Varun Industries Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS

Forward Looking Statements:

The report contains forward looking statements, identified by words like plans, expects, will, anticipates, believes, intends, projects, estimates and so on. All statements that address expectations or projections about the future but not limited to the Companys strategy for growth, product development, market position, expenditures and financial results are forward looking statements. Since these are based on certain assumptions and expectations of future events, the Company cannot guarantee that these are accurate or will be realized. The Companys actual results, performance, or achievement could thus differ from those projected in any forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise any such statements on the basis of subsequent development information or events.

Global Economic Overview:

Varun Industries Limited is a leading manufacturer and exporter of stainless steel cookware, kitchenware, housewares and general merchandise for several years. Global recession has adversely affected our export business, but with the expected improvement in world economy, demand for our products will be improve in future.

The global economy in FY 2012-13 improves slowly and did not recover to the extent anticipated in the beginning of the year. Several European economies experience recession due to high unemployment, banking fragility, fiscal tightening and sluggish growth. The US economy improved marginally driven mainly by housing and the consumer sectors, however capital investment remain sluggish. Among the Asian economies, China, going through a political transition, experienced considerably slower growth. Deceleration in industrial output and exports weakened Indias economic growth significantly. The weak macro environment and slower growth caused the margin environment to remain volatile with downward bias. Gradual recovery is likely to resume in the major advanced economies and performance is expected to remain relatively robust in most emerging and developing economies. At the global level, Asia is poised to take on a stronger and more dominant role in future global economic developments. It is also likely to play an ever increasing role in the stability of the International monetary system.

India is still maintaining its growth amidst the backdrop of elevated inflation and higher interest rates. The economy is likely to remain weighed down by a combination of the weaker global economy and higher domestic financing rates. As per industry sources, the GDP which was initially expected to grow at around 7.5%, is now expected to grow at a modest rate of about 7%. However, the year ahead promises to be interesting - both, in terms of the challenges that will arise, and the policy actions that may be deployed to address them.

Industry Structure and Development:

Indian Stainless Steel Kitchenware and Housewares is an old industry and was in competition with utensils made of aluminium, brass, copper, plastic etc. Due to its high durability, cleanliness, good looks, easy maintenance and the increased purchasing power and modern lifestyles of the middle class, stainless steel has replaced other metals not just in India, but across the world. With the advent of new technology, the Indian steel industry has introduced upgraded and fashionable steel ware, which is in demand, both in domestic and global markets.

Stainless steel is a value-added alloy containing a minimum of 10.5% chromium. It is corrosion-resistant, strong, hygienic and fully recyclable. These properties make it an ideal choice for a variety of demanding industrial and consumer applications. Several life-cycle studies indicate that in many applications, the total cost of stainless steel is lower than that of competing materials, since stainless steel needs low maintenance.

Stainless steel is used in various industries. The consumption of stainless steel has been growing faster than any other metal in the world. It increases with economic development, as both its properties and its aesthetic image are highly competitive in terms of matching the highest standards of utility and design. Global stainless steel demand for 2013 was estimated at 32 million tons. Over the last 5 years, global demand for stainless steel has grown at a muted CAGR of 2.2 per cent. Demand growth declined during 2008 and 2009 due to economy slow down, leading to contraction in demand especially from the developed countries. However, demand rebounded in 2010, growing by 24 per cent in tune with the recovery of end user industries. The majority of the increase in stainless steel consumption emanates from emerging markets such as China and India.

Indian Market Potential:

India is a huge market for kitchenware and housewares products mainly comprising Indian manufacturers, exporters and suppliers. The stainless steel industry in India is in an upbeat mood. Stainless Steel production in India is rapidly growing every year and stainless steel in India is perceived as a "metal for utensils". Today about 75% of the end use of stainless steel is in kitchenware and housewares segment. India being such a culturally rich and diverse country has a special place for beautiful and utilitarian pottery and kitchenware. The Indian Kitchenware industry continues to respond to consumer demand for quality, durability, style and attention to health concerns. Multi-versatile cookware that functions as bake ware, serve ware and dinnerware is becoming increasingly popular as the casual entertaining trend continues. However, looking at the existing market potential and growth envisaged, a paradigm shift has been witnessed recently. This is marked by entry of many organized and corporate players in the market. The total demand in the industry consists of new demand and replacement demand.

