Sunflag Iron & Steel Company Ltd Management Discussions

Sunflag Iron and Steel Company Limited (SUNFLAESTEEL ) has set up a Rs.state of the artRs. Integrated Steel Plant at Warthi, Bhandara Road in the State of Maharashtra, to produce high quality Special Steels with manufacturing facilities like Sponge Iron Plant, Mini Blast Furnace, Sinter Plant, Captive Power Plant, Steel Melt Shop, Continuous Casting Machine with Auto Mould Level Control, EMS facility, Ingot Casting and Rolling Mills. Modern annealing facilities include Bell annealing furnace, hardening and tempering, Electric annealing furnace. Bright Bar facilities like peeling machine, Combined drawing machine, Wire drawing units, coil to bar peeling machine, polishing & grinding lines and heat treatment facilities are available for value addition. Further, Ultramodern inspection and testing facilities which include Phased Array Auto Ultrasonic testing machine, Magna flux leakage test, Eddy current test, MPI and mobile / XRF Spectrometer, Anti mix testing, Immersion Ultrasonic testing Machines, Electro Hydraulic fatigue testing machine, Scanning Electron Microscope, Image Analyser, Gap/Stress rupture testing machine, carbon sulphur analyser, OHN Gas analyser for assuring best quality. The labs are NABL accredited of International Standards.

SUNFLAE STEEL has established itself as a major global force in Quality with modern world class technology, expert human resources and commitment to excellence. SUNFLAE STEEL has become a reputed supplier in Flat Bars, Round Bars, Bright Bars and Wire Rods of Alloy Steel, Spring Steel, Ball Bearing Steel, Valve Steel and Stainless Steel capturing prime position in these market segments. SUNFLAE STEEL is also embarking on an export thrust and is regularly supplying to various customers in South East Asia, North and South American Countries, South Africa, European Union, Japan, Taiwan, Australia, Switzerland, UK and Ireland.

With Ultramodern Blooming Mill & HV Mill, SUNFLAE STEEL can cater to high section requirement with higher reduction ratio for Automobile, Heavy Engineering, Railways, Defence and Aerospace sectors. Further, with Bottom poured ingot facilities, SUNFLAE STEEL caters special requirements of Railways and Defence for critical / core applications.

SUNFLAE STEEL has facilities like Electro Slag Refining (ESR); Vacuum Induction Melting (VIM) and Vacuum Arc Remelting (VAR), which cater to Nuclear, Aerospace and Defence sectors.

SUNFLAE STEEL is actively involved in development activities for import substitution of special steel under the guidance of Ministry of Steel, Government of India.

SUNFLAESTEEL is developing various Special Steels which are presently not being made in India (Import Substitution). The grades developed are Bearing grades for ball application, soft magnetic ferritic stainless steel, duplex and super duplex stainless steel, precipitation hardening stainless steel, tool steels and high-speed steels. SUNFLAE STEEL is also actively involved in various MTD Committees of Bureau of Indian Standards and is involved in modification and upgradation of Indian Standards to meet the International Standards requirements, which facilitates the indigenisation of various grades of steel. SUNFLAE STEEL has also been certified as the Great Place to work.

The objective of this Management Discussion is to present an analysis of the current Indian and World economic scenario along with the expectations for the period ahead.

GLOBAL ECONOMIC SCENARIO & OUTLOOK

A) MACRO-ECONOMIC CONDITIONS

The global economy is currently facing a period of slowing growth, due to a substantial rise in trade barriers, tighter financial conditions, and heightened policy uncertainty impacting growth prospects. Global growth is projected to slow from 2.8% in 2024 to 2.3% in 2025. Global inflation is expected to moderate to 4.3% in 2025 and 3.6% in 2026, approaching central bank targets. While advanced economies are likely to contain inflation more effectively than emerging markets, rise in protectionism and geopolitical tensions around trade will significantly impact prices of domestic products.

Lacking structural reform momentum and facing headwinds from a range of challenges, global economic performance is expected to remain mediocre. The five year-ahead growth forecast stands at 3.2 percent, below the historical average during 2000-19 of 3.7 percent.

The US, Canada, Mexico, and China are expected to experience significant growth slowdowns. Developing countries reliant on trade and commodity exports face challenges from reduced exports, lower commodity prices, tighter financial conditions and high debt burdens.

B) RECENT DEVELOPMENTS AND ECONOMIC OUTLOOK

Advanced Economies and Emerging Market and Developing Economies (EMDE) outlook.

Advanced economies are projected to experience a slight increase in growth, while Emerging Market and Developing Economies (EMDEs) are expected to see a modest slowdown in growth. Global inflation is forecasted to decline in both advanced and EMDEs, though it remains a concern. EMDEs are anticipated to continue contributing the majority of global economic growth.

