Royal Arc Electrodes Ltd Management Discussions

You should read the following discussion of our financial condition and results of operations together with the

"Restated Financial Statements" as of and for the Fiscals 2024, 2023 and 2022 including the notes and significant accounting principles thereto and the report thereon, which appear beginning on page 205 of this Draft Red Herring Prospectus. Our Restated Financial Statements differ in certain material respects from IFRS, U.S. GAAP and GAAP in other countries, and our assessment of the factors that may affect our prospects and performance in future periods. Accordingly, the degree to which our Restated Financial Statements will provide meaningful information to a prospective investor in countries other than India is entirely dependent on the readers level of familiarity with Ind GAAP. These regulations may also vary with ICDS, which may be material to an investors assessment of our results of operations and financial condition. Our fiscal year ends on March

31 of each year, so all references to a particular Fiscal or fiscal year are to the twelve-month period ended March 31 of that year. The following discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those set forth in the chapter titled "Risk Factors" and "Forward Looking statements" beginning on page 33 and 21 of this Draft Red Herring Prospectus respectively and elsewhere in this DRHP. Some of the information contained in this section, including information with respect to our strategies, contains forward-looking statements that involve risks and uncertainties. You should read the chapter titled "Forward-Looking Statements" beginning on page 21 of this Draft Red Herring Prospectus for a discussion of the risks and uncertainties related to those statements and also the chapter titled "Risk Factors" and "Our Business" beginning on pages 33 and 151 of this Draft Red Herring Prospectus respectively for a discussion of certain factors that may affect our business, results of operations and financial condition. The actual results of the Company may differ materially from those expressed in or implied by these forward-looking statements.

Unless otherwise stated, references to "the Company", "our Company", "we", "us", and "our" are to Royal

Arc Electrodes Limited.

Overview

Our Company is engaged in the business of manufacturing of welding consumables such as, welding electrodes, flux cored wire, MIG/TIG wires, which finds its application in the welding of tanks, boilers, heavy structures, beams, pipes, cylinders, pressure vessels, etc. which are used in industries like railways, roadways, airport infrastructure, refineries, shipyards, mines, sugar industries, telecom industries, thermal power stations, PEB sectors, etc. Further, our Company is also engaged in the business of trading of ancillary/incidental products like wheels, electro slag, welding flux cored wire, electro slag strip cladding, saw flux and TIG /MIG wires. We manufacture our products from copper coated wire, MS Strips, MS wire, SS strip, SS wire, nickel wire, ferro alloy powder, etc conforming to international standards, from our highly sophisticated and technically competent manufacturing facility spread over an area of 6.197 acres which is situated at Zaroli, Umbergaon Valsad, Gujarat, Bharat. This forward integration helps in achieving efficiency in the production process and gaining competitive advantage, reduction in product costs, control over the supply of raw materials and reduce our dependency on third parties for our operations

For Fiscal 2024, Fiscal 2023 and Fiscal 2022, our revenue from operations was 9,978.75, 9,694.02 lakhs, and

6,290.97 lakhs respectively, and our profit after tax for the year was 1,192.63 lakhs 956.82 lakhs and 212.13 lakhs, respectively. Our EBITDA for Fiscal 2024, Fiscal 2023 and Fiscal 2022 was 1,811.72 lakhs, 1,542.35 lakhs, and 550.51 lakhs respectively.

Principal Factors Affecting Our Results of Operations:

We have applied the following accounting policies in preparing our financial statements for Fiscal 2024:

SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Preparation

The financial statements have been prepared in conformity with the generally accepted accounting principles to comply in all material respects with the notified Accounting Standards (AS) under Companies

Act, 2013 and the relevant provisions of the Companies Act 2013("the Act"). The financial statements have been prepared under the historical cost convention, on an accrual basis. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year.

2. Use of estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities on the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Difference between the actual results and estimates are recognised in the period in which the results are known / materialized.

3. Property, Plant and Equipment and Depreciation

Property, Plant & Equipment are carried at cost of acquisition less accumulated depreciation and its written down value is stated. Cost includes inward freight, duties, taxes and incidental expenses related to the acquisition, construction and installation of the fixed assets. Borrowing costs directly attributable to acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised. Depreciation is provided under straight-line method so as to write-off the cost of the assets over its useful life as prescribed in Schedule II of the Companies Act, 2013.

4. Intangible Assets

Expenditure on regulatory approval for Licenses for Sale of Goods in foreign countries is recognized as an intangible asset and the same is amortized over a period of five years & Expenditure on software development is recognized as an intangible asset and same is amortized over a period of five years.

5. Capital Work-in-progress

Cost and direct expense incurred for construction of assets or assets to be acquired and which are not ready for use are disclosed under "Capital Work-in-progress"

6. Leases

Assets taken on lease by the Company in its capacity as lessee, where the Company has substantially all the risks and rewards of ownership are classified as finance lease. Such a lease is capitalised at the inception of the lease at lower of the fair value or the present value of the minimum lease payments and a liability is recognised for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year. Lease arrangements where the risks and rewards incidental to ownership of an asset substantially vest with the lessor, are recognised as operating leases. Lease rentals under operating leases are recognised in the statement of profit and loss on a straight-line basis.

