MANAGEMENT DISCUSSION AND ANALYSIS REPORT

OVERVIEW OF ECONOMY

Global and Domestic Scenario:

Globally the year 2014 didn't prove to be the year of any major improvement and continued with slow recovery from the brvious economic slowdown. Global economic output grew by just 3.3%, whereas the improvement in India's economic fundamentals has accelerated in the year 2015 with the combined impact of strong government reforms and RBI's inflation focus supported by benign global commodity prices. In 2014-15, the Indian economy has emerged as one of the fastest growing economies with a promising economic outlook on the back of controlled inflation, rise in domestic demand, increase in investments, decline in oil prices and reforms among others. India retained position of 4th largest steel producing country with steel production of 88.12 million tonnes.

The Indian GDP growth expanded to 7.2% in 2014-15 due to improving economic sentiments post the election of a new government. The overall growth in core industries has improved marginally to 4.4% compared to 4.1% in the same period last year. However, steel demand at grass root level has not improved due to import supply from China.

The GDP growth projected for the year 2015-16 is 7.6% and the 'Make in India' campaign focusing on 25 key sectors with a vision to increase the share of manufacturing sector in the GDP from current 16% to 25% by 2022 will fuel this growth. This initiative is likely to generate 100 million new jobs, besides creating huge demand for steel and cement.

A. Engineering & Projects Division:

The Engineering & Projects division primarily undertakes turnkey projects worldwide for iron & steel melting making facility up to 0.5 Million TPA production capacity with indigenous technology. The growth of Engineering & Projects division is very closely linked with the progress of metal industry. It is likely that the new government initiatives and focus on the infrastructure sector will create demand for the steel products over the next five years. Addition of steel-making capacity is expected to meet the demand forecasts of more than 300 million tons by 2025.

Mini steel plant projects based on Induction furnace route up to 0.5 Million TPA capacities will continue to remain in a good demand due to lower gestation and investments compared to setting up projects with blast furnace. The company has already started receiving an increased enquiry flow owing to renewed interest of customers for either expansion of capacities or setting up new IF based project.

In last financial year, company has achieved another mile stone by supplying in line billet heaters of 7.5 MW capacity, which will save huge energy by facilitating direct rolling. Many steel rolling mills (up to 100 t/hr capacity) will be able to save almost Rs. 1000/- per ton by adopting direct rolling through ELECTROTHERM inline induction heater technology.

The introduction of the High Speed Modular Caster (HSMC) has made practically possible the direct rolling of billets and has gained wide acceptance in the industry. This has substantially brought down the production cost of rolling through a huge saving in fuel consumption and burning losses in the billet reheating furnaces and saving the environment. The company has supplied more than 110 casters during past 3 years and has seen considerable demand for its high speed casters facilitating direct rolling. Most of the new plants are being set up with caster as against traditional ingot casting. We are also seeing a lot of existing players upgrading their facilities from ingot making to billet making. We expect the demand for the casters to increase going forward.

Our latest refining technology (ERF - ELdFOS) will allow Induction Furnace based plants to compete with EAF based plants and even primary producers. With increasing demand, the primary producers will go back to producing flat products while the demand for the long products will be met by secondary producers thereby, improving the demand for induction melting furnaces.

The company has also introduced technologically advanced pollution control system for induction furnace based plant. The product is gaining popularity due to awareness in environment concerns and most existing units are expected to upgrade and switch over to advanced pollution control system.

The company has increased its focus on new product development and plans to invest a sizeable amount into continuing R&D activities to develop innovative products for steel industry.

B. Steel Division:

The key issue of non-availability of iron ore facing the steel division over the last few years has been primarily resolved with the opening up of most large sized 'A' category mines in the country. This has eased the supply of raw material which was severely constrained and was the main cause of losses incurred by the company. There is improved availability of iron ore both from Hospet-Bellary region and from imports at Kandla port. There is also good availability of pellets for sponge iron making.

While the raw material situation has eased, the overall plant performance remains subdued primarily on account of low capacity utilization owing to non-availability of adequate working capital. The various initiatives of the new government have not resulted into any major changes in the demand scenario in the country till now. Also, there has been sizeable finished goods' dumping from China.

The new product introduced by the company - 500D LPS is fast gaining popularity and acceptability as a primary product. This has opened up a new market niche for the company.

The demand for our low alloy steel billets (treated thru LRF) is also increasing owing to improvement in the automobile sector.