In advanced economies, growth forecasts for 2025 have declined substantially since January, driven by downgrades in some of the worldRs.s largest economies. The outlook for U.S. growth and inflation in 2025 has deteriorated. U.S. growth is expected to decelerate sharply in 2025, to 1.4 percent. In 2026, growth is anticipated to edge up to 1.6 percent as the economy adjusts to higher trade barriers and policy uncertainty gradually declines.

All emerging market and developing economy (EMDE) regions face a challenging outlook amid the rise in global trade tensions and heightened uncertainty. Growth is projected to slow in most EMDE regions this year, as structural weaknesses are amplified by softening activity in the United States and China via tight linkages through trade, financial flows (including remittances), and commodity markets (in the case of China). Although growth is set to edge up in the Middle East and North Africa (MNA) and Sub-Saharan Africa (SSA) in 2025.

C) INDIAN ECONOMY India- Economic Outlook

India is poised to lead the global economy once again, with the International Monetary Fund (IMF) projecting it to remain the fastest growing major economy over the next two years. According to the IMFRs.s World Economic Outlook, IndiaRs.s economy is expected to grow by 6.2 per cent in 2025 and 6.3 per cent in 2026, maintaining a solid lead over global and regional peers.

Real GDP expanded by 6.2% year-on-year in the third quarter of FY 2024-25, supported by robust domestic demand and strong investment. High-frequency indicators suggest that economic activity remained solid in the fourth quarter. Industrial production rose by 3.7% year-on-year in the first four months of 2025, with the manufacturing sector regaining strength. IndiaRs.s current account deficit widened in the first three quarters of FY 2024-25, due to a persistent merchandise trade deficit that was only partially offset by strong services exports.

Private consumption is supported by rising real incomes and lower personal income taxes. Investment will remain strong, bolstered by easing financial conditions. However, export growth is expected to slow due to weaker global demand, the impact of higher tariffs and heightened trade policy uncertainty.

D) ECONOMIC AND BUSINESS OUTLOOK- GLOBAL AND INDIAN STEEL INDUSTRY

1. GLOBAL AND INDIAN STEEL INDUSTRY

The global steel industry is experiencing mixed trends, with India emerging as a key growth driver while facing some pricing pressures. The Indian steel industry is poised for significant expansion, fueled by robust domestic demand and government initiatives. However, global economic slowdown and potential trade tensions pose challenges.

Asia, particularly China, is expected to continue its dominance in steel production and consumption. The global steel industry is under pressure to reduce carbon emissions, pushing for the adoption of cleaner technologies and green steel production.

Global steel demand is projected to grow by 1.2% in 2025, reaching ~1,770 million tonnes. After three consecutive years of decline, steel demand is expected to recover globally (excluding China) in 2025. A stable global economic outlook, coupled with improving financing conditions and real income growth in major economies, is expected to support recovery in private consumption and investments before the tariff impositions. Additionally, a significant recovery in residential construction is also anticipated from 2025 onward, supported by easing financing conditions. However, the tariffs imposed by US administration and reciprocal tariffs by countries has led to increased uncertainty in demand-supply balance and continues to be a major risk to the steel industry.

The steel raw materials market in FY2024-25 stayed volatile due to coking coal mine outages and speculation about Chinese governmentRs.s stimulus announcements to fuel its slowing economy. However, both iron ore and coking coal markets declined due to weak steel markets globally, and continuing doubts that steel consumption could recover meaningfully in China while their economy focused on non-steel intensive sectors for growth.

Overall, while the global steel demand is poised for recovery in 2025, the industry remains exposed to geopolitical, economic, and financial risks. India, however, continues to stand out as a high-growth market, supported by strong domestic demand and investment. The long-term outlook for the Indian steel industry remains optimistic, with continued infrastructure development, industrial expansion, and supportive government policies driving its growth. Effective trade policies, price stabilisation measures, and sustained investment will be crucial to maintaining IndiaRs.s competitive edge in the global steel market.

2. OUTLOOK FOR STEEL INDUSTRY- OPPORTUNITIES AND THREATS

India is striving to achieve the goal of becoming a $5 trillion economy, with the steel sector playing a significant role in this mission. Under the National Steel Policy, India has set a target of producing 300 million tons of steel by 2030. The current per capita steel consumption in India is approximately 98 kilograms and is expected to rise to 160 kilograms by 2030. Increasing steel consumption serves as a golden standard for the countryRs.s infrastructure and economy.

The steel industry faces a mixed outlook with both significant opportunities and substantial threats. While IndiaRs.s steel demand is projected to grow, fueled by infrastructure development and government initiatives, global overcapacity, trade distortions, and economic uncertainties pose challenges.

Indian Steel Industry Outlook:

Bright Spot : India is a bright spot in the global steel industry, with steel demand expected to grow by 8.5% in 2025, according to the World Steel Association.