7. Impairment a) The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital. b) After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life. c) A previously recognised impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.

8. Investments

Long Term Investments are carried at cost. Provision is made for any diminution in value of investments, if the diminution is other than temporary.

9. Employee Benefits

(i) Post-employment benefit plans

Contributions to defined contribution retirement benefit schemes are recognised as expense when employees have rendered services entitling them to such benefits. For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the statement of profit and loss for the period in which they occur.

Past service cost is recognised immediately to the extent that the benefits are already vested, or amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the scheme. (ii) Other employee benefits The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include compensated absences such as paid annual leave, overseas social security contributions and performance incentives. Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as an actuarially determined liability at the present value of the defined benefit obligation at the balance sheet date.

10. Revenue recognition

Revenue from sales is recognized as and when the goods are dispatched to the customers and invoice is prepared. Other income is recognized on accrual basis and when there is reasonable certainty of its collection.

11. Taxation

Current Tax is the amount of tax payable for the year as determined in accordance with the provision of the Income Tax Act, 1961. Minimum Alternative Tax (MAT) paid in accordance with the tax laws in India, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax after the tax holiday period. Accordingly, MAT is recognised as an asset in the balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with it will fructify. Deferred tax expense or benefit is recognised on timing differences being the difference between taxable income and accounting income that originate in one period and is likely to reverse in one or more subsequent periods. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Advance taxes and provisions for current income taxes are presented in the balance sheet after off-setting advance tax paid and income tax provision arising in the same tax jurisdiction for relevant tax paying units and where the Company is able to and intends to settle the asset and liability on a net basis. The Company offsets deferred tax assets and deferred tax liabilities if it has a legally enforceable right and these relate to taxes on income levied by the same governing taxation laws.

12. Foreign currency transactions

Transactions denominated in foreign currencies are normally recorded at the exchange rate prevailing at the time of the transaction. Monetary items in foreign currencies at the balance sheet date are translated at rates as at the balance sheet date. Any income or expense on account of exchange difference either on settlement or on translation is recognized in profit & loss account except in cases where they relate to acquisition of Fixed Assets, in which case they are adjusted to carrying cost of Fixed Assets.

13. Earnings per share

The basic and diluted earnings per share is computed by dividing the profit/loss after tax available for equity shareholders by the weighted average number of equity shares outstanding during the reporting period.

14. Employee benefits

Employee benefit expenses include salary, wages, performance incentives, compensated absences, medical benefits and other perquisites. It also includes post-employment benefits such as provident fund, superannuation fund, gratuity, pensionary benefits etc. Post-employment benefits and other long term employee benefits

Short term employee benefit obligations are estimated and provided for in the statement of profit and loss. - Defined contribution plans

Companys contribution to provident fund, superannuation fund, employee state insurance and other funds are determined under the relevant schemes and/or statute and charged to the statement of profit and loss in the period of incurrence when the services are rendered by the employees. - Defined benefit plans and compensated absences Expenditure on compensated absences and termination benefits (including expenditure on gratuity, voluntary retirement scheme, etc.) is recognised in the statement of profit and loss in the period of incurrence.

15. Inventories

Inventories are valued at the lower of cost and net realisable value after providing for cost of obsolescence. The method of determination of cost is as follows: a. Finished goods - comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods. Trade discounts, rebates and other similar items are deducted in determining the cost.

ICDS II as prescribed under section 145 of the Income Tax Act, 1961 requires ‘Purchase cost‘ to include duties and taxes, freight inwards and other expenditure directly attributable to the acquisition. Further section 145A of the Income Tax Act, 1961 requires valuation of purchases, sales and inventory be adjusted to include the amount of tax, duty, cess or fees(by whatever name called) actually paid and incurred to bring the goods to the place of its location and conditions as on the date of valuation. After including taxes, duties, cess etc. to inventory as well as purchases, sales and payments made or expenditure incurred of these taxes, duties, cess, etc. to comply with the provisions of section 145A the overall impact of the adjustments made on the income of the assessee is nil. Accordingly, even the exclusive method followed as per Accounting Standards issued by ICAI for the purpose of valuation of inventory is tax neutral.

16. Provisions, Contingent liabilities and Contingent assets

A provision is recognized when there is a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. When there is a possible obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

17. Cash and cash equivalents

The Company considers all highly liquid financial instruments, which are readily convertible into known amount of cash that are subject to an insignificant risk of change in value and having original maturities of three months or less from the date of purchase, to be cash equivalents.

