Simplex Castings Ltd Management Discussions.

Simplex Castings Limited (SCL) is premier manufacturing organisation in India with global business presence. SCL possess well equipped manufacturing facilities such as Cast Iron Foundry , Steel & Alloy Foundry and Heavy Engineering & Fabrication Plant. Each plant is associated with modern machining facilities and a central machine shop with several machine tools including large number of CNCs, EPC Division to take up Turn-Key Projects, Design wing with modern computer setup and aided tools. SCL is complete one stop shop for all engineering components manufacturing needs, castings, forging, fabrication, machining, assembly, equipment building, in-house testing, EPC division and Designing facility. SCL Units are situated in Bhilai, Raipur & Rajnandgaon, state of Chhattisgarh, the central part of India, most mineral rich & densely industrialized province in India. SCL is catering to various industrial sectors like Steel, Railways, Power, Mining , Cement, Sugar, Chemicals, Earthmovers, Machines Tools, Ship Building , Oil & Gas and Defense. Your Company believes in developing new products in line with changing technology and requirement of customer. INFRASTRUCTURE GREY IRON FOUNDRY

This Foundry is located in Bhilai, Industrial Estate specialises for producing various grades i.e heavy iron castings upto 60 ton single piece and ductile iron castings upto 10 ton single piece equipped with cupola and induction furnace. This foundry is capable of producing a wide spectrum of Cast Iron Castings like Heat Resistant, Acid Resistant, Hi-chrome, Wear Resistant and Compacted Graphite Iron Castings etc. It has Green Sand Molding Line - ARPA 1300 Jolt Squeeze Machine with fixed box size of 1000 mmx1000mm and height 200-400 mm. Besides, it also has Hand Molding facilities , a large sophisticated Design setup, Pattern Shop, Annealing furnace, Machine Shop including CNC Machines, Fabrication shop, Assembly Shops and Sand Blasting & Shot Blasting Plants. This Foundry has modern testing laboratories equipped with spectrometers, Ultrasonic Testing facilities, modern physical lab and Micro structure testing machine. This Unit is specialized in manufacturing of World Class Leakproof Coke Oven Door Assembly and Ingot Moulds for Steel Plant.

STEEL FOUNDRY

This Foundry is located in Urla , Industrial Estate, Raipur equipped with 17 ton & 5 ton Electric ARC Furnace which can produce single piece Plain Carbon Steel Castings upto 45 ton , Alloy Steel Castings upto 23 ton single piece and Ductile Iron Casting upto 16 ton single piece. Additional Facilities are 20 ton Ladle Refining Furnace and 2T/3T Induction Furnace.

This foundry has sophisticated testing facilities Spectrometers, Hydrogen Analyzers, Cobalt & Iridium Radiography Machines and Ultrasonic Testing equipment etc. This foundry is also equipped with Modern Moulding facilities & Simulation Softwares IMF Machine Moulding Line.

HEAVY FABRICATION

Simplex is a Quality Metal fabricator of Heavy Engineering Spares & Technological Equipment upto 70 MT as a Single Piece. This plant has all testing facilities, large stress Relieving furnace and Big CNC Boring Machines.

An ISO-9001:2015 approved Company with various Quality accreditations of AaR, ABS, API, ASME and RDSO Class A approval for Foundry etc.

ECONOMY OVERVIEW GLOBAL ECONOMY

According to the International Monetary Fund (IMF), the global economy is on the road to recovery and grew by 3.8% in CY17, a 0.6 percentage point increase over CY16. This is the highest rate of global GDP growth after CY11. The growth happened owing to an increase in manufacturing activity, private consumption, investments and global trade.

The growth was broad based, with growth increasing in more than half of the worlds economies aided by benign global financing conditions, revival in investment sentiment, accommodative monetary policies and higher commodity prices. The growth was higher as compared to the initial estimates with upside surprises in the second half of 2017 in advanced as well as emerging and developing countries. Two-thirds of countries accounting for about three-fourths of global output experienced faster growth in 2017 vis-a-vis previous year.