Ductile Iron Pipe Division:

The DI Pipe division showed improvement in performance with production and capacity utilization increasing. While the demand situation is expected to be strong, the prices are expected to remain under brssure. We have already seen the prices coming down by 5 - 10% in different regions of the country owing to the reduction in raw material prices.

Nationwide infrastructural development, urbanization, government's focus on housing, irrigation to drive agricultural growth have been identified as major factors facilitating the growth of the pipes industry in the country and DI Pipe is the best solution for transmission and distribution of potable water, irrigation and sewage field. Hence, the company is expecting growth in DI Pipe business.

C. Electric Vehicle Division:

The new government has increased its focus on the use of electric vehicles. The government is taking various initiatives and the Government of India has sanctioned subsidy for the same. After a very dull period with very subdued demand from the market, the company is now seeing an increase in the enquiries from the market and the company is expected to grow and grab a large market share of the electric two wheeler market.

E-Rickshaw Market:

In last couple of years, market of E-Rickshaws has grown exponentially in India. The market was mainly dominated by unorganized small traders who mainly import products from China. In October 2014, Government of India decided to regularize the E-Rickshaws in India and Homologation Norms were announced.

Considering the opportunity in E-Rickshaws market in India, ET decided to develop and launch 100% Made in India E-Rickshaws powered by ET's own Power Train which includes Motor, Charger, Controller and Converter. It gives us immense pleasure to inform that in March 2015, ET has successfully completed the I-CAT approval for Homologation compliance as per Common Motor Vehicle Rule applicable for E-Rickshaws.

ET has introduced its range of E-Rickshaws (Passenger Application) under brand name of E-TAXE and product for cargo application under brand name E-WINNER. E-WINNER is India's FIRST E-CART in India which has been tested and certified by any authorized testing agency for Homologation norms.

1st Phase of NEMMP 2020:

The new and stable government in center has worked aggressively to give final shape to the Government of India's visionary plan National Electric Mobility Mission Plan 2020 (NEMMP 2020). NEMMP 2020 is an initiative by Ministry of Heavy Industry and Public Enterprises to promote and develop a self sustained Electric Vehicle industry in India, which can support national fuel security, provide affordable and environment-friendly transportation to the citizens of India.

Government of India has already announced launch of Phase 1 of NEMMP 2020 from 1stApril 2015 onwards. Under the Phase 1, subsidy of X 7500 and Rs. 9400 has been proposed on Low Speed and High Speed Electric Scooter category respectively.

We are proud to inform that Mr Mukesh Bhandari, Chairman Electrotherm (India) Limited, has been appointed as "Co-Chairman - SUB Group on BMS and Battery" under National Electric Mobility Mission Plan 2020. At YObykes, with our credentials (technologically advanced product, largest customer base and network), we are in the best position to take the advantage of the opportunity which will be created by NEMMP 2020.

Financial Situation:

The Company has incurred losses for the financial year 2014-2015. Various banks / lenders has initiated winding up / recovery proceedings / cases under section 138 of the Negotiable Instruments Act, which are pending before respective Court / Tribunal.

Some lenders of company have assigned their debt to Asset Reconstruction Company (ARC) and company has entered into settlement agreement with ARC to resolve the debt. Further, the reference has been filed with BIFR and the case has been registered with Board u/s 15(1) of Sick Industrial Companies (Special Provision) Act, 1985.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

As the financial year 2014-2015 comprises of 12 months ended on 31st March, 2015, hence, the figures for 12 months are not comparable to figures for the brvious year of 6 months period ended on 31st March, 2014.

REVENUE FROM OPERATIONS:

The total income from operations of the Company for the financial year period ended on 31st March, 2015 is Rs. 1829.21 Crores as compared to Rs. 659.86 Crores of brvious financial year.

COST OF MATERIALS CONSUMED INCLUDING PURCHASE OF TRADED GOODS:

The cost of materials consumed including purchase of traded goods for the financial year period ended on 31st March, 2015 is Rs. 1364.59 Crores as compared to Rs. 487.10 Crores of brvious financial year.

DEbrCIATION:

Debrciation for the financial year period ended on 31st March, 2015 is Rs. 146.18 Crores as compared to Rs. 69.39 Crores of the brvious financial year.

FINANCE COSTS:

Finance costs for the financial year period ended on 31st March, 2015 is of Rs. 6.37 Crores as compared to Rs. 1.89 Crores of brvious financial year.

