Star Delta Transformers Ltd Management Discussions

Your Directors have pleasure in presenting the Management Discussion and Analysis report for the year ended on March 31, 2025.

Cautionary Statement:

The statements in the "Management Discussion and Analysis Report" describe your Companys objectives, projections, estimates and expectations which may be "forward-looking statements" within the meaning of the applicable laws and regulations. The actual results could differ materially from those expressed or implied, depending upon the economic and climatic conditions, government policies, taxation and other laws and other incidental factors.

a) INDUSTRY STRUCTURE, DEVELOPMENT -

India is set to dominate the global economic landscape, maintaining its status as the fastest-growing large economy for the next two fiscal years. The January 2025 edition of the World Banks Global Economic Prospects (GEP) report projects Indias economy to grow at a steady rate of 6.7% in both FY26 and FY27, significantly outpacing global and regional peers. At a time when global growth is expected to remain at 2.7% in 2025-26, this remarkable performance underscores Indias resilience and its growing significance in shaping the worlds economic trajectory.

India is one of the most dynamic and fast-growing transformer markets in the world, driven by the countrys ambitious expansion and modernization of its power sector. As of 2024, the Indian transformer market is valued around USD 5.1 billion and is set on a steep growth trajectory. A recent forecast projects that the market will reach USD 7.44 billion by 2029, growing at a CAGR of 7.9%from 2024 to 2029. This growth rate is higher than the global average, reflecting Indias stage of development - there is significant new demand from electrification and capacity addition, on top of replacement needs. If we extend the outlook slightly further, by 2032 the Indian market could potentially approach or exceed USD 9-10 billion in annual value, assuming the momentum continues. Indias share of the global transformer market is increasing, supported by both robust domestic consumption and rising exports.

The India transformer market is experiencing significant growth driven by a combination of expanding infrastructure, increasing industrial activity, and evolving energy requirements. Transformers, essential components in power generation, transmission, and distribution, are critical for ensuring the efficient and reliable delivery of electricity across the country. The market is segmented into various types, including power transformers, distribution transformers, instrument transformers, and specialty transformers, each catering to different applications and needs. Key drivers of the market include the rapid expansion of the electrical grid to support Indias burgeoning industrial base and the rising demand for electricity driven by urbanization and economic development. Government initiatives such as the Make in India campaign and investments in grid modernization are further fuelling growth. The focus on smart grid technology, renewable energy integration, and infrastructure upgrades is creating opportunities for advanced transformer technologies that enhance efficiency and reliability. The utility segment remains a cornerstone of the market, with significant investments in power grid infrastructure and modernization projects. High-capacity power transformers are in demand to support large-scale projects, while the increasing penetration of renewable energy sources necessitates transformers designed for effective grid integration. Additionally, government programs like the Smart Cities Mission and rural electrification are boosting demand across various sectors. The market also faces challenges such as the need to reduce power losses and maintain grid stability. Transformers with advanced features, such as on-load tap changers (OLTC) and improved cooling technologies, are essential in addressing these issues.

Despite the low threat from direct substitutes, technological advancements in energy storage and decentralized power generation are influencing market dynamics. Government initiatives such as the Energy Conservation Act (2002), Minimum Energy Performance Standards (MEPS), and Bureau of Energy Efficiencys (BEE) standards and labelling programs significantly influence the market by mandating energy-efficient transformer production. The Perform, Achieve, and Trade (PAT) scheme incentivizes energy efficiency among large industries, directly influencing transformer market growth through the adoption of energy-efficient designs. Infrastructure projects like the Smart Cities Mission, Green Energy Corridor, and electric vehicle infrastructure under FAME-II generate substantial demand for innovative transformers, especially smart transformers that optimize energy consumption and enhance grid reliability. Indias power grid is undergoing rapid expansion. The country had an installed generation capacity of ~442 GW in FY2024 and plans to scale this up to 900 GW by FY2032, which is an enormous increase. Achieving this will require commensurate expansion in transmission and distribution networks. The Central Electricity Authority (CEA) of India has laid out transmission plans including thousands of circuit kilometers of new high-voltage lines and hundreds of new substations. Notably, the addition of 12,000+ new substations with over 141,000 MVA capacity is planned from 2022 to 2030, representing a ~29% increase in substation capacity. Each of these substations will utilize multiple transformers. Furthermore, existing infrastructure is being upgraded - old transformers are being replaced with higher capacity or more efficient ones to reduce technical losses. The emphasis on grid modernization is evident in programs like the Revamped Distribution Sector Scheme (RDSS), which allocates billions of dollars to strengthen distribution networks, including transformer augmentation and installing new high-efficiency transformers to cut losses. All these initiatives contribute to sustained demand.

