MANAGEMENT DISCUSSIONS AND ANALYSIS

INDUSTRY STRUCTURE, DEVELOPMENT AND OTHER RELATED MATTERS

Ferro Chrome is an alloy of chrome and iron containing between 50% to 70% chrome. While high carbon ferro chrome / charge chrome is mostly used in the manufacture of stainless steel, low & medium carbon ferro chrome are largely consumed in the production process of special and carbon steel. Chrome imparts the non-corrosive property to stainless steel thus making it a unique product with multiple applications. In 2014, the global production of ferro chrome rose by 9% to over 11.8 million tonnes whereas consumption is estimated to be around 10.60 MT. China's ferro chrome production expanded by 7.4% during 2014 to a record of 4.28 million tonnes. (Source: ICDA & Metal Bulletin Research)

Ferro Chrome prices remained low throughout the year owing to poor market sentiments relating to stainless steel and debrciation of the South African Rand. Prices remained low in China due to weak demand and over-capacity although it stabilised towards the end of FY 2014-15. Going ahead, a recovery seems unlikely in the short term particularly since the apbrciation of the US Dollar will lead to high realisation in local currency terms for all producing countries. However, improving economic scenario worldwide will lead to a revival of demand and better prices in the mid to long term. India is a significant player with almost a tenth of the global Ferro chrome output and produces about 1 million tonnes per annum. At brsent growth of stainless steel production / consumption has been somewhat sedate.

However, this is likely to change in the next 5 years as stainless steel is at a tipping point. As focus shifts from initial cost of acquisition to lifecycle cost, it is expected that stainless steel consumption will increase at a faster pace making India one of the key drivers and providing a boost to the ferro chrome industry.

RISKS AND CONCERNS /OPPORTUNITIES AND THREATS / OUTLOOK

Global Ferro chrome market is relatively stable and prices are thought to have bottomed out in the current fiscal. Stability is a first step towards revival and augurs well for the industry given the downward trend witnessed during the year. While supplies are tightening as marginal producers come under brssure and expansion plans are put off, increased consumption can only come about from an economic revival. In this context, the North American economy has been a beacon of hope although Europe has been disappointing. China, meanwhile, is grappling with its own set of problems although steps to boost economic growth are thought to be on the anvil. Finally, greater positivity about the India growth story is a reason for optimism. The Indian Ferro Alloys Industry has grappled with various issues, such as non-availability of power with competitive rate, suitable quality and quantity of Chrome Ore/ Coke, minimum duty protection etc. Besides, the Industry has to compete with the integrated producers having captive mines situated in South Africa, Australia, Brazil, CIS, etc. to sell acceptable quality of Chrome Alloys in the world market for earning the valuable foreign exchange for the country. Reductants viz Anthracite Coal, Coke, Charcoal etc. are vital inputs for the Ferro

Alloys Industry. The consumption of these reductants for producing one tonne of Ferro Alloys varies between 600 to 2,000 kgs, depending on the Ferro Alloys produced. The availability of these items in good quality is declining in the country and the Ferro Alloy Industry may have to totally depend on import of these reductants on regular basis. Further the brsent Import Duty on Ferro Alloys is 15%, but this is not sufficient, as the import of Ferro Alloys is increasing every year, when the domestic Industry is operating at around 60% of capacity leaving balance 40% lying idle. These cheap imports from China and other countries are steadily grabbing the domestic market share to meet the expected rising demand from steel Industry. Further the problems of this industry are aggravated because of the high input cost of power including FSA charges. The ferro alloy Industry is a power intensive Industry, the power cost is about 35-40 percent of its total production cost. Repeated power tariff hikes by state run power utility company have put the Industry in a fix. Further steep tariff hike have hit the company hard. These issues need to be addressed by the Government to enable the Ferro Alloys Producers to compete in the Domestic as well as International Markets.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Company is continuously endeavoring to maintain high standards of internal control designed to provide adequate assurance on the efficiency of operations and security of its assets. The adequacy and effectiveness of the internal control across various activities, as well as compliance with laid-down systems and policies are combrhensively and frequently monitored by management at all levels of the organization, internal and statutory auditors and based on the experience gained and suggestions received, if any, these are updated, modified and accordingly implemented. The Audit Committee of Board of Directors also reviews these matters from time to time in their meetings.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

As mentioned in the last year's Annual Report, a lock out was declared in the plant w.e.f. 04th February, 2014 due to labour unrest. As per directions of the State Government though the lock out was uplifted w.e.f. 26th December, 2014 but the production activities are yet to be resumed. As a result of this during the financial year 2014-15 there was no production/no sale except some minor depot sales. Due to fixed overheads company has incurred a loss of Rs. 807.36 net of write back of deferred tax and income on sale of fixed assets including interest income of Rs. 1198.66 Lacs and Rs. 1518.02 Lacs respectively.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT INCLUDING PEOPLE EMPLOYED

Employees participation schemes such as Central Safety Committee, Quality Circles, Intra department level reviews have been adopted to ensure transparency and open communication at all levels. In house training to employees was imparted focusing on safety, productivity and skills improvement inputs. Multi skills improvement program has been implemented encouraging the trade workmen to learn additional skills. Executives were nominated to various seminars and programs for exposure to the best business practices. Adequate cost consciousness in the minds of all employees has been inculcated to attain the ultimate goal of cost reduction. The overall manpower consisting of workmen, supervisors and managers etc. worked out to 491 excluding indirect employment.

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis Report are based upon data available with the Company and on certain assumptions having regard to the economic conditions, government policies, political developments within and outside the country. The management is not in a position to guarantee the accuracy of the assumptions and the projected performance of the Company in future. It is, therefore, cautioned that the actual results may differ from those exbrssed or implied herein.