Suraj Products Ltd Management Discussions

I. OVERVIEW:

The objective of this report is to covey the Managements perspective on the external environment and steel industry, as well as strategy, operating and financial performance, industrial relations, risks and opportunities and internal control systems and their adequacy in the Company during the financial year 202425. This should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the report. The Companys financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS)complying with the requirements of Companies Act 2013(Act) and regulations issued by the Securities and Exchange Board of India (SEBI), each as amended from time to time.

II. EXTERNAL ENVIRONMENT:

1. Global Economy:

The global economy, in Calendar Year 2024, showed resilience despite geopolitical uncertainties, inflationary pressures, tighter monetary policies, sovereign debt concerns and sluggish trade. We expect infrastructure build, investments led by new technologies, and demographics of emerging markets to continue to drive global growth, estimated at 3.2% in Calendar Year 2025, similar to Calendar Year 2024. The Indian economy maintained a steady momentum within the uneven global macroeconomic landscape, supported by public spending on infrastructure and digitalization, as well as reforms directed towards ease of doing business and incentivizing new investment. In FY 202425, the Indian GDP has grown at 8.2%, which is substantially higher than the global benchmark.

The steel industry fundamentals reflected these macro conditions, with geopolitical concerns and moderating demand in China resulting in pressure on steel prices, while input costs have remained relatively elevated and environmental and regulatory costs continue to rise. At the same time, the Indian market stood out as robust infrastructure spending, resurgence in private sector investment and robust demand meant that the industry saw crude steel production growth of 13% over the previous fiscal. We expect this trend to continue, with domestic steel demand remaining resilient in FY 202526 on the back of expansion in economic activity, while pricing conditions might see periods of pressure driven by global economic trends and policy changes.

2. Economic outlook:

The baseline forecast is for the world economy to continue growing at 3.1% during 2025 and 2026, at the same pace as in 2025. A slight acceleration for advanced economies where growth is expected to rise from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025 will be offset by a modest slowdown in emerging market and developing economies from 4.3% in 2023 to 4.2% in both 2024 and 2025. Global inflation is forecast to decline steadily, from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. Core inflation is generally projected to decline more gradually. Energy prices are expected to rationalize in 2025. Coal and natural gas prices are expected to continue declining from their earlier peaks with the gas market becoming increasingly balanced on account of new supply, dampened demand, and high storage levels. The forecast for nonfuel commodity prices is expected to be broadly stable in 2025, with prices for base metals expected to fall on account of weaker industrial activity in Europe and China. With inflation projected to reduce in this year, policy rates of central banks in major advanced economies are expected to start declining in the second half of 2025. Governments are expected to tighten fiscal policy in 2025 and, to a lesser extent, in FY202526. Among major advanced economies, the structural fiscal balance to GDP ratio is expected to rise in the United States and in the euro area in 2026. In emerging market and developing economies, the projected fiscal stance is expected to be, on average, broadly neutral in 2025, with a tightening projected for 2026.

3. Indian Economy:

The Indian economy maintained a steady momentum within the uneven global macroeconomic landscape, supported by public spending on infrastructure and digitalization, as well as reforms directed towards ease of doing business and incentivizing new investment. In FY202425, the Indian GDP has grown at 8.2%, which is substantially higher than the global benchmark. The steel industry fundamentals reflected these macro conditions, with geopolitical concerns and moderating demand in China resulting in pressure on steel prices, while input costs have remained relatively elevated and environmental and regulatory costs continue to rise. At the same time, the Indian market stood out as robust infrastructure spending, resurgence in private sector

investment and robust demand meant that the industry saw crude steel production growth of 12% over the previous fiscal. We expect this trend to continue, with domestic steel demand remaining buoyant in FY202425 on the back of expansion in economic activity, while pricing conditions might see periods of pressure driven by global economic trends and policy changes.

III. STEEL INDUSTRY:

1. Global steel industry:

During FY 202425, the steel industry faced an uneven global macroeconomic landscape. Chinas transition from investmentled growth to consumptionled growth contributed to a reduced demand for steel, as the countrys focus on heavy infrastructure investments seemed to taper. This was exacerbated by a sluggish real estate sector. The consequent overcapacity in China and higher exports brought about a downward pressure on global steel prices. The expansion of steelmaking capacities in regional markets also intensified competition. Geopolitical tensions in Ukraine and the Middle East disrupted traditional supply chains. Raw material prices and other costs remained relatively elevated even as steel prices significantly softened, putting pressure on margins for steel producers. Meanwhile, steel companies around the world, but especially in Europe and East Asia, have started to engage very deeply and invest significantly in finding solutions to reduce the carbon footprint of the industry.