Further, loan accounts of the Company have been classified as Non Performing Assets by the Bankers and some of the bankers has not charged interest on the said accounts and therefore provision for interest (other than upfront charges) has not been made in the books of accounts. The extent of the exact amount is under determination and reconciliation with the banks, however, the amount of un-provided interest, on approximate basis, on the said loans (other than the loans with are assigned to Edelweiss Assets Reconstruction Company Limited) is X 933.01 Crores upto 31st March, 2015.

PROFIT ANALYSIS:

Net Loss for the financial year period ended on 31st March, 2015 is Rs. 440.51 as compared to Loss of Rs. 321.16 Crores of brvious financial year.

RISK AND CONCERNS:

The Company has established a well-defined process of risk management, wherein the identification, analysis and assessment of the various risks, measuring of the probable impact of such risks, formulation of risk mitigation strategy and implementation of the same takes place in a structured manner. Further pursuant to Clause 49 of the Listing Agreement,the company has constituted a Risk Management Committee to oversee the Risk Management efforts of the company. Though the various risks associated with the business cannot be eliminated completely, all efforts are made to minimize the impact of such risks in the operations of the Company.

At brsent, the Company is at risk with regards to winding up petitions filed by UCO Bank, Syndicate Bank, Shiv Sales Industries and Shiv Metals Industries which is pending at Gujarat High Court. Further matters related to recovery proceedings filed by UCO Bank, Syndicate Bank, Allahabad Bank, ICICI Bank Limited, Central Bank of India and Dena Bank are pending before DRT / DRAT. A Public Interest Litigation is pending before Hon'ble Subrme Court challenging Environment Clearance and BIFR Application / Reference is pending in BIFR Board which in opinion of the Board threaten the existence of your Company.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Company has raised long term funds through External Commercial Borrowings (ECB) and Foreign Currency Convertible Bonds (FCCBS). As the FCCBs are not converted into Equity Shares, the same will have to repay in foreign currency along with ECB and this will mean an exposure of the Foreign Exchange fluctuation risk.

INTERNAL CONTROL SYSTEM, ITS SECURITY AND ADEQUACY INTERNAL CONTROL SYSTEM:

The Internal Control System is designed to brvent operational risks through a framework of internal controls and processes. The Company has in place adequate system of internal control and internal audit commensurate with its size and the nature of its operations. Our internal control system ensures that all business transactions are recorded in a timely manner, the financial records are complete, resources are utilized effectively and our assets are safeguarded. Internal Audit is conducted by experienced chartered accountants in close coordination with company's Finance, Accounts and other department of the Company. The findings of the Internal Audit team are discussed internally with the Executive Directors as well as in Audit Committee Meetings and their suggestion for improvement & strengthening is accepted by the Board.

DEVELOPMENT OF HUMAN RESOURCES FRONT:

The Company on its journey to be a Technological & Strategically Leader by its innovative ideas, strong R&D & New Learning & Development to cope up with change in business environment during the year. As on 31st March, 2015, there are 1977 permanent employees employed by the Company. Some of the developments related to human resources are as under:

• Aligned individual goals to the Departmental Objectives by deploying Individual Goal Sheet by interlinking with E-PMS,

• Organized various training programs for developing functional, behavioral and technical skills. Initiated Induction Training Programs for all the new on-board inductees to understand organization vision, mission and values,

• Strengthened corporate communication through 'Appointments, Elevation &Utsav Delights' across the organization.

• Initiated employer branding with campus interviews at IITs/ NITs and other top engineering colleges at Pan India level for taking on board the best talent for critical departments.

• Rationalized organization structure, developed role profiles & assessed recruitment road map for FY 2015-16 across all the divisions.

• Initiated outings for sales team to strengthen employee engagement.

• Rationalized employee benefits through Group Personal Accident Policy, Group Health Insurance, & Incentive Schemes and many more.

CAUTIONARY STATEMENT:

Statements in this Management Discussion and Analysis detailing Company's objectives, projections, estimates, expectations or brdictions may be "forward looking statements" with the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include global and Indian demand supply conditions, finished goods prices, feedstock availability and prices, cyclical demand and pricing in the Company's principal markets, changes in Government regulations, tax regimes, economic developments within India and the Countries within which the company conducts business and other factors such as litigation and labour negotiations.