18. Borrowing Cost

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Where, a qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Substantial period of time primarily depends on the facts and circumstances of each asset. However, ordinarily, a period of twelve months is considered as substantial. Other borrowing costs are recognised as an expense in the period in which they are incurred. Exchange differences arising from foreign currency borrowings and considered as borrowing costs are those exchange differences which arise on the amount of principal of the foreign currency borrowings to the extent of the difference between interest on local currency borrowings and interest on foreign currency borrowings. Thus, the amount of exchange difference not exceeding the difference between interest on local currency borrowings and interest on foreign currency borrowings is considered as borrowings costs and the remaining exchange difference, if any, is accounted for under AS 11, The Effects of Changes in Foreign Exchange Rates. For this purpose, the interest rate for the local currency borrowings is considered as that rate at which the enterprise would have raised the borrowings locally had the enterprise not decided to raise the foreign currency borrowings

19. Current assets, loans and advances

Current assets, loans and advances are of the value stated if realisable in the ordinary course of business.

20. Loans and borrowings

Secured as well as unsecured loans are stated at full value of liability payable on the date of balance sheet or future date.

21. Government grants and subsidies

Grants and subsidies from the government are recognized when there is reasonable assurance that (a) the company will comply with the conditions attached to them, and (b) the grant/subsidy will be received. Where the grant relates to an asset, it is shown as a reduction from the gross value of the asset concerned in arriving at its book value. The grant is thus recognised in the statement of profit and loss over the useful life of the asset by way of reduced depreciation charge. Where the grant relates to reimbursement of interest on term loan, it is recognised as a reduction from the finance cost of the term loan concerned.

KEY PERFORMANCE INDICATORS OF OUR COMPANY

( in lakhs, except for ratios and percentages)

Particulars	Fiscal 2024	Fiscal 2023	Fiscal 2022
Revenue from operations(1)	9,978.75	9,694.02	6,290.97
Growth in revenue from operations (%)(2)	2.94%	54.09%	-
Gross Profit(3)	3,385.93	3,004.28	1,593.74
Gross Profit Margin(%)(4)	33.93%	30.99%	25.33%
EBITDA(5)	1,811.72	1,542.35	550.51
EBITDA Margin(%)(6)	18.16%	15.91%	8.75%
Restated Profit after tax (PAT)(7)	1,192.63	956.82	212.13
PAT Margin(8)	11.95%	9.87%	3.37%
RoE(%)(9)	32.85%	37.43%	10.70%
RoCE(%)(10)	37.73%	41.81%	12.63%
Net Debt / EBITDA Ratio(11)	(0.04)	(0.10)	1.41
Debt Equity ratio(12)	0.00	0.05	0.38
Domestic Revenue	8,537.45	7,981.66	4,606.27
Domestic Revenue as a percentage to revenue from operations	85.56%	82.34%	73.21%
Export Revenue	1,441.30	1,712.36	1,684.70
Export Revenue as a percentage to revenue from operations	14.44%	17.66%	26.78%
Working Capital Days(13)	74	48	50
Inventory Days	42	46	76
Trade Receivable Days	68	56	69
Particulars	Fiscal 2024	Fiscal 2023	Fiscal 2022
Trade Payable Days	36	49	71

*As Certified by our Statutory Auditor, Bagadiya & Jain Chartered Accountants vide their certificate dated August 2, 2024. This certificate has been designated a material document for inspection in connection with the Offer. Please refer to chapter titled "Material Contracts and Documents for Inspection" beginning on page 343 of this Draft Red Herring Prospectus. Notes:

1. Revenue from Operations means the revenue from operations as appearing in the Restated Financial Statement.

2. Growth in revenue from operations (%) is calculated as a percentage of revenue from operations of the relevant period/year minus revenue from operations of the preceding period/year, divided by revenue from operations of the preceding period/year.

3. Gross Profit is calculated as the difference between revenue from operations less cost of raw material consumed less change in Inventories of work in progress, finished goods and Stock in Trade.

4. Calculated as Gross Profit divided by revenue from operations

5. EBITDA is calculated as restated profit / (loss) for the period / year, plus interest expense, total taxes, and depreciation and amortisation expense.

6. EBITDA Margin (%) is calculated as EBITDA divided by revenue from operations.

7. Profit after Tax means restated profit / (loss) for the period/year as appearing in the Restated Financial Statement.

8. Profit after Tax Margin refers to the percentage margin derived by dividing Profit after Tax by revenue from operations.

9. Return on Equity (%) is calculated as restated profit after tax for the period/year divided by average shareholders equity.

10. Return on Capital Employed is calculated as EBITDA less depreciation and amortization less bank charges divided by Capital

Employed.

11. Net Debt to EBITDA Ratio is a measurement of leverage, calculated as Net Debt divided by EBITDA.

12. Debt Equity ratio is calculated as Debt divided by shareholders equity. Shareholders equity is calculated as sum of share capital and reserves and surplus. 13. Working Capital Days refers to total current assets days minus total current liabilities days.

Overview of Revenue and Expenditure

The following descriptions set forth information with respect to key components of our income statement.

Revenue

Revenue from operations

Revenue from operations comprises income from: a. Sale of manufacturing products such as welding electrodes, flux cored wire, MIG/TIG Wire strip cladding. b. Revenue from trading in products such as Abrasive Wheels Electro Slag Welding Flux Cored Wire Saw

Flux and TIG MIG.

Other income

Other income primarily comprises Export incentives, interest income, Dividend income, insurance claims, foreign currency gains, amongst others.