The government has increased effective capital expenditure (Capex) by 11% YoY to 15.5 trillion for FY26, with 11.2 trillion funded through budgetary support and 4.3 trillion from internal and extrabudgetary resources (IEBR). This investment aims to accelerate industrial growth, engineering firms, and large EPC players, ensuring steady demand for machinery, heavy equipment and construction materials, A key structural reform in this budget is the requirement for each infrastructure-related ministry to present a three-year project pipeline for Public-Private Partnership (PPP) projects, ensuring better long-term planning. Additionally, the government has allocated 1.5 trillion in interest- free 50-year loans to states to support infrastructure development.

The Union Budget 2025-26 focuses on boosting consumption, increasing capital expenditure (Capex), and investing in power, railways, infrastructure, and renewable energy.

b) OPPORTUNITES, THREATS AND RISKS

Many countries lack domestic CRGO production - for instance, India imports 100% of its transformer- grade steel , largely from Japan and a few other sources. This concentration makes the supply chain vulnerable. Any disruption at a major CRGO plant (due to geopolitical issues or technical outages) can cause steel shortages and price spikes for transformer makers worldwide.

Similarly, copper prices have been volatile, reaching historical highs, which raises input costs; while copper is globally traded, procurement at stable prices is a challenge for manufacturers quoting longterm contracts Beyond raw materials, transformers require numerous engineered components: bushings, tap changers, insulation structures (pressboard), cooling equipment (radiators, pumps, fans), and control devices. Many of these have their own concentrated supply chains. For example, high-voltage bushings might be sourced from only a few firms globally.

The pandemic and subsequent logistic issues affected the supply of such components, leading to delays. If even one critical component (say an on-load tap changer for a power transformer) is delayed, the whole transformer delivery gets pushed out. Manufacturers are now qualifying multiple suppliers and keeping safety stocks to address this. However,quality requirements are stringent (especially for high voltage parts), limiting how many suppliers meet the standards. Global shipping bottlenecks in 2021-2022 also impacted the supply chain - long lead components stuck in ports added to delays.

The culmination of raw material and component issues, combined with a rapid surge in orders, has led to unprecedented lead times for transformers, especially large ones. Lead times for large power transformers have stretched from a few months to several years. According to industry reports, delivery for a new EHV transformer that once took 4-6 months can now take up to 24-36 months (23 years).

In extreme cases, manufacturers have quoted 120 to 210 weeks (up to 4 years) for the largest units Shipping large transformers is itself a logistical challenge. These units often weigh hundreds of tons and require specialized transport (multi-axle trucks, rail transport, and heavy-lift ships). Cross-border transportation can face delays due to customs and permit issues, especially if the route infrastructure is lacking.

The transport of an EHV transformer from factory to site can take weeks or months and is susceptible to delays from weather or infrastructure bottlenecks (e.g., congested ports). COVID-era port congestions did cause some transformers to be stuck in transit. Logistics costs have also risen, impacting the delivered cost to customers.

Meeting diverse international standards (IEC, IEEE/ANSI, etc.) is a supply chain consideration. Components need to comply with local grid codes or specifications, so a transformer built for export might need different settings or accessories.

This sometimes means maintaining multiple design variants and inventories, adding complexity. It also means a component made in one country must have appropriate certifications for use in another, occasionally causing hold-ups if approvals are slow. Trade tensions and tariffs have also affected the transformer supply chain. For example, tariffs on steel or electrical equipment between major trading partners can increase costs.

Manufacturers and governments are also considering creating strategic transformer reserves or standardizing designs to make emergency replacements easier. Utilities are adjusting procurement strategies, sometimes ordering critical spares well in advance. From the manufacturers side, as mentioned, investment in capacity and supply agreements is underway to relieve bottlenecks.

In conclusion, while demand is not a limiting factor - there is plenty of market need - the supply chain is the critical challenge facing the transformer industry. The current backlog and extended lead times are a symptom of a strained supply chain reacting to a rapid upswing in demand. But structural challenges (limited sources for CRGO steel, long manufacturing times for bespoke large units) will remain points of attention. Participants in the transformer market (both producers and buyers) are now acutely aware that supply chain management is as important as manufacturing capability in ensuring project timelines are met. This has prompted a more collaborative approach, with manufacturers working closely with suppliers and clients to forecast needs and streamline the end-to- end process of delivering a transformer from raw material to energized in the field.

c) SEGMENT WISE PERFOMANCE OR PRODUCT-WISE PERFORMANCE.

