MANAGEMENT DISCUSSION AND ANALYSIS

(Forming part of the Report of Directors for the 15 months period ended 30th June 2015)

1. Industry Structure and Developments

The Industry had a total installed capacity of about 390 million tones as on 31st March, 2015. All India monthly Cement production figures during the fifteen months period from January 2014 to March 2015 compared with corresponding figures of January 2013 to March 2014 indicate an encouraging trend. However, during the latter part of the year sluggish trend was witnessed.

The housing sector is the biggest demand driver accounting for around 60% of the total cement demand followed by infrastructure -20% and commercial and

industrial construction -20%. The Government's promise to expedite clearances for the stalled infrastructure projects and likely reduction in interest rates bode well for the Industry's prospects from a medium to long term perspective.

The expectations of above normal demand growth from rural and suburban areas were belied due to the bad monsoon and the unexpected rains in the current period. In the last couple of years, new capacity additions have slowed down due to diminishing returns on capital employed.

Road Ahead

Developments in the domestic environment and a huge number of infrastructure projects are likely to boost demand for Cement consumption in India, which is bound to increase manifold in the coming years.

In recent period, Cement demand growth took a slight breather. The Cement industry has registered a drop in margins mainly due to input cost rise and lack of pricing power. The Industry has been facing a chronic problem of insufficient availability of the main fuel coal, driving the manufacturers to resort to use of alternatives at steep cost. As the economic growth is expected to be stable, the Cement demand is expected to sustain an average growth in demand. The key drivers of this demand shall be the continued expansion in infrastructure, real estate and industrial sectors.

2. Review of Financial and Operational Performance

ii) Operational Performance

Your Company is primarily engaged in manufacture and sale of Cement including Ordinary Portland Cement, Portland Pozolana Cement, Portland Slag Cement and Ground Granulated Blast Slag. In the domestic market the company operates through a net work of dealers and agents for sale of its products. Its major markets include Andhra Pradesh, Tamilnadu, Orissa, Karnataka and other nearby states.

Durga Cement Works (DCW) and Visakha Cement Works (VCW) plants of the Company were commenced its commercial operations with effect from 1st December, 2014 and continued till the end of the period 2014-15.

3. Outlook

We expect cement demand to grow in the range of 5% - 6 % during the FY 2015-16 considering the following:

a) Reduction in interest rates is expected to revive the hitherto sluggish demand for home loans giving impetus to housing.

b) Pick-up in industrial production and economic activities including infrastructure development initiatives being undertaken by the government.

c) Boost to affordable housing segment.

In view of the dwindling profitability and longer gestation period for new projects, we believe that the new capacity additions could slow down leading to improvement in capacity utilization.

4. Opportunities and Threats

Cement consumption and demand in India has been growing during the last few years due to Government's continuous thrust on infrastructure development. However, due to market conditions, the selling price had been under brssure during the year under review and for the brsent as well. Further, series of recent increase in interest rates, fuel prices and key raw materials are the major constraining factors for increase in demand and have significant impact on the profitability margins of the industry.

The threats of the Industry arise from rising input costs, restricted availability of coal from domestic market, restricted wagon availability and increase in logistics costs due to increase in fuel cost and railway freight.

5. Risks and Concerns

Risk Management is an integral part of the Company's activity. The Company has a structured Risk Management Policy. The Top and Senior Management of the Company continuously monitor and review the business risks in the verticals of Operations, Sales & Marketing, Procurement, Regulatory Affairs, Finance, IT and Human Resources and take timely measures to minimize the impact.

The key risks identified by the Company are increase in power, fuel and freight costs; capacity/demand mismatch in the Industry; shortage of railway wagons; volatility in forex and high interest rates. Whereas a systematic risk identification and mitigation framework is in place and suitable action plan is drawn up to mitigate the same, the Company has virtually no control over external risks such as general down turn in the economy, new regulations, government policies and interest rates.

6. Internal Control Systems and their adequacy

The Company has adequate system of Internal Financial Controls in place. It had adopted policies and procedures regarding financial and operating functions for ensuring the orderly and efficient conduct of its business including adherence to Company's assets, brvention & detection of frauds and errors and timely brparation of reliable financial information. The Internal Control Systems are commensurate with the size of operations of the Company and are manned by qualified and experienced personnel.

In addition to internal controls, the internal audit function has also been set up by a firm of Chartered Accountants, who conducts audit on the basis of the Accounting Standards and Annual Audit Plan. The process includes review and evaluation of effectiveness of the existing processes, controls and compliances. It also ensures adherence to Internal control policies and systems and mitigation of the operational risks perceived for each area under audit. The Internal Audit Report(s) are reviewed by the Audit Committee.

7. Material Developments in Human Resources/Industrial Relations

The Company recognizes its human resources as the most valued asset. The Company has appointed specialized professionals in the fields of engineering, finance, administration and technical and non-technical staff to take care of its operations and allied activities.

Necessary training was imparted to the staff for operations and maintenance of Machinery by specialist from related fields including the equipment suppliers from time to time.

During the period the Industrial Relations continued to be cordial.

Cautionary Statement

Certain statements made in this Report detailing to the Company's objectives, projections, outlook, estimates and expectations may be 'forward looking statements' within the applicable laws and regulations. As these statements are based on certain assumptions and expectations of future events over which the Company exercises no control, the Company cannot guarantee their accuracy. The actual results may differ materially from such estimates, projections, etc. Significant factors that could make a difference to the Company's operations include domestic and international economic conditions affecting demand, supply and price conditions in the industry, changes in government regulations, tax regimes and other statutes, over which the Company does not have any direct control.