Strong Growth Drivers : Infrastructure development, particularly in construction and manufacturing, is driving the increased steel demand.

Government Support : Initiatives like "Make in India" and infrastructure development projects are expected to further boost the steel industry.

Pricing Pressures : While demand is strong, the Indian steel market has faced pricing pressures due to increased imports and fluctuations in global steel prices, especially from China.

Government Intervention : The Indian government has implemented safeguard duties on flat steel imports to protect domestic producers and stabilize prices.

Future Growth : Jefferies forecasts an 8-10% volume CAGR for Indian steel companies between FY25 and FY27.

Per Capita Consumption : IndiaRs.s per capita steel consumption is low compared to the global average, indicating significant growth potential.

OPPORTUNITIES

SUNFLAG STEELRs.s Super Alloy Steel manufacturing facility has now achieved the capability to cater to highly specialized requirements, including those to commercial & Fighter jet Parts, Defence, Space Vehicles, Nuclear Reactor, Advanced Ultra Supercritical Power Plants, Industrial and Vehicle Gas Turbines, Petro-Chemical Plants and other High Temp and Corrosive Applications. This will not only reduce the CompanyRs.s dependency on the automotive and auto ancillary sectors but also unlock opportunities for expansion and enable entry into high-value, technology-intensive markets.

SUNFLAGSTEEL has strengthened technical capabilities and secured vendor approvals from key government agencies including VSSC, LPSC, HAL, Brahmos, DRDO, and global OEM. These endorsements reflect our readiness to support high-technology applications and national security programs.

The Government of India continues to play a catalytic role in supporting and accelerating the growth of the domestic steel industry through a range of policy interventions and strategic programs. The National Steel Policy, 2017 lays a roadmap for achieving 300 million tonnes of steel production capacity by 2030-31, with a focus on domestic raw material availability, technological advancement, and value addition. To boost high-grade steel manufacturing, the Government has introduced the Production Linked Incentive (PLI) Scheme for Specialty Steel with a financial outlay of Rs. 6,322 crore, encouraging investments in value-added and alloy steel segments. The implementation of the Domestically Manufactured Iron & Steel Products (DMI & SP) Policy is a significant step in promoting Rs.Made in IndiaRs. steel by mandating preference to domestically produced iron and steel products in Government procurement.

The Steel Scrap Recycling Policy aims to ensure a sustainable supply of quality scrap for steelmaking, reducing import dependency and supporting green production practices. In addition, major infrastructure programs such as PM Gati Shakti, Bharatmala, Sagarmala, and Smart Cities Mission are driving robust demand for steel across various sectors. Protective trade measures, such as anti-dumping duties, have also helped safeguard the interests of domestic producers. Furthermore, the Government has shown commitment to decarbonization and green steel initiatives through the promotion of hydrogen-based technologies and renewable energy integration. These collective measures are expected to strengthen the competitiveness of the Indian steel industry and open new avenues for sustainable growth.

CURRENT CHALLENGES / THREATS

SUNFLAG STEEL continues to primarily cater to the automotive sector, which remains a major driver of steel demand. While the automotive industry is expected to sustain demand over the medium term, there has been a temporary moderation in growth. Moreover, the Government of IndiaRs.s increasing push for electric vehicles (EVs) poses a long-term structural shift. EVs, by design, require fewer conventional steel-intensive components, potentially affecting demand patterns for traditional grades of steel.

The broader Indian steel industry operates in a volatile and complex global environment, facing a combination of structural and cyclical challenges that may impact growth and profitability. Key challenges and threats include:

Fluctuating Raw Material Costs : The steel industry relies heavily on raw materials like iron ore and coking coal, and price volatility significantly impacts production costs and profitability.

Supply Chain Disruptions : Global events, such as geopolitical tensions, conflicts, and natural disasters, can disrupt the flow of raw materials, affecting production schedules and delivery times.

High Energy Costs : Steel production is energy-intensive, and rising energy prices contribute to increased operational costs. Environmental Regulations : The industry faces increasing pressure to reduce carbon emissions and adopt more sustainable practices, requiring investments in new technologies and processes.

Digital Transformation : The adoption of digital technologies like IoT and AI for predictive maintenance and process optimization is crucial, but requires upfront investment and skilled workforce.

Overcapacity and Competition : The global steel market faces overcapacity issues, with increased competition from lower-cost producers, particularly in China.

Logistical Bottlenecks : Inadequate infrastructure and inefficient logistics can lead to increased transportation costs and delays.

Trade Distortions and Protectionism : Subsidies and protectionist measures in various countries create an uneven playing field and hinder fair trade practices.

Economic Slowdowns : Weaker global economic growth and potential recessions in major economies could dampen steel demand. Green Steel Transition Challenges : Adopting low-emission technologies requires significant investment and access to renewable energy and high-grade ores.

