Vallabh Steels Ltd Management Discussions

(a) Industry Structure and Development:

The management of Vallabh Steels Limited presents its analysis report covering performance and outlook of the Company. The Indian Steel Industry remains one of the most competitive steel industries in the world. However, there is a need to create a fair level playing field amidst supply glut caused by surplus capacities in steel surplus countries. India has emerged as one of the brightest spots in the world grappling with economic turbulence and fragile growth. Focus on infrastructure creation, housing policy initiatives by the Government of India augers well for revival of growth in Steel demand in India in the years to come.

Even though the Steel Industry is poised for handsome growth but there are challenges also for the global economy which include increasing protectionism in various countries, increasing global debt. Besides there is also a big challenge in currency fluctuations worldwide and U.S. Dollar vis-a-vis Indian Rupee for the Indian Economy.

Steel demand in India is expected to grow in the years to come on the back of reform momentum in India. The construction industry is expected to rise further due to governments thrust on housing sector. Hence, it is expected that domestic steel demand is going to register healthy growth in the years to come.

Indian Economy:

The introduction of Goods and Services Tax Act (GST) and Promulgation of Insolvency and Bankruptcy Code to improve asset quality of Banks and other economic measures taken will further result in growth of the economy and enhance the ease of doing business in India. At the same time the spread of pandemic has adversely affected the Indian economy.

b) Companys Performance:

i) Product Portfolio:

Your Company is mainly engaged in the manufacturing and marketing of Steel coating products which fall within the single segment of " Steel Industry."

ii) Highlights: The highlights of the financial year 2024-25 have been as under:

i Various measures launched during the year to improve the quality of cut ends in final products.

i The Company has been able to meet its raw material requirement without compromising on quality and production schedules.

c) Outlook: Opportunity, Threats, Risks & Concerns:

The basic aim of the Company is to become capable to produce steel coating products from secondary producer to primary producer as per market requirements and thus be able to manage market trends to its advantage. Opportunities abound in growing economies and opening up of economy in India has created opportunities for Indian enterprise to move beyond national boundaries as well to create productive assets.

The Company is engaged in steel coating products. The outlook for the industry looks promising. Indian Steel demand did very well showing an upward trend, setting a road ahead for the growth of the domesticsteel industry in the years to come. However on account of shortage of working capital the companys performance began to nose dive.

Competition in Steel Coating industry is escalating and technological changes will spur or drag the forward march of individual units in steel industry. Supply side could also be an issue in next few years because of increase in production capacity by steel industry in India and expression of interest by foreign companies to set up new steel making units. The Companys thrust on improving productivity and reducing cost of production will, in such a scenario, help in forging ahead in globally competitive environment. Global economic uncertainties have affected Indias economy. Key risks synonymous to industry include the increase in financial charges, nonavailability ofraw materials, such as iron-ore, coal and labour etc., coupled with market fluctuations. The Company apprehends i nherent risk in the shape of non availability of working capital. However following factors may pose threat, risk & concern for the Iron & Steel Industry in general and your company in particular:

1. Any adverse conditions of user sector to which it caters, thus adversely affecting the demand.

2. Underdeveloped infrastructure curtailing growth prospects.

3. The supply and demand imbalance due to new capacities coming on stream which may have negative impact on the plant utilization and steel prices.

4. Unexpected reduced growth of the manufacturing sector impacting demand.

5. Quantitative restrictions and/or additional tariffs of exports from India by importing countries.

6. Unpredictable and sharp cyclical movements in the raw material and other input prices.

7. Any change in Govt. Policies pertaining to steel industry may affect the profitability.

8. Timely availability of working capital remains a drag.

The opportunities of growth for your company as detailed below are manifold in view of its Strengths which may also counter the above concerns:-

1. It is expected that the company will be able to tide over working capital constraints and better trends will emerge and may improve also in the times ahead. As such current conditions may pave a way for improved performance in future.

