MANAGEMENT DISCUSSION & ANALYSIS REPORT

In the year 2014-15 World's Steel production stood at 1,661 Million Tonnes as compared to 1,642 Million Tonnes in the last year, showing an increase of 1.2%. India remained the World's fourth largest Steel producing nation for the fifth year in a row and China remained the world's largest crude steel producer in the year 2014.

India's production growth has remained subdued since the beginning of the year 2014-15. In the year 2014-15, India's steel production grew at nearly half the world's average in the first six months of the year. Domestic steel consumption growth remained nominal at 1.3% during the year 2014-15 due to demand of automobiles and infrastructure development. Although trend in steel production has tracked declining consumption pattern, it has remained higher than the demand growth, at 2.5% during the year 2014-15.

The year 2014-15 continued to be a difficult year for your Company. The sales realization per ton has declined sharply and the raw material prices of DRI, Sponge, Nickel and Moly had increased, which further curtailed the margins for the Company. Debrciation cost also increased from Rs. 5.70 crores to Rs. 13.87 crores as the Company had to re-calculate the remaining useful life of fixed assets in accordance with provisions of Schedule II of the new Companies Act, 2013 and also the asset base has gone up due to installation of rolling mill and some other machines/equipment.

On the brighter side, your Company achieved highest ever billet production (122,232 MT) and sales (116,338 MT) since its inception. The savings in cost from the fully commissioned New Rolling Mill is Rs. 960.16 lacs for the year 2014­15 which is envisaged to improve further in the coming year. The New Bright Bar Shop will be commissioned in June 2015 for which two annealing furnaces have already been installed by the Company. Further, as mentioned in the last Annual Report, your Company is envisaging to enhance the steel melting capacity, the application filed with Ministry of Environment & Forests (MOEF) is progressing satisfactorily. Once the ongoing project on control of secondary emissions is commissioned which is slated for July/August this year, we hope to get the final approval from MOEF. After getting the approval, your company will initiate steps to enhance the capacity of melting shop.

Among the many initiatives taken by the Company during the year for increase in efficiencies, quality improvement, process improvement etc., the Company started importing Shredded Scrap from Japan, which is of superior quality as compared to that imported from Europe. Project Udaan was initiated to identify opportunities for reducing machine breakdown time, quality improvement, manpower reduction etc.

On the exports front, the Company exported 4,178.97 MTs of alloy steel in 2014-15 as against 4,102 MTs in the year 2013-14. Further, as mentioned in the last Annual Report, your Company have succeeded in adding new export destinations and made exports to USA & Russia for the first time in the current year. In domestic market too, we have made new strides by getting the first order from a brstigious customer like Hyundai.

We are still awaiting the final new Punjab Investment Policy, which has been long delayed. We believe that the company should get significant benefits from that policy which should help in improving our financial situation.

We look forward to reduction in the interest rates in the market, which should lead to a spurt in demand across the industry and especially in the automotive industry. Improvement in auto sector would lead to increased demand for alloy steels and sbrading costs across a bigger volume for your Company.

We would also like to share that the rupee debrciation has affected the company bottom line in the year under review and the current financial year too. However, as per our calculations, the cost of the borrowed funds including rupee debrciation so far is still less than taking a rupee term loan at that time.

At Vardhman, we are looking forward to emerging situation in alloy steel based industries with great interest. Niche markets development by offering knowledge based products and bringing innovation in processes to improve quality and reduce cost have been our key focus areas to meet the growing expectations of our consumers.

Continuing with its endeavour to follow best HR practices, the Company started recruitment of female workers at shop floor primarily for quality inspection which is a rarity in Steel Industry in India. Frequent training sessions are being organized for workers as well as employees of the Company. With these initiatives, we are hopeful to come back to profitability on a sustainable basis in coming years