Expenditure

Our expenditure comprises the following:

1. Cost of raw materials consumed: Cost of materials consumed comprises (i) the cost of raw materials used in the manufacture of our products; and (ii) the cost of raw materials. Our raw materials include steel scrap, roll scrap, pig iron, nickel, ferro molybdenum, other ferroalloys, resin coated sand, amongst others.

2. Change in Inventories of work in progress, finished goods, and Stock in Trade: Expenses accounted for pursuant to an (increase)/decrease in inventories of finished goods and work in progress.

3. Employee benefit expenses: Employee benefit expenses comprise of salaries, wages, contribution to provident and other funds, gratuity and staff welfare expenses

4. Finance costs: Finance costs comprise interest expenses on borrowings, trade payable and other borrowing costs.

5. Depreciation and amortization expenses: Depreciation and amortization expenses comprise depreciation of tangible assets including our plant and machinery, building, factory equipment, computer equipment, office and other equipment, furniture and fixtures, amongst others; and amortization of intangible assets including computer software and others.

6. Other expenses: Other expenses comprise primarily of rents, repairs and maintenance expenses, legal and professional charges, freight charges, travelling and conveyance, advertisement & business promotion expenses, commission expenses, testing and inspection charges, amongst others.

Geographic information

The following table sets forth a breakdown of our revenue from operations by geography for the periods indicated:

( in lakhs)

Sales Value	Fiscal 2024	Fiscal 2023	Fiscal 2022
Domestic	8,537.45	7,981.66	4,606.27
Exports	1,441.30	1712.36	1684.70
Total	9,978.75	9,694.02	6,290.97

Results of Operations

The following table sets forth our income statement data, the components of which are expressed as a percentage of total income for the periods indicated, for our operations for the Fiscal 2024, Fiscal 2023 and Fiscal 2022.

	For the Financial Year ended
	2024		2023		2022
Particulars	( in lakhs)	% of Total Income	( in lakhs)	% of Total Income	( in lakhs)	% of Total Income
	Income
Revenue from operations	9,978.75	98.81	9,694.02	98.88	6,290.97	97.05
Other income	120.50	1.19	109.46	1.12	191.26	2.95
Total income	10,099.25	100.00	9,803.48	100.00	6,482.23	100.00
	Expense
Cost of Raw Material Consumed	6,383.68	63.21	6,468.15	65.98	4,837.61	74.63
Changes in inventories of finished goods, work-in- progress, and Stock-in- Trade	209.13	2.07	221.59	2.26	(140.38)	(2.17)
Employee benefit expense	773.57	7.66	691.66	7.06	422.80	6.52
Finance Costs	9.89	0.10	60.84	0.62	97.53	1.50
Depreciation and	180.85	1.79	184.29	1.88	177.48	2.74
Amortization Expense
Other Expenses	916.26	9.07	871.61	8.89	806.43	12.44
Total expenses	8,473.38	83.90	8,498.14	86.68	6,201.47	95.67
Profit before tax	1,625.87	16.10	1,305.34	13.32	280.76	4.33
	Tax expenses:
Current Tax	425.25	4.21	365.12	3.72	86.04	1.31
Deferred Tax	2.70	0.03	(21.44)	-0.22	(18.12)	(0.28)
Current Tax adjustment of earlier years	5.29	0.05	4.84	0.05	0.71	0.01
Total tax expenses	433.24	4.29	348.52	3.56	68.63	1.06
Profit for the year	1,192.63	11.81	956.82	9.76	212.13	3.27

Key Components of our Statement of Profit and Loss Based on our Restated Financial Statements Income

Our total income comprises of revenue from operations and other income.

Revenue from Operations

Our revenue from operations represents the sale of our products. The Company is engaged in the business of manufacture of welding electrodes, flux cored wire, MIG/TIG Wire strip cladding; and trading in products like Abrasive Wheels Electro Slag Welding Flux Cored Wire Saw Flux and TIG MIG. For details, please refer to chapter titled "Business Overview" on page 151 of this DRHP. Our revenue from operations for the period ended March 31, 2.24 amounted to 9,978.75 Lakhs which is about 98.81 of the total revenue.

Other Income

Other income includes Export incentives, Interest from Deposits, Dividend Income, insurance claims, Net Gain/(Loss) on foreign currency transactions, Gain on Property, Plant and Equipment (Net), and miscellaneous income.

Expenditure

Our total expenditure primarily consists of the cost of raw materials consumed, Changes in Inventories of work in progress, finished goods and Stock in Trade, Employee benefit expenses, Finance Costs, Depreciation and Amortization Expenses, and Other expenses.

Cost of Raw Material Consumed

The cost of Raw Material Consumed consists of Opening stock plus purchases less closing stock

Changes in Inventories of Finished Goods and Work-in-Progress

The changes in Inventories comprise of Opening Stock less Closing Stock of Finished Goods and Work-in-Progress.

Employee Benefit Expenses

Employee benefit expenses comprise of Salaries and Wages, Contributions to the provident fund and other funds, gratuity expenses and Staff Welfare Expenses.

Finance costs

Finance costs include Interest Expenses and Other Borrowing costs including Bank charges. Depreciation & Amortization Cost

Depreciation expenses consist of depreciation on the tangible assets of our Company i.e., depreciation on fixed assets and amortization of intangible assets including computer software and others.

Other Expenses

Other expenses include Clearing & Forwarding Charges, Electricity Expenses Factory, Job & Labour Charges, Spares, Tools & Consumables Power & fuel, Packing and Forwarding, Transport Charges, Repair and Maintenance, Brokerage and commission, Auditors Remuneration, Rent on Machinery, Rent-Others, Advertisement expenses, Professional & Consultancy fees, Bad debts, Insurance Expense, Rates & Taxes, Office expense, Traveling & conveyance, amongst others.

Provision for Tax

The provision for current taxation is computed in accordance with relevant tax regulations and includes MAT Credit. Deferred tax is recognized on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or subsequently enacted as on the balance sheet date.

For the financial year ended on March 31, 2024

The total revenue was 10,099.25 lakhs for the financial year ended on March 31, 2024

Revenue from Operations

Revenue from operations contributed 9,978.75 lakhs for the financial year ended on March 31, 2024, or 98.81% of total revenue for this period.

Other Income

Other Income contributed 120.50 lakhs for the financial year ended on March 31, 2024, or 1.19% of total revenue for this period.

Total Expenses

Total Expenses stood at 8,473.38 lakhs, or 83.90% of Total Income for the financial year ended on March 31, 2024

Cost of Materials Consumed

Cost of Materials Consumed contributed to 6383.68 lakhs, or 63.21% of Total Income for the financial year ended on March 31, 2024

Changes in Inventories of Finished Goods and Work-in-Progress

Changes in Inventories of Finished Goods and Work-in-Progress stood at 209.13 lakhs, or 2.07% of Total Income for the financial year ended on March 31, 2024

Employee Benefit Expenses

Employee Benefit Expense contributed to 773.57 lakhs, or 7.66 % of Total Revenue for the financial year ended on March 31, 2024.

Finance costs

Finance costs contributed 9.89 lakhs, or 0.10% of Total revenue for the financial year ended on March 31, 2024.

Depreciation & Amortization Cost

Depreciation & Amortization contributed 180.85 lakhs, or 1.79% of Total revenue for the financial year ended on March 31, 2024

Other Expenses

Other Expenses contributed 916.26 lakhs, or 9.07% of Total Revenue for the financial year ended on March 31, 2024

Tax Expenses

Tax Expenses contributed 433.24 lakhs or 4.29% of Total revenue for the financial year ended on March 31, 2024.

Profit after Tax

Profit after Tax stood at 1,192.63 lakhs or 11.81% of Total revenue for the financial year ended on March 31, 2024.

Financial Year 2024 compared to Financial Year 2023

			( in lakhs)
	For the year ended March 31,
Particulars	2024	2023	Change (%)
Income
Revenue from operations	9,978.75	9,694.02	2.94
Other income	120.50	109.46	10.09
Total revenue	10,099.25	9,803.48	3.02
Expenses
Cost of Raw Material Consumed	6,383.68	6,468.15	(1.31)
Changes in inventories of finished goods, work-in-progress and Stock-in- Trade	209.13	221.59	(5.62)
Employee benefit expense	773.57	691.66	11.84
Finance Costs	9.89	60.84	(83.74)
Depreciation and Amortization Expenses	180.85	184.29	(1.87)
Other Expenses	916.26	871.61	5.12
Total expenses	8,473.38	8,498.14	(0.29)
Profit /(Loss) before Exceptional and	1,625.87	1,305.34	24.56
Extraordinary Item and Tax
Exceptional Item	0	0	0.00
Profit/(Loss) before Extraordinary	1,625.87	1,305.34	24.56
Item and Tax
Extraordinary Item	0	0	0.00
Profit/(Loss) before Tax	1,625.87	1,305.34	24.56
Tax expenses:
Current tax	425.25	365.12	16.47
Deferred tax	2.70	(21.44)	(112.59)
Current Tax adjustment of earlier years	5.29	4.84	9.30
Total tax expenses	433.24	348.52	24.31
Profit for the year	1,192.63	956.82	24.65

Total income

Total income increased by 3.02% to 10,099.25 lakhs for the Fiscal 2024 from 9,803.48 lakhs for the Financial

Year 2023. The increase in total income is due to increase in revenue from operations by 2.94% and increase in other income by 10.09%.

Revenue from operations:

Revenue from operations marginally increased by 2.94% to 9,978.75 lakhs for the Fiscal 2024 from 9,694.02 lakhs for the Fiscal 2023. The increase in revenue from operations is due to increase in sale of products by 2.87% to 9,972.46 lakhs for the Fiscal 2024 from 9,693.77 lakhs for the Fiscal 2023 and sale of services by 2367.58% to 6.29 lakhs for the Fiscal 2024 from 0.25 lakhs for the Fiscal 2023. The increase in sale of service in Fiscal 2024 is mainly attributable to the after sales services and technical support provided to customers assisting them with welding solutions

Other Income

Our other income increased by 10.09% to 120.50 lakhs for the Fiscal 2024 from 109.46 lakhs for the Fiscal 2023. Such increase in other income was primarily due to write back of deposits of 47.25 lakhs in Fiscal 2024 as against NIL in Fiscal 2023 and interest income of 15.61 lakhs in Fiscal 2024 as against 4.21 lakhs in Fiscal

2023. The increase was marginally off-set by reduction in export incentives by 15.57%, reduction in insurance claim and net gain from foreign currency transaction by 66.87%.

Total expenses

Total expenses marginally decreased by 0.29% to 8,473.38 lakhs for the Fiscal 2024 from 8,498.14 lakhs for the Fiscal 2023.

Cost of raw materials consumed

Our cost of raw materials consumed decreased by 1.31% from 6,468.15 lakhs in Fiscal 2023 to 6,383.68 lakhs in Fiscal 2024. The decrease in cost of raw material is primarily due to decrease in the prices of our key raw materials i.e. Steel and Rutile and the cost benefits arising from bulk purchases.

Change in inventories of work-in-progress, finished goods and Stock in Trade

Changes in inventories of work-in-progress, finished goods and Stock in Trade decreased to 209.13 lakhs for the Fiscal 2024 as compared to 221.59 lakhs for the Fiscal 2023. In relation to inventories of finished goods and work in progress, we had an opening stock of 395.73 lakhs and a closing stock of 186.60 lakhs for the Fiscal 2024, and an opening stock of 617.32 lakhs and a closing stock of 395.73 lakhs for the Fiscal 2023.

Employee benefits expenses

Our employee benefits expense increased by 11.84% from 691.66 lakhs in Fiscal 2023 to 773.57 lakhs in Fiscal 2023 primarily due to increase in remuneration of our directors from 300.21 lakhs in Fiscal 2023 to 377.31 lakhs in Fiscal 2024 and also due to increase in number of employees and corresponding increase in provident fund and gratuity expenses.

Finance Costs

Our finance costs decreased by 83.75% from 60.84 lakhs in Fiscal 2023 to 9.89 lakhs in Fiscal 2024, primarily due to decrease in total borrowings from 141.71 lakhs in Fiscal 2023 to 19.71 lakhs in Fiscal 2024.

Depreciation and Amortization Expenses

Our depreciation and amortization expense marginally decreased by 1.87% from 184.29 lakhs in Fiscal 2023 to 180.85 lakhs in Fiscal 2024.

Other expenses

Our other expenses increased by 5.12% from 871.61 lakhs in Fiscal 2023 to 916.26 lakhs in Fiscal 2024, primarily due to increase in Legal & Professional charges by 32.78 lakhs, Bad Debts by 18.74 lakhs, traveling and conveyance expense by 16.59 lakhs, Exhibition Expenses by 37.27 lakhs in Fiscal 2024.

Profit before tax

As a result of the foregoing, we recorded an increase of 24.56% in our profit before tax, which amounted to

1,625.87 lakhs in Fiscal 2024, as compared to 1,305.34 lakhs in Fiscal 2023.

Tax expenses

Our tax expenses (current, deferred and Current Tax adjustment of earlier years) increased by 24.31% from 348.52 lakhs in Fiscal 2023 to 433.24 lakhs in Fiscal 2024. This is in line with increase in Profit before tax.

Restated Profit after tax for the period

As a result of the foregoing, we recorded an increase of 24.65% in our profit for the year from 956.82 lakhs in Fiscal 2023 to 1,192.63 lakhs in Fiscal 2024.

Financial Year 2023 compared to Financial Year 2022

Particulars	For the year ended March 31,
	2023	2022	Change (%)
Income
Revenue from operations	9,694.02	6,290.97	54.09
Other income	109.46	191.26	(42.77)
Total revenue	9,803.48	6,482.23	51.24
Expenses
Cost of Raw Material Consumed	6,468.15	4,837.61	33.71
Purchases of Stock-in-Trade	-	-	0.00
Changes in inventories of finished goods, work-in-progress and Stock-in- Trade	221.59	(140.38)	257.85
Employee benefit expense	696.66	422.80	63.59
Finance Costs	60.84	97.53	(37.62)
Depreciation and Amortization Expenses	184.29	177.48	3.84
Other Expenses	871.61	806.43	8.08
Total expenses	8,498.14	6,201.47	37.03
Profit /(Loss) before Exceptional and	1305.34	280.76	364.94
Extraordinary Item and Tax
Exceptional Item	0	0	0.00
Profit/(Loss) before Extraordinary	1305.34	280.76	364.94
Item and Tax
Extraordinary Item	0	0	0.00
Profit/(Loss) before Tax	1305.34	280.76	364.94
Tax expenses:
Current tax	365.12	86.04	324.36
Deferred tax	(21.44)	(18.12)	18.32
Current Tax adjustment of earlier years	4.84	0.71	581.69
Total tax expenses	348.52	68.63	407.82
Profit for the year	956.82	212.13	351.06

Total income

Total income increased by 51.24 % to 9,803.48 lakhs for the Financial Year 2023 from 6,482.23 lakhs for the Financial Year 2022 primarily due to:

Revenue from operations:

Revenue from operations increased by 54.09% to 9,694.02 lakhs for the Fiscal 2023 from 6,290.97 lakhs for the Fiscal 2022 primarily due to increase in the cost of our key raw material. The increase in cost of raw material was passed on to our customer by increase in the price of our product. For instance, our revenue from sale of flux cored wire increased from 2336.86 lakhs in Fiscal 2022 to 4833.88 lakhs in Fiscal 2023. Further, our revenue from traded sales also increased from 405.27 lakhs in Fiscal 2022 to 860.81 lakhs in Fiscal 2023. The main reason attributable to this is the geo-political issues and increase in raw material prices.

Other Income

Our other income fell by 42.77% % to 109.46 lakhs for the Financial Year 2023 from 191.26 lakhs for the

Financial Year 2022. Such decrease in other income was primarily due to the receipt of a Keyman insurance policy claim during the Financial Year 2022.

Total expenses.

Total expenses increased by 37.03% to 8,498.14 lakhs for the Financial Year 2023 from 6,201.47 lakhs for the Financial Year 2022. This is in line with increase in total income.

Cost of materials consumed

Our cost of materials consumed increased by 33.71% from 4,837.61 lakhs in Fiscal 2022 to 6,468.15 lakhs in

Fiscal 2023, primarily due to the significant growth in the business of the company.

Change in inventories of finished goods and work-in-progress

Changes in inventories of finished goods and work-in-progress increased to 221.59 lakhs for the Financial Year 2023 as compared to from (140.38) lakhs for the Financial Year 2022. In relation to inventories of finished goods and work in progress, we had an opening stock of 617.32 lakhs and a closing stock of 395.73 lakhs for the Financial Year 2023, and an opening stock of 476.94 lakhs and a closing stock of 617.32 lakhs for the

Financial Year 2022.

Employee Benefits Expense

Our employee benefits expense increased by 63.59% from 422.80 lakhs in Fiscal 2022 to 691.66 lakhs in Fiscal 2023 primarily due to the performance bonus paid to the directors of the company on account of the significant growth in the business of the company.

Finance Costs

Our finance costs decreased by 37.62 % from 97.53 lakhs in Fiscal 2022 to 60.84 lakhs in Fiscal 2023, primarily due to the decrease in the Bank Cash Credit Interest Expense on account of less utilization of Bank Cash Credit limits by the company during Fiscal 2023 as compared to Fiscal 2022.

Depreciation and Amortization Expenses

Our depreciation and amortization expense increased marginally by 3.84% from 177.48 lakhs in Fiscal 2022 to 184.29 lakhs in Fiscal 2023, primarily due to addition of fixed asset of 233.55 lakhs during fiscal 2023

Other expenses

Our other expenses increased by 8.08% from 806.43 lakhs in Fiscal 2022 to 871.61 lakhs in Fiscal 2023, primarily due to the increase in the electricity consumption, commission expense, and advertisement, marketing and business promotion expenses which are in line with the significant growth of the business of the company.

Profit before tax

As a result of the foregoing, we recorded an increase of 364.94% in our profit before tax, which amounted to 1,305.34 lakhs in Fiscal 2023, as compared to 280.76 lakhs in Fiscal 2022.

Tax expenses

Our tax expenses (current, deferred and Current Tax adjustment of earlier years) increased by 407.82 % from

68.63 lakhs in Fiscal 2022 to 348.52 lakhs in Fiscal 2023. This was primarily due to increase in profit before tax.

Restated Profit for the period

As a result of the foregoing, we recorded an increase of 351.06 % in our profit for the year from 212.13 lakhs in Fiscal 2022 to 956.82 lakhs in Fiscal 2023.

CASH FLOWS

The following table summarizes our cash flows for the year ended on March 31, 2024, and for Fiscal 2023, Fiscal 2022, and Fiscal 2021:

	For the year ended March 31,
Particulars	2024	2023	2022
Net Cash generated from Operating Activities	562.54	1,258.59	240.43
Net Cash Used in Investing Activities	(579.58)	(246.61)	(111.12)
Net Cash Used in Financing Activities	(189.17)	(715.27)	(154.55)
Net Increase / (Decrease) in Cash and Cash Equivalents	(206.21)	296.71	(25.24)
Cash and Cash Equivalents at the beginning of the year	301.83	5.12	30.36
Cash and Cash Equivalents at the end of the year	95.62	301.83	5.12

Cash flows generated from operating activities

Net cash generated from operating activities for the year ended as on March 31, 2024, was 562.54 lakhs. Our operating profit before working capital changes was Rs 1,800.31 lakhs, which was primarily adjusted by an increase in short-term provisions, long-term provisions, trade receivables, inventories, and short-term loans and advances, other current liabilities and a decrease in trade payables, and other current assets.