GLOBAL GROWTH TREND(%)

2016

2017

2018(P)

World

3.2

3.8

3.9

AMEs

1.7

2.3

2.5

EMEs

4.4

4.8

4.9

United States

1.5

2.3

2.9

EU-28

2.0

2.7

2.5

China

6.7

6.9

6.6

Japan

0.9

1.7

1.2

Russia

-0.2

1.5

1.7

Korea

2.8

3.1

3.0

India

7.1

6.7

7.4

Source: International Monetary fund(IMF)

INDIAN ECONOMY

During FY 2017-18, Indias economy was marked by various structural reform initiatives aimed at strengthening the countrys macro-economic scenario for sustainable future developments. Despite a tepid performance in the first half of FY 2017-18, owing to disruptions like the implementation of Goods and Services Tax (GST), India maintained its stability to record a growth of 6.7%. India has also emerged as a major global investment economy, gaining the top 5th spot as an international investment destination. Moreover, Moodys Investors Service upgraded Indias sovereign rating to Baa2 with stable economic conditions. According to the World Bank report, India has improved its ranking by

30 spots in terms of Ease of Doing Business and is ranked at 100 out of the 190 countries.

India GDP Growth (%)

2014-15

2015-16

2016-17

2017-18

7.3

7.6

7.1

6.7

Source: Central Statistics Office (CSO)

OUTLOOK

GLOBAL

The global economic growth should remain strong in

2018, as both advanced and emerging economies enjoy a harmonized upturn. According to the IMF, global growth will inch up from 3.8% in 2017 to 3.9% in 2018 and 2019. Corporate capital expenditure should become a more prominent growth driver, inflation is unlikely to rise much, and central banks will reduce liquidity and raise interest rates in response to better growth. Faster growth in the US, Japan, and China would largely drive global growth during

2019. An encouraging trade and investment environment, along with easing financial conditions, would also impact the global economic conditions.

INDIA

The outlook for India remains largely positive, reinforced by robust private consumption and public investment, as well as the ongoing structural reforms. Global demand has been improving, which should encourage exports and fresh investments.

Indias GDP is expected to reach US$ 6 trillion by FY 2027 owing to consistent reforms, digitisation, globalisation and favourable demographic conditions. Over the next 10-15 years, India is expected to be among the top three economic powers, backed by its strong democracy and partnerships. Government initiatives for infrastructure development, emphasis on creation of smart cities and focus on affordable housing programme is likely to bolster Indias industrial development. The GDP growth of the country is estimated to rise to 7.4% in FY 2018-19.

INDUSTRY STRUCTURE & DEVELOPMENT

Indias steel production grew 4.5% to its highest ever level of 102 million tonnes in FY18. The Government of India has been proactive in addressing the issues faced by domestic steel makers. It has taken major steps to stop unfair trade and to safeguard the interests of domestic players.

India was the worlds third-largest steel producer in 2017. The growth in the Indian steel sector has been driven by domestic availability of raw materials such as iron ore and cost-effective labour. Consequently, the steel sector has been a major contributor to Indias manufacturing output.

Indias finished steel consumption grew at a CAGR of 5.69 per cent during FY08-FY18 to reach 90.70 MT.

Indias crude steel and finished steel production increased to 102.30 MT and 104.98 MT in 2017-18, respectively.

In 2017-18, the countrys finished steel exports increased 17 per cent year-on-year to 9.62 million tonnes (MT), as compared to 8.24 MT in 2016-17.

Steel Performance FY 2017-18

Crude Steel production (Million Tonnes)

Particulars

FY14

FY15

FY16

FY17

FY18

Public

16.77

17.21

17.92

18.48

19.8

Private

64.92

71.77

71.87

78.91

82.50

Total

81.69

88.98

89.79

97.39

102.30

Steel Consumption in India (Million Tonnes)

Particulars

FY14

FY15

FY16

FY17

FY18

Public Sector

74.10

76.36

81.53

83.93

90.70

Source : Joint Plant Committee

Highlights of the Indian Steel Industry:

• Infrastructure, oil and gas and automotives would drive the growth of the industry

• Ministry of Steel plans to set up Steel Research and Technology Mission in India to promote R&D activities in the sector

• Achieved all -time high crude steel production in FY 2018

• Third largest crude steel producer in the world in 2017

• Third largest consumer of finished steel in the world in 2017.

• Steel consumption grew at a multi-year high in FY18

• Contributes nearly 2% to the countrys GDP

Steel production of top 10 steel-producing countries:

RANK COUNTRY

2017 (MILLION TONNES)

2016 (MILLION TONNES)

% CHANGE

1 China

831.7

807.6

3.0

2 Japan

104.7

104.8

-0.1

3 India

101.4

95.5

6.2

4 United States

81.6

78.5

4.0

5 Russia

71.3

70.5

1.3

6 South Korea

71.1

68.6

3.7

7 Germany

43.4

42.1

3.5

8 Turkey

37.5

33.2

13.1

9 Brazil

34.4

31.3

9.9

10 Italy

24.0

23.4

2.9

Source : World Steel Association.