SUSTAINABILITY

SUNFLAGSTEEL is committed to maintain its quality and has received appreciations and awards from various sources. With the continuous efforts on making clean steel, now Company is focusing on expanding its market share in other segments viz. railways and defence etc. This will protect the Company from dependency on Automobile sector.

SUNFLAG STEEL exploring better opportunities in the years to come due to continuous developments of new grades of high alloy steel as well as wire rod. Further, venturing into the self-dependency of raw materials will help in reduction in the cost of production and enhancing the profitability. This has even proved advantageous during the recessionary period which is a very good sign for the Company.

MATERIAL DEVELOPMENT

As a milestone towards minimising the carbon emissions, SUNFLAG STEEL has entered into a Joint Venture Agreement with Renew Green Energy Solution Pvt. Ltd. to source 71.34 MW of captive renewable power from its Solar Photovoltaic Power Project, which will reduce carbon emissions over the contract period of 15 years which may be extended upto 25 years. Further, the Company has also entered into long term Power Purchase Agreement (PPA) with Sunsure Solarpark Thirty Seven Private Limited, to source additional 11 MW of electricity from its Solar Photovoltaic Power Project for the plant.

While automotive remains a key segment, our emphasis is now on sectors that demand advanced metallurgy, international compliance, and sustainable manufacturing. To support this, we have invested in clean energy initiatives, including solar power integration, reinforcing our commitment to ESG goals and environmental stewardship.

During the year under review, SUNFLAESTEEL see some marginal change in the top line and in profitability. Indian Steel industry has been driven by availability of raw material viz. iron ore, coal, coking coal etc. and cost of labour. Consequently, the financial year under review remained volatile during the year. Further, your Company with continuous development of new grades of steel and upgradation of plant and equipment, could maintain its presence in the market particularly in automobile industry. There was a marginal increase in the sales and profit before tax. Profit before taxes stood at Rs. 211.43 crore in the year under review as against Rs. 181.42 crore in the previous year.

To achieve effective cost reduction and improvement in productivity, activity of Total Productive Maintenance (TPM) continued to be implemented by the Company during the Financial Year 2024-25 under review.

FINANCIAL AND OPERATIONAL PERFORMANCE:

A detailed financial performance together with segment-wise/product wise performance of the Company for the FY 2024-25 is provided in BoardRs.s Report forming part of this Annual Report.

KEY RATIOS:

As per provisions of SEBI Listing Regulations, 2015, the Key financial ratios are given below:

RISKS AND CONCERNS

SUNFLAE STEEL recognizes that it is exposed to a number of uncertainties, which is inherent for the industries that it operates in. The volatility of the steel industry affects the financial and non-financial results of the business. To increase confidence in the achievement of the objectives and the sustainability of our business, management has implemented a risk management process operated by the business as part of the regular management activities for identification of internal and external risks faced by the Company, in particular including strategic/sectoral, financial/liquidity, operational, marketing, sustainability (particularly, ESG related risks), employee related risk, cyber security- information and employee dishonesty risk, credit risk, product related risks, natural calamity risk or any other risk. The Board of Directors has constituted the Risk Management Committee to oversees the entire Risk management process including Risk Identification, RiskAssessment, Risk Analysis, Risk Treatment, Risk Mitigation, Risk - Control and Monitoring.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has in place adequate internal control systems and procedures commensurate with the size and nature of business. For detailed information please refer BoardRs.s Report.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES

The details of Material Development in Human Resources of the Company for the FY 2024-25 are provided in BoardRs.s Report forming part of this Annual Report.

DISCLOSURE OF ACCOUNTING TREATMENT IN PREPARATION OF FINANCIAL STATEMENTS

The Company follows the guidelines of Accounting Standards referred to in Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 together with Ind AS issued by the Institute of Chartered Accountants of India.

CORPORATE GOVERNANCE

At SUNFLAE STEEL , we ensure that we evolve and follow the corporate governance guidelines and best practices diligently, not just to boost long-term shareholder value but also to respect minority rights. We consider it our inherent responsibility to disclose timely and accurate information regarding the operations and performance, leadership and governance of the Company.

Pursuant to the Listing Regulations, the Corporate Governance Report along with the Certificate from a Practicing Company Secretary, certifying compliance with conditions of Corporate Governance forms an integral part of the Annual Report.

CAUTIONARY STATEMENT

The Statements in the Management Discussion and Analysis describing the CompanyRs.s objectives, projections, estimates and expectations may be Rs.forward-looking statementsRs. within the meaning applicable to securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the CompanyRs.s operations include economic conditions affecting demand / supply and price conditions in the domestic and overseas markets, changes in the Government regulations, tax laws, other statutes and other incidental factors.