The company operates broadly into following Segment:

(i) Manufacturing of Transformers

(ii) Solar Power

(i) Manufacturing Division Company has a very wide range of distribution and power transformers varying from Single Phase Transformers, 3 phase Transformers, Power Transformers, Extra High Voltage Transformers, Solar/Wind Transformers, Special Purpose Transformers catering to various Electricity Boards of Madhya Pradesh, Chhattisgarh, Maharashtra, Orissa, Rajasthan, Andhra Pradesh etc. The Company supplies through direct orders from Discoms and also through major private contractor companies like L&T, BHEL, Bajaj Electricals, Genus infra power ltd., Blue star Ltd., Vindhya telelinks ltd, Angelique international company ltd., Bharat electricals, Sangli, Fedder Liyod Ltd., KEI Industries Ltd., EPC Division, BLA power, BGR energy, KEC international industries, Hydro Power Corporation, Madhya Pradesh Power Transmission Company Limited etc.

With a vast experience of more than 45 years and reliable after-sales service, Company has become most trusted in Central India.

(ii) Solar: Company has setup 500 KWp PV On-grid Solar Power Plant in village Gagorni, Rajgarh district of Madhya Pradesh. The plant was commissioned on 12^th Oct. 2012 under the REC (Renewable Energy Certificate) Mechanism with annual generation capacity of 7.5 Lakhs units. The Company has future plans to setup additional plants for expansion.

d) OUTLOOK:

The transformer market in India has been stable for quite some years now. The market is expected to witness healthy growth rates and stimulating demand for the coming years.

e) INTERNAL CONTROL SYSTEM & THEIR ADEQUACY:

The company has adequate internal control system commensurate with the size of the operations by a Company. The Audit committee periodically reviews the implementation of management policies to ensure that transactions have been accurately recorded and promptly reported.

f) Companys Financial and Operational Performance

The key highlights of the Audited Standalone financial Result for the Financial Year ended March 31, 2025 are as under:-

(Amount in Rs lacs )

Particulars	Financial Year 2024-25	Financial Year 2023-24
(i) Revenue From Operation	14186.43	14013.59
(ii) Other Income	134.87	398.32
(iii) Total Revenue (i) +(ii)	14,321.30	14,411.91
(iv) Total Expenses	12891.24	12910.62
(v) Profit/loss before tax (iv)-(v)	1430.06	1501.29
(vi) Current Tax	372.89	395.06
(vii) Deferred tax	(5.61)	(5.29)
(viii) Profit/loss after tax (vi)-(vii)-(viii)	1062.78	1111.51
Earnings per Share (Rs):-	35.42	37.05
Basic:	35.42	37.05
Diluted:

Key Financial Ratios:

Particulars	Year ended 31 March, 2025	Year ended 31 March, 2024	Variation
1. Current Ratio (Total current assets/Current Liabilities)	10.77	7.00	3.77
2. Net Debt Equity Ratio (Net Debt/Average Equity)	(0.09)	0.03	(0.12)
3. Debt Service Coverage Ratio	(0.10)	8.14	{824]"
4. Return on Equity (%) (Profit after Tax (PAT)/Average Equity)	0.13	0.15	(0.02)
5. Inventory Turnover Ratio (in days) (Average Inventory / Sale of Products)	0.36	5.99	(5.63)
6. Debtors Turnover Ratio in days) (Average Trade Receivables/Turnover in Days)	0.27	4.15	(3.88)
7. Trade Payables Turnover Ratio (in days)	21.51	10.57	10.94

•Current ratio: - The current ratio measures a companys ability to pay its short-term liabilities with its short-term assets. A higher current ratio is desirable so that the company could be stable to unexpected bumps in business and economy. Star Delta Transform has a Current ratio of 10.77.

•Return on equity: - ROE measures the ability of a firm to generate profits from its shareholders investments in the company. In other words, the return on equity ratio shows how much profit each rupee of common stockholders equity generates. Star Delta Transform has a ROE of 13%. (higher is better)

•Debt to equity ratio: - It is a good metric to check out the capital structure along with its performance. Star Delta Transform has a Debt to Equity ratio of -0.09 which means that the company has low proportion of debt in its capital.

g) HUMAN RESOURCES & INDUSTRIAL RELATION:

The company has maintained very harmonious & cordial Industrial relations. There is continuous emphasis on development of human resources through training. We believe whatever we achieved from where we started our journey long back is the result of efforts of our team. So, we consistently aim to provide a sustainable environment for learning right from the stage of recruitment to retention. Total permanent employees as on 31.03.2025 were 73 (Seventy three ) excluding Directors.