POLICY SUPPORT AIDING GROWTH IN THE STEEL SECTOR

New National Steel Policy

New National Steel Policy has been formulated by the Ministry of Steel in 2016, which will retain the objectives included in National Steel Policy (NSP) 2005. It aims at covering broader aspects of steel sector across the country including environment and facilitation of new steel projects, growth of steel demand in India and raw materials.

Under the policy, the central government stated that all the government tenders will give preference to domestically manufactured steel and iron products. Moreover, Indian steel makers importing intermediate products or raw

materials can claim benefits of domestic procurement provision by adding minimum of 15 per cent value to the product.

The New steel policy, 2017 aspires to achieve 300MT of steel making capacity by 2030. This would translate into additional investment of Rs 10 lakh Crore (US$ 156.08 billion) by 2030-31.

New Steel Policy seeks to increase per capita steel consumption to the level of 160 kgs by 2030 from existing level of around 60 kg.

R & D and Innovation

The scheme for the promotion of R&D in the iron and steel sector has been continued under the 14th Finance Commission (2019-20). Under the scheme, 26 projects have been approved with financial assistance of Rs 161 crore (US$ 24.98 million) from Ministry of Steel.

The Ministry of Steel is also actively participating in the Impacting Research Innovation & Technology (IMPRINT) & Uchchatar Avishkar Yojana (UAY) Schemes launched by Ministry of Human Resource Development. IMPRINT scheme aims to solve major engineering and technology challenges and UAY is promoting industry sponsored, outcome-oriented research projects.

Ministry of Steel is setting up an industry driven institutional mechanism - Steel Research & Technology Mission of India (SRTMI) - with an initial corpus of US$ 30.89 million. The institute will facilitate joint collaborative research projects in the sector.

OPPORTUNITIES & THREATS Automotive

The automotive industry is forecasted to grow in size by US$ 74 billion in 2015 to US$ 260-300 billion by 2026.With increasing capacity addition in the automotive industry, demand for steel from the sector is expected to be robust. In 2017, India overtook Germany to become the fourth largest automobiles market globally.

Capital Goods

The capital goods sector accounts for 11 per cent of steel consumption and expected to increase 14/15 per cent by 2025-26 and has the potential to increase in tonnage and market share . Corporate Indias capex is expected to grow and generate greater demand for steel.

Infrastructure

The infrastructure sector accounts for 9 per cent of steel consumption and expected to increase 11 per cent by 2025-26. Due to such a huge investment in infrastructure the demand for long steel products would increase in the years ahead.

Airport

More and more modern and private airports are expected to be set up. In FY18, passenger traffic at Indian airports stood at 308.75 million and number of operational airports stood at 94 in July 2017. Development of Tier-II city airports would sustain consumption growth. Estimated steel consumption in airport building is likely to grow more than 20 per cent over next few years.

Railways

The Dedicated Rail Freight Corridor (DRFC) network expansion would be enhanced in future .Gauge conversion, setting up of new lines and electrification would drive steel demand . PPP Investments in railways are expected to grow from Rs 24,000 crore (US$ 3.72 billion) in 2017-18 (RE) to Rs 27,000 crore (US$ 4.19 billion) in 2018-19.

Oil and Gas

Oil and gas amongst major end-user segment accounted for 34.4 per cent of primary energy consumption in FY16. This would lead to an increase in demand of steel tubes and pipes, providing a lucrative opportunity to the steel industry. Power

The government targets capacity addition of 100 GW under the 13th Five-Year Plan (2017-22) .Both generation and transmission capacities would be enhanced, thereby raising steel demand from the sector .Power capacity addition of 17,200 MW achieved in 2017-18.

CORPORATE SOCIAL RESPONSIBILITY

During FY 2017-18, your Company contributed Rs 10.18 Lacs towards Corporate Social Responsibility (CSR).

OPERATIONAL AND FINANCIAL PERFORMANCE

During the year, the Company recorded a Profit after Tax of Rs 335.47 Lacs compared to previous year of Rs 223.51 Lacs. The increase is primarily on account of improved realizations and higher deliveries. The basic and diluted earnings per share for Financial Year 2017-18 were at Rs 5.61 and 5.59 respectively(Previous year : Rs 3.73).

a) Revenue from Operations

(Rs in Lakhs)

Particulars

FY 2017-18

FY 2016-17

Sale of Products

14780.37

23202.14

Sale of Traded Goods

7483.14

-

Job Contract Receipts

89.24

66.02

Work Contract Receipts

43.04

262.97

Other Operating Revenue

46.25

145.20

Total Revenue from Operations (Gross)

22442.04

23676.33

Revenue from operations for the F.Y 2017-18 stood at Rs 22442.04 Lacs against the Rs 23676.33 Lacs of previous year.

