at the year-end were negligible at Rs. 0.04 lakhs.

Initial Public Offer and capital expenditure

During the year the Company completed its maiden Initial Public Offer, comprising a fresh issue of 50,70,000 equity shares of face value Rs. 10 each at an issue price of Rs. 59 per equity share, aggregating to Rs. 2,991.30 lakhs, and the equity shares of the Company were listed on the SME Platform of the National Stock Exchange of India Limited (NSE Emerge). The utilisation of the issue proceeds up to 31 st March, 2026 was as follows:

(Rs. in lakhs)

Object of the issue	Amount as per offer document	Utilised up to 31.03.2026	Unutilised
Capital expenditure towards set-up of captive power plant at Siltara, Raipur	2,300.00	1,874.59	425.41
General corporate purposes	326.72	326.05	0.67
Issue related expenses	364.58	364.58	-
Total	2,991.30	2,565.22	426.08

There has been no deviation in the utilisation of the issue proceeds from the objects stated in the offer document. The unutilised amount has been retained in deposits with scheduled banks pending deployment.

Capital work-in-progress in respect of the captive power plant stood at Rs. 5,766.57 lakhs as at 31st March, 2026, as against Rs. 1,158.11 lakhs as at 31st March, 2025, the project having been funded through the issue proceeds, a term loan sanctioned by HDFC Bank and internal accruals. Testing, commissioning and trial run activities have been affected by delays in the receipt of certain components arising from prevailing global conditions and logistics disruptions; the delay is temporary in nature and the Company is taking the steps necessary to complete the remaining activities.

7. Human Resources

The Company recognizes its employees as a key contributor to its manufacturing and operational capabilities at the Siltara-Raipur facility. There was a total of 109 permanent employees on the rolls of Company as on 31.03.2026. The Company continues to focus on maintaining a safe working environment at its manufacturing facility, adherence to applicable labour laws, and cordial industrial relations. The Board and management acknowledge the evolving regulatory landscape on account of the Labour Codes notified by the Government of India and are in the process of assessing their implications on the Companys employee benefit obligations and related HR policies, as also noted under the Statutory Auditors qualified opinion on the financial results for the year.

During the year under review, there were certain changes in the Companys Board composition: Mr. Sanjeet Singh was appointed as an Additional Director with effect from November 13, 2025 and was subsequently regularised as an Executive Director with effect from December 19, 2025. Separately, Mr. Kamlesh Kumar Dewangan, who had been appointed as Whole Time Director at the Extra-Ordinary General Meeting held on April 9, 2025, resigned from the Board with effect from September 18, 2025, on account of personal circumstances.

8. Ratios

Pursuant to Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the key financial ratios of the Company for the year ended March 31, 2026, as compared to the previous financial year, are set out below. As this is the first full financial year following the Companys listing, and comparable opening balances for FY 2024-25 are not separately available, the ratios below (other than Debt-Equity Ratio, which by nature uses period-end balances) have, for the sake of consistency and comparability, been computed using year-end (closing) balances rather than average balances. An explanation has been provided against ratios that have moved by 25% or more.

Ratio	FY 2025-26	FY 2024-25	% Change	Remarks / Reason for Variance
Current Ratio	5.04	4.96	1.44%	Marginal improvement; current assets grew broadly in proportion to current liabilities.
Debt to Equity Ratio	0.27	0.15	73.90%	Due to increase in long term Borrowings.
Debt Service Coverage Ratio	44.14	116.52	(62.11) %	Due to decrease in Earnings available for debt service as a result of increase in expense.
Return on Equity / Net Worth (%)	0.07%	0.13%	(48.43)%	Due to increase in share capital and premium due to new issue of shares as well as decline in profits
Inventory Turnover Ratio	4.01	5.75	(30.31)%	Increase in inventory
Trade Receivables Turnover Ratio	NIL	NIL	NIL	The company does not sell goods on credit
Trade Payables Turnover Ratio	NIL	NIL	NIL	The company does not purchase goods on credit
Net Capital Turnover Ratio	1.35	1.77	(23.90%)	NA
Net Profit Ratio (%)	0.09	0.11	(18.66%)	NA
Return on Capital Employed (%)	0.06	0.15	(57.74%)	Due to increase in share capital and premium due to new issue of shares as well as decline in profit.
Ratio	FY 2025-26	FY 2024-25	% Change	Remarks / Reason for Variance
Return on Investment (%)	(0.006)	(0.002)	250.00%	Due to increase in loss from Unquoted Investments.
Interest Coverage Ratio	44.14	116.52	(62.12%)	Due to decrease in Earnings available for debt service as a result of increase in expense.
Operating Profit Margin (%)	14.39%	17.29%	(16.77%)	-

Forward Looking Statement

Statement in this Management and Discussion Analysis describing your Companys objectives, projections and estimates and expectations may be Forward Looking Statements within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those expressed or implied. Important development that could affect your Companys operations include a downward trend in the domestic industry, monsoon, rise in input cost and significant change in political & economic environment in India, environment standards, tax laws, RBI guidelines, litigations and labour relations.

For and on behalf of Board of Directors, M/s Shri Hare-Krishna Sponge Iron Limited

Sd/-
(Manoj Parasrampuria)
Chairman & Managing Director
DIN: 00469018
Add.: Manhari Niwas, 31/267, 01st Floor, N/o Old Guest House, Civil Lines, Raipur, C.G. 492001

Place: Raipur
Date: 02/09/2026