VBC Industries Ltd Management Discussions

1. BACKGROUND

The Management Discussion and Analysis sets out the developments in the business environment and the Companys performance since our last report. The analysis supplements the Directors Report and the Audited Financial Statement forming part of this Annual Report.

2. INDUSTRY STRUCTURE

Ferro Alloy Industry was established to cater the needs of global steel industry. Ferro Alloys used as addictives and deoxidizing agents in steel manufacture. Steel producers use Ferro manganese, Silico manganese and Ferro Silicon, while stainless steel units use ferro chrome and charge chrome. At present there is surplus capacity in the country.

Strong growth in steel and stainless steel is expected in the near future with generally healthy economic conditions over the next few years. And it is expected that the excess capacity will be absorbed and further growth is anticipated in Ferro Alloys Industry.

OPPORTUNITIES: The natural resources and geographical position is exceptionally well positioned to benefit from the growing demand for steel making raw materials. The Ferro Alloys also thrives with the increased demand for steel. To reap the benefits of growing demand for steel, your Company is setting up a plant at Akkalapalli village in Adilabad District for the manufacture of Ferro Alloys, Calcium Carbide and pig iron.

THREATS: The manufacture of Ferro Alloys is highly power-intensive and therefore the cost of power is critical to the competitiveness. On an average, 50% of the total cost per tone of Ferro Alloys is on account of power. This is the major threat that the industry is facing and in order to be competitive on a global scale, it is necessary to have stable power supply at a remunerative price and availability of required power is a great threat to the -Company.

4. SEGMENT-WISE PEROFORMANCE OR PRODUCT-WISE PEROFRMANCE

The Company has only one segment i.e. Ferro Alloys.

5. OUTLOOK

Long term outlook of your company appears to be encouraging because of the following reasons:

a) Your Company is participating in a Power Plant of 65 MW being set up at Village Jagannathpur, Siripur Kagaznagar Mandal, Adilabad District in the State of Telangana by M/s. VBC Power Company Limited in association with Group Companies and this would enable your Company to draw the required power at a comparatively lower price than the price being charged by SPDC of AP Limited.

b) Your company had already invested significant funds in 445 MW Natural Gas Power Project of M/s. Konaseema Gas Power Limited and 20 MW Hydro Electric Power Project of Ml s. Orissa Power Consortium Limited which have already started the commercial production and your Company is expected to benefit from its investments.

6. RISKS & CONCERNS

The following are the risks and concerns that your company may face in future:

a) Konaseema Gas Power Limited has to cease power generation activities due to non supply of gas since April 2013.

b) Government regulations, like reduction in import duties, and dumping duty and increase in power tariff by SPDC Of AP Limited , may also affect the profitability of the Company.

7. INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Company has sound internal control system, which ensures that all the assets are protected against loss from unauthorized use and all the transactions are recorded and reported correctly.

The internal control system is supplemented by an extensive programme of internal audits and reviews by Management. The internal control systems are designed to ensure that the financial and other repords are reliable for preparing financial statements and other data and for maintaining accountability of assets.

8. DISUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PEROFRMANCE

This has been dealt with in the Directors Report.

9. HUMAN RESOURCE DEVELOPMENT

Human capital is one of the key elements of your Company. The Company has employed 139 employees who are highly motivated and have been contributing towards the growth of the Company. Company’s human resource policies are aimed at motivating its employees to deliver high quality performance and reward talent with adequate compensation and accelerated career growth opportunities.

Company believes that an on-going learning process is vital for growth in the fast changing business environment and for this purpose company has been conducting various training programmes, motivation programs for improving the knowledge levels of the employees at all levels.

10. INDUSTRIAL RELATIONS

This has been dealt with in the Directors’ Report.

Cautionary Statement:

Certain statements made in the Management Discussion and Analysis Report relating to the Company’s objectives, projections, outlook, expectations, estimates etc., may constitute "forward looking statements’ within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections etc., whether expressed or implied. Several factors could make a significant difference to the Company’s operations. These include climatic conditions, economic conditions affecting demand and supply, Government Regulations and taxation, natural calamities etc., over which the Company does not have any control.