(b) Consumption of Raw Material & Component and Purchase of Traded goods:

(Rs in Lakhs)

Particulars

FY 2017-18

FY 2016-17

Change

%

Consumption of Raw Material and Purchase of Traded goods

15197.36

11248.58

35.10

During the year Consumption of Raw Material and purchase of traded goods increased by 35.10% to Rs 15197.36 Lacs as compared to Rs 11248.58 in previous year due to price hikes.

(c) Employee Benefit Expenses

(Rs in Lakhs)

Particulars

FY 2017-18

FY 2016-17

Change

%

Employee benefit Expense

1727.35

1830.89

(5.66)

The employee cost during the year decreased by 5.66% to Rs 1727.35 Lacs as compared to Rs 1830.89 Lacs in the previous year due to proper review of KRA and KPA on Quarterly basis.

(d) Finance Costs

(Rs in Lakhs)

Particulars

FY 2017-18

FY 2016-17

Change

%

Finance Costs

1163.14

1128.61

3.06

Finance cost increased by 3.06% to Rs 1163.14 Lacs in FY18 from Rs 1128.61 Lacs in the previous year. The increase was primarily due to availing the additions funds from Union Bank of India upto Rs 1200.00 Lacs.

(e) Depreciation and Amortisation Expenses

(Rs in Lakhs)

Particulars

FY 2017-18

FY 2016-17

Change %

Depreciation and Amortisation Expenses

1244.58

782.37

59.08

The Depreciation during the year has been provided as per revised Schedule II under the Companies Act, 2013. During the year under review the depreciation increased by 59.08% to Rs 1244.58 Lacs in Fy18 from Rs 782.37 Lacs in FY17 due to capitalization & addition of Assets and changes on account of implementation of Ind As.

Continuing focus of the management is consistently on undertaking better manufacturing processes, improved productivity and optimization of resource for improvement in performance aimed at achieving results better than the trend witnessed in the industries in which the Company operates.

Viewed in this backdrop, the Companys performance for the year under review is considered to be reasonably satisfactory.

RISK CONCERN

Business risks exist for any enterprise having national and international exposure. Your Company also faces some such risks, the key ones being - a longer than anticipated delay in economic revival, unfavorable exchange rate fluctuations, emergence of inflationary conditions, Competition in Indian and Global market and any unexpected changes in regulatory framework.

The Company is well aware of these risks and challenges and has put in place mechanisms to ensure that they are managed and mitigated with adequate timely actions.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has adequate internal audit and control systems. Internal auditors comprising of professional firms of Chartered Accountants have been entrusted the job to conduct regular internal audits at all units/ locations and report to the management the lapses, if any. Both internal auditors and statutory auditors independently evaluate the adequacy of internal control system. Based on the audit observations and suggestions, follow up, remedial measures are being taken including review and increase in the scope of coverage, if necessary. The Audit Committee of Directors, in its periodical meetings, review the adequacy of internal control systems and procedures and suggest areas of improvements.

The internal control system ensures compliance with all applicable laws and regulations, facilitates in optimum utilisation of resources and protect the Companys assets and investors interests. The Company has a clearly defined organisational structure, decision rights, manuals and operating procedures for its business units to ensure orderly and efficient conduct of its business.

The Company has a whistle blower policy so that Directors and Senior personal can report their genuine concern. The Audit Committee of the Board on Quarterly basis reviews significant audit findings covering operational, financial and other areas and provides guidance on further strengthening the internal controls framework.

HUMAN RESOURCES DEVELOPMENT AND INDUSTRIAL RELATIONS

Human resource is considered as key to the future growth strategy of the Company and looks upon to focus its efforts to further align human resource policies, processes and initiatives to meet its business needs. In order to focus on keeping employees abreast of technological and technical developments, the Company provides opportunity for training and learning. Industrial relations at all the units and locations are cordial. As on March 2018, the company had 515 employees on its rolls.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities, laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that would influence the Companys operations include cost of raw materials, tax laws, interest and power cost and economic developments and such other factors within the country and the international economic and financial developments.