MANAGEMENT DISCUSSION AND ANALYSIS REPORT

1. INDUSTRY TRENDS & DEVELOPMENTS

Currently, the Indian industry is passing through recessionary trend and there are hardly any major projects that have been declared in the recent past. Most of the investors have been avoiding taking investment decisions in almost all the sectors including Oil & Gas, Fertilizers, Power and Infrastructure sectors due to one or other reasons.

It is expected that the current market scenario will continue to brvail for another 6 months to one year or so.

Keeping in mind the slump in the Infrastructure and Construction Industry in India, increased competition and debrssed market prices, the Management has taken a policy decision to focus more on manufacturing activities on Contract Manufacturing Model which has much lower risk area. Keeping this strategy in mind, the Company has started the structural fabrication at Nagpur facility.

2. OPPORTUNITIES

i. Other Oil companies and Refineries are expected to undertake expansion programmes where the Company can participate for piping and tankage work.

ii. Since the Company has established structural fabrication facility at Nagpur, it will have a good scope to cater to the Cement and steel industries, building structural needs from this facility.

iii. Nashik factory shall get higher qualification after execution of the Order entailing design, engineering, manufacturing, supply, testing and commissioning of 12 nos. of Buffer vessel and shall also get more opportunities for higher capacity items.

iv. We expect ourselves to get established in structural fabrication which will open up new business opportunities for us from various domestic and international customers.

3. PERFORMANCE

i. During the Financial Year the Company has booked orders of Rs. 116 Crore against brvious year order book of Rs. 82.97 Crore.

ii. The Company has completed all mechanical works pertaining to the construction of 21 (Twenty One) tanks at Liquid Tank Terminal at Haldia and the tanks were handed over to Client and are in operation. There is some painting work which is yet to be completed.

iii. We had major order back log with NOCL/ABIR-Cuddalore project which has been suspended by client due to non-availability of sufficient funds with them.

iv. During the year under review, the Company has closed its Project site at Dahej and completed the demobilization.

v. The Company has been executing repeat Order of approx. Rs. 42.5 Crore pertaining to fabrication of structural work for Tata Steel Limited's Growth Shop Division at Gamharia.

vi. Due to unfavourable working conditions at Kalinganagar project site, we had to shortclose the Order with Tata Projects Limited. We have since received our final settlement against this project.

vii. The Company has completed the process modification piping spool fabrication work at RAK Gas facility at Ras Al Kaimah and the contract closed.

viii. The Company has completed the supply of balance 8 nos. of Pressure filters to Tata Projects Limited's Hot Strip Mill project work at Tata Steel Limited's steel plant at Kalinga Nagar.

ix. Presently the Company is executing 10000 MT structural fabrication work for Tata Projects Limited's Nagarnar Project. The Company has already despatched 2457 tons till end of March 2014.

4. OUTLOOK

We expect the debrssed sentiments brvailing in the market scenario to continue for further 6 months or so. However, we expect that the new Government will take necessary steps to boost the economy and reinstate the investors' confidence in the Indian economy.

Keeping the above in mind, the Company expects opening of business in Oil & Gas, Petrochemicals, Refinery and infrastructure industry.

5. RISK & CHALLENGES

i. The Company is registered as a sick industrial company with the Board for Industrial and Financial Reconstruction (BIFR) and the Company's Net worth continues to be negative. Hence, getting qualified for new projects with higher magnitude will be very difficult.

ii. Considering the core competency in tankage and piping work, the Company will have to develop additional technology to minimize manpower and to improve the production; otherwise, the conventional method of working will have huge cost impact and the Company may not be competitive in prices due to which it may lose the market.

iii. Raising working capital at competitive rate of interests remains a major challenge for the Company.

iv. Availability of skilled manpower is a challenge given the status of the Company as a sick company.

6. FINANCIAL ANALYSIS

a) Increase in Total Income is mainly due to New Manufacturing facility started at Nagpur.

b) Decrease in Consumption of Raw material is mainly due to Price reduction Schedule (PRS) applied by client during the Previous Year.

c) Employee Cost Reduced since the strength of the employees has reduced from 225 as on 1.4.2013 to 178 as on 31.03.2014.

d) Finance Costs is reduced mainly because interest on Term Loan and Inter Corporate Deposit (ICD) availed from Tata Projects Limited (TPL), Holding Company is not provided since July 2013 till March 14.

e) Increase in Non Current Liabilities is due to ICD taken from TPL during the year under review.

f) Increase in Current Liabilities is mainly due to:

i. Increase in trade payables by Rs. 1017 lakh

ii. Increase in Advance from Customers by Rs. 745 lakh

g) Non Current Assets decreased as the Retention Receivables reduced by Rs. 225 lakh.

h) Current Assets increased due to:

i. Increase in Inventories by Rs.793 lakh

ii. Increase in Other Current Assets by Rs. 350 lakh

7. INTERNAL CONTROLS AND THEIR ADEQUACY

The Company has a proper and adequate system of internal controls to ensure the timely and accurate recording of financial transactions, adherence to applicable accounting standards, compliance with applicable laws, regulations.

Pursuant to the Order dated 18th December 2007 passed by the Board for Industrial and Financial Reconstruction (BIFR) for rehabilitation of the Company, the Company has engaged an Independent firm of Chartered Accountants as the Concurrent/ Internal Auditors, who conduct periodic audits, report internal control weaknesses, if any, and recommend corrective measures thereon.

The Audit Committee of the Company meets Internal Auditor team on quarterly basis to review its reports, findings and the follow up and compliance status of its earlier observations.

8. HUMAN RESOURCES

The Company had 178 employees as on 31st March 2014. The Company recognises the critical importance of its human capital. It endeavours to create a positive work environment for its employees. A key challenge before the Company remains attraction and retention of the talent.

There have been no cases filed under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

The industrial relations remained cordial throughout the year.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report describing the Company's activities, projections, estimates, assumptions with regard to economic conditions and Government policies etc. may be forward looking statements based upon the information available with the Company. Important developments that could affect the Company's operations include trends in the industrial sector in which it operates, significant changes in political and economic environment, tax laws, litigation, labour relations, interest rates and other costs. The Company cannot guarantee the accuracy of assumptions and perceived performance of the Company in future. Therefore, it is cautioned that the actual results may materially differ from those exbrssed or implied in the report. The Company assumes no responsibility to publicly modify, amend, or revise any forward looking statements, on the basis of any subsequent developments, information or events.

For ARTSON ENGINEERING LIMITED

VINAYAK DESHPANDE

Chairman