2. Demand Outlook:

Global Steel demand is expected to grow by approximately 2% to reach 1800 MMT in 2026. Chinese domestic demand will continue to be impacted by property sector woes, however, Government impetus may improve infrastructure investment in later part of 2025 and domestic demand is expected to sustain 2024 level. Exports are expected to continue to be at 2024 levels. Consolidation in the sector may improve profitability of Chinese mills in the long run but squeeze margins during investment phase. In 2025, Chinese steel demand is expected to sustain at 2024 level. However, it is likely to decline in the mediumterm, as China gradually moves away from a real estate and infrastructure investment dependent economic development model. The developed world is also expected to show a strengthening recovery with 1.4% in 2025 and 2.6% in 2025, as it is expected to see steel demand finally show a meaningful uptick in the EU in 2025 and continued resilience in the US, Japan, and Korea.

India has emerged as the strongest driver of steel demand growth since 2022. The growth is backed by a booming construction sector with private consumption as well as robust Government expenditure fuelling infrastructure and capital goods as well. Automotive also performed better than expected while consumer durables industry underperformed in the inflationary environment. Coking coal prices softened towards the end of the financial year and imports from China squeezed margins for domestic players while pulling down international steel prices.

3. Indian Steel Industry:

The Indian Steel Industry is expected to grow at 7.2 % CAGR till 2030 with 25% of the capacity planned in Odisha (~75 MT), thus adding to the existing infrastructural stress particularly on railways and ports in Eastern India. Events like the power crisis occurring every year puts stress on the rake availability. In addition, railways accidents, regional strikes add to the uncertainty particularly in raw material circuit which is heavily dependent on railways for movement.

There is now a constant risk of escalation of geopolitical tensions, or any other black swan event impacting supply chain reliability and delivered cost due to increased ship/ container freights and lower container availability. The ongoing RussiaUkraine conflict, Red Sea crisis are some such events that may pose risk to our Shipping operations and spend. The statutory norms are also getting more stringent thus making it necessary to address the Environmental, Social and Governance (ESG) issues for scope3 operations also. Thus, supply chain faces a

potential multifaceted risk of business discontinuity due to disruption in infrastructure, market, changing policies and statutory norms.

UPLIFTING RURAL DEMAND:

The Indian Government is endeavoring to create world class infrastructure in the Country. It is planning to invest 25 trillion in infrastructure over next three years; Rs. 8 trillion will be used to develop 27 industrial clusters, while Rs. 5 trillion will be used for building roads, railways and port connectivity.

CHANGING RURAL DEMAND:

Indians rural sector is slowly undergoing a transformation. Consumption patterns of people are slowly changing, facilitated by improved networking. People in villages are seeking information proactively from multiple sources, which also include social media.

INDUSTRY STRUCTURE & DEVELOPMENT:

Sponge iron & pig iron are intermediate products as source of metalics for electric steel making. Other source of metalics is steel scrap. The Sponge iron industry in India is divided into two types, those who are integrated with steel making and those in merchant sector. Suraj Products Limited is slowly graduating from a merchant plant to a steel producer.

In the Modern Eeconomy Steel is a vital component to the development. The strength of steel industry shows the growth & development of all major industrial economies. Consumption of steel is a significant indicator of socioeconomic development of the people of the country. Since incubation period for setting up integrated steel plants is large, the growth in demand of steel during the year was met generally by secondary steel sector or through import of steel. One of the sources of metallics for secondary steel making sector is sponge iron and pig iron. Sponge iron industry, therefore, witnessed continued development for its product during the year. The trend is likely to continue in future. With the anticipated increase in rural spending and infrastructure, the steel demand is likely to be good.

OPPORTUNITIES, THREATS & FUTURE OUTLOOK:

a) OPPORTUNITIES:

The sponge iron sector is linked to the Nations steel sector in such a way that a rise in demand for steel would increase the demand for sponge iron. The various sectors that are expected to contribute to the growing demand are infrastructure, roads, railways, bridges, airports, industrial plants, buildings, automobiles etc.

The renewed importance given by Government on affordable housing, roads, sagarmala projects and other infrastructure projects are expected to create steel demand, this will augur well for steel industry. As per the National Steel Policy crafted during FY 201718, the crude steel production target for India was set at 300 MnT by 2030.

b) THREATS:

Most of the steel producing industries are expected to witness an increase in crude steel output due to production increase post COVID19 pandemic which had severely affected economies and industries globally, including steel industry.

The cost of iron ore and coal constitute more than 80% of cost of production. Therefore the profitability of the Company depends on market price of these raw materials. The only way to reduce the cost of iron ore and coal is to have captive mines for these raw materials, which the company does not have. The emergence of large players may pose threat due to their economies of scale.

c) OUTLOOK:

The basic aim of the Company is able to produce steel as per market requirements and able to manage market trend to its advantage. Opportunities abound in growing economies and opening of economy in India has created opportunities for Indian enterprise to move beyond national boundaries as well as to create productive assets.

Since infrastructure has linkages to other industries like cement, brick and steel through backward and forward linkages. The outlook for the industry looks reasonable, since India has good iron ore deposits, skilled manpower and growing demand for steel. The improved demand is expected to continue in the fiscal as well as on the back of ongoing Government funded infrastructure projects. In spite of a downturn in the Global steel demand, Indian steel demand could survive showing an upward trend, setting a road ahead for the growth of the domestic industry in the long run. The upward trend is expected to be continued on account of fiscal measures taken by the Government such as infusion of funds for development of infrastructure sector, introduction of stimulus packages for revival of industry besides factors like increase in consumption and production of steel, upcoming infrastructure and Greenfield projects, stabilization of prices etc.

RISK AND CONCERN:

The key risks are global steel demand scenario, domestic steel demand, economic slowdown, increase in financial charges, nonavailability (or undue increase in cost) of raw materials such as iron ore, coal and labour etc., coupled with market fluctuations. The Company does not apprehend any inherent risk in long run, with exception of certain primary concerns that have affected the progress of our industry in general like:

a. Shortage of Labour

b. Rising manpower and material costs

c. Approvals and procedural difficulties

d. Lack of adequate sources of finance.

Apart from this the industry is highly labour intensive and is subject to stringent Labour Laws. SEGMENT WISE/ PRODUCT WISE PERFORMANCE:

In accordance with the Accounting Standard 17 issued by the Companies (Accounting Standards), Rules, 2006 including any further amendments thereof, the Company has a single business segment having four products namely Sponge iron, Pig Iron and MS Ingot/Billets & TMT Bar.

COMPANYS PERFORMANCE:

Gross Turnover : 32,690.27 Lakhs

Profit before Taxation : 2,762.08 Lakhs

Profit after Taxation : 2,143.39 Lakhs

INTERNAL CONTROL SYSTEM & THEIR ADEQUACY:

The company has adequate and effective internal control system commensurate with its size and nature of business to provide reasonable assurance that all assets are safeguarded, transactions are authorized, recorded and reported properly, applicable statutes, the Suraj Products Limited code of conduct and Corporate policies are duly complied with Internal audit and other control are reviewed periodically by Audit Committee.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS:

Company possesses good quality of human resources. The Board wishes to place on record its appreciation for the sustained efforts and devoted contribution made by all the employees for its

success. The Human Recourses Department of the Company focuses on improving the work culture, employee engagement, effectiveness and efficiency. Various employee engagement inventions carried out in the year has resulted in better performance. On the safety front, the Company is focused on ensuring the safety of all employees. No Loss Time injury was reported during the year. The Company has maintained healthy and cordial industrial relations during the year.

DISCLOSURES UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013:

The Company is committed to provide a safe and conducive work environment to its employees. During the year under review, no case of sexual harassment was reported.

SAFETY MEASURES:

Suraj Products Limited has taken various initiatives during the year in order to safeguard the health of the workers. Unsafe conditions in the plant are regularly inspected by the safety committee and deficiencies are attended immediately.

SAFETY TRAINING:

Training of various Safety Standards is imparted to all employees.

HEALTH CHECK UP:

About 10 Medical Camps with qualified and experience medical practitioners were conducted in nearby villages and about 750 patients availed the service.

CAUTIONARY STATEMENT:

The Management Discussion and Analysis Report may contain statements that might be considered forward looking. These statements are subject to certain risks and uncertainties. Actual results may differ materially from those expressed in the statement as important factors could influence the Companys operations such as Government Policies, political and economic developments and such other factors are risk inherent to the Companys growth.