The process industry accounts for second largest share - 16 per cent of the consumption of stainless steel. Its growth is also aligned with the investments in end-user Industries such as pharmaceuticals, food processing and petrochemicals.

Strengths:

• Experienced Management Team • Capability to execute strategy & projects

• Innovation and Technology

• Efficient cost of capital • Wide range of finished products

Opportunities:

• Growing domestic demand • Unexplored rural market and rapid urbanisation
• Increasing consumption of stainless steel in all sectors

Threats:

• China becoming a net exporter • Dumping by competitors • Market fluctuation
• Global economic slow down • Higher power tariff in India • The general Rising Inflation in the Indian economy.
• Protection of domestic industry in the West/ other countries • Low import duty on stainless steel in India
• Changes in political and social conditions in India.

• Changes in laws and regulations relating to the industry in which we operate.

Key Challenges:

• Global slowdown and rupee devaluation.

• Delay in allocation of resources by regulatory authorities to enjoy the full benefit of the integration chain.

Financial Statements - Consolidated:

The Companys consolidated financial statements include the financial performance of the following subsidiaries:

• Varun Jewels Private Limited

• Shri Sai Jewels Private Limited

• Varun Petroleum Corporation Private Limited

• Varun Minerals Corporation Private Limited

• Varun Holdings Limited (Mauritius)

• Varun Mines & Minerals Limited (Mauritius)

• Varun Petroleum Limited (Mauritius)

• Varun International Trading FZE (UAE)

• Varun Global Trading Pte. Ltd. (Singapore)

Operational Performance (Standalone):

The Company, has for financial year ended 31st March 2013, achieved Revenue of Rs. 339.99 crore. EBIDTA for the financial year ended 31st March, 2013 was at Rs. 180.58 crore. Interest for the year ended 31st March, 2013 was Rs. 214.64 crore. The profit/(loss) before tax and profit/(loss) after tax for the year stood at (Rs. 35.72) crore and (Rs. 34.48) crore respectively. The performance of the Company was down, due to dollar fluctuation as well as global economic slowdown. The Company is expecting to revive the business in near future subject to overall improvement in the Indian, and Global Economy.

Risks and Concerns:

Varun is exposed to normal industry risk factors and manages these risks by deploying prudent business and risk management practices. The Company has been undertaking continuous modernization programmes to maintain efficient operation of its products and engineering activities. The Company has also made efforts to mitigate risk by enhancing the quality of its products, reduction in energy consumption and emissions and improved productivity.

Internal Control System:

The Companys internal controls system is designed to provide a high degree of assurance regarding the effectiveness and efficiency of operations, reliability of financial controls and compliance with all relevant laws and regulations. The Policy also encourages allemployees, officers and directors to promptly report any suspected fraud, unethical behaviour or any violation of the Companys Code of Conduct within the organization.

Clean environment by mitigating the carbon footprint:

The Companys plants comply with all norms set up by the competent authorities for a clean and better environment. The Company undertakes regular checks/inspections including certification for the maintenance of the environment.

Material developments in human resources / industrial relations front, number of persons employed:

Varun always owes its accomplishments to its young and dynamic "Human Resources". With a strong emphasis on nurturing a high performance workplace and fostering an engaging environment, the organization believes in investing in people development and process improvement, as aligned with companys vision and values. The competency based recruitment practices followed at the company help in identifying key talents with required management and technical skills to support and sustain an expanding business of huge magnitude. The company undertook an organization-wide diagnostic process and based on the results reviewed the organization structure design, defined each role, evaluated unique jobs, and also aligned reward and recognition policies accordingly. The Company has the Performance Management System (PMS) in order to create a more differentiated performance system and to enable the ultimate objective of a high performance workplace. Industrial relations continued to be cordial. The employee strength as on 31st March, 2013 was 254.