Net cash generated from operating activities for the period March 31, 2023, was 1,258.59 lakhs. Our operating profit before working capital changes was Rs 1,571.70 lakhs, which was primarily adjusted by an increase in other current liabilities, short-term provisions, long-term provisions, trade receivables, and short-term loans and advances, and a decrease in trade payables, inventories, and other current assets.

Net cash from operating activities for the period March 31, 2022 was 240.43 lakhs. Our operating profit before working capital changes was 551.87 lakhs, which was primarily adjusted by an increase in trade payables and receivables, inventories, short-term provisions, long-term provisions, short-term loans and advances, and a decrease in other current liabilities, and other current assets.

Cash flows used in investing activities

Net cash used in investing activities was 579.58 lakhs for the year ended as on March 31, 2024, primarily used 595.49 lakhs in the purchase of assets and purchase of investments and 15.91 lakhs was generated due to receipt of Rent, interest and dividends.

Net cash used in investing activities was 246.61 lakhs in Fiscal 2023, primarily used 250.94 lakhs in the purchase of assets and investments, and 4.33 lakhs was generated due to receipt of interest and dividends. Net cash used in investing activities was (111.12) lakhs in Fiscal 2022, primarily used 113.87 lakhs in the purchase of assets, and 2.75 lakhs was generated due to receipt of interest and dividend

Cash flows generated from / (used in) financing activities

Net cash used in financing activities for the year ended as on March 31, 2024, amounted to 189.17 lakhs, which primarily consists of repayment of long-term borrowings and short-term borrowings, a decrease in other long-term liabilities, and was gradually reduced by finance costs. Net cash used in financing activities in Fiscal 2023 amounted to 715.27 lakhs, which primarily consists of repayment of long-term borrowings and short-term borrowings, decrease in other long-term liabilities, and was gradually reduced by finance cost.

Net cash used in financing activities in Fiscal 2022 amounted to 154.55 lakhs, which primarily consists of repayment of long-term borrowings, increase in short-term borrowings, and decrease in other long-term liabilities and was gradually reduced by finance costs.

Capital Expenditure

Capital expenditures consist primarily of plant & machinery, factory shed, and vehicles. For the year ended on

March 31, 2024, for the Fiscal 2023, and Fiscal 2022, we incurred capital expenditure of 415.82 lakhs, 233.55 lakhs and 92.61 lakhs respectively.

Contingent Liabilities

As on date of this Draft Red Herring Prospectus, the details of the contingent liabilities of the Company are as below:

Contingent Liabilities and Commitments	For the Year Ended On March 31, 2024	For the Year Ended March 31, 2023	For the Year Ended March 31, 2022
Contingent liabilities on account of pending litigations	130.25	130.25	141.42
O/s Bank Guarantee	0.00	0.00	0.00

Note:

The Company has received a notice under clause (b) of Section 148A of the Income Tax Act, 1961, for AY 2020-21 with the liability amount not being ascertainable.

The Company has received a show cause under Section 73(5) of the Central Goods and Services Tax Act, 2017 for FY 2019-20 involving 33.46 lakhs. The proceedings are currently on-going and the liability amount has not been ascertained till date.

The Company has received intimation under Section 73(5) of the Central Goods and Services Tax Act, 2017 for FY 2020-21 involving 17.96. The proceedings are currently on-going and the liability amount has not been ascertained till date.

The Company has received notice for completing the Tax Assessment of Local Body Taxes of the past years.

The proceedings are currently on-going and the liability amount has not been ascertained till date.

Details of material developments after the date of the last balance sheet i.e., March 31, 2024.

After the date of the last Balance sheet i.e., March 31, 2024, the following material events have occurred:

1.Our Company has approved the audited financial statements for the financial year ending March 31, 2024, in the Board meeting dated July 3, 2024.

2.Our Company has approved the Restated Financial Statements for the year ended March 31, 2024, March 31, 2023 and March 31, 2022 in the Board meeting dated July 9, 2024.

Our Company has approved the Draft Red Herring Prospectus vide resolution in the Board Meeting dated August 2, 2024

AUDITOR OBSERVATIONS

There are no qualifications, reservations and adverse remarks by our Statutory Auditor in our Restated Financial Statement

Information required as per Item (II) (C) (iv) of Part A of Schedule VI to the SEBI Regulations:

An analysis of reasons for the changes in significant items of income and expenditure is given here under:

1. Unusual or infrequent events or transactions Except as described in this Draft Red Herring Prospectus, to our knowledge, there have been no unusual or infrequent events or transactions that have in the past or may in the future affect our business operations or future financial performance.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations

Our business has been subject, and we expect it to continue to be subject to significant economic changes arising from the trends identified above in "Factors Affecting our Results of Operations" and the uncertainties described in the chapter titled "Risk Factors" beginning on page 33 of this Draft Red Herring Prospectus. To our knowledge, except as we have described in this Draft Red Herring Prospectus, there are no known factors which we expect to bring about significant economic changes.

3. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Our business has been subject, and we expect it to continue to be subject, to significant economic changes arising from the trends identified above in "Managements Discussion and Analysis of Financial Position and Results of Operations Significant Factors Affecting our Results of Operations and Financial Condition" and the uncertainties