2. Well established customers base for the last over 43 years.

3. Your Company is fully poised to reap the benefits of economies of scale and it will be in a better position to negotiate raw material prices on long term bulk lifting basis & definite savings on overheads will bring down the cost per unit of production and lead to higher profitability.

4. Your Company has strategic advantage as its units are located in the industry friendly areas having all i nfrastructural amenities.

Thus, your company stands in good stead to avail of the opportunities and also to take head on successfully the areas posing risks, concerns and threats to it.

(d) Environment Safety:

During the year the company continued with the implementation of occupational health and safety, quality and environmental protection measures and these are ongoing process at the companys manufacturing facilities. Other factors for the environmental safety which the company has followed include conservation of resources through waste reduction, training of employees and adoption of cleaner technologies.

(e) Risks and Concerns:

A Risk Management Policy (Policy) has been adopted by the Company which aims to detail the objectives and principles of risk management along with an overview of the process and related roles and responsibilities. The Policy lays down Companys approach towards risk mitigation, its risk management objectives and defines the risk management framework of the organization.

In order to ensure that the management controls risk in adherence to the policy the Audit Committee as well as the Board of Directors of the Company periodically review the risk assessment and risk minimization procedure.

The key business risks identified by the Company and its mitigation plans are as under:

i. Risk related to Personnel:-

Our business is increasingly dependent on the skills and competencies of our employees and management team. The general war for talent in our growing economy has created a substantial risk related to the retention of key personnel both at manufacturing and managerial levels. This risk is mitigated through effective HR policies relating to recruitment and retention and a proactive remuneration and rewards policy that is periodically reviewed at the highest management level. With excellent performance track as well as best HR practices, we are able to attract and retain people for growth of our business.

ii. Risk related to Safety:-

The company has taken adequate insurance covers to indemnify the risks associated with the safety of personnel, building, stock and Plant & Machinery and other infrastructure of the Company. These include:

i) Fire Insurance Policies

ii) Various Breakdown Policies

iii) Theft insurance Policies

The company has also taken steps to strengthen IT security system as well as physical security system at all its locations.

iii. Compliance Related Risks:-

The Company is committed to being a responsible corporate citizen and respects the laws and regulations of the country. All the compliances under various laws applicable to the Company, including Companies Act, 2013, Factories Act, 1948 and Income Tax Act 1961 etc., are followed in letter & spirit. f) Internal Financial Control System and its adequacy:

Your Company has a robust internal control system, which is constantly assessed and strengthened with new/revised standard operating procedures. The Companys internal control system is commensurate with its size, scale and complexities of its operations. The internal audit is entrusted to M/s. Gupta Sanjeev & Co.,

Chartered Accountants, (FRN: 005365N). The main thrust of internal audit is to test and review controls of various departments and areas. The reviews and findings by the Internal Auditors are discussed with the process own

and suitable corrective actions taken as per the directions of Audit Committee on an ongoing basis to improve efficiency in operations.

Audit plays a key role in providing assurance to the Board of Directors. Significant audit observations and corrective actions taken by the management are presented to the Audit Committee of the Board. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee.

The Company has modified the scope and coverage for audits with a focus on the Internal Control on Financial Reporting (ICFR) framework. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strengthen the same. The Company has an effective Management Information System, which is an integral part of the control mechanism.

g) Cautionary statement:

Certain statements in this report concerning our future growth prospects are forward looking statements, which involve a number of risks, and uncertainties that could cause actual results to differ materially from those in such forward looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, our ability to manage growth. Intense competition within Steel Industry including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, our ability to successfully complete and integrate potential acquisitions, the success of the companies in which the company has made strategic investments, withdrawal of governmental incentives, political instability, legal restrictions on raising capital or acquiring companies outside India, general economic conditions affecting our industry. The Company does not undertake to update any forward looking statements that may be made from time to time by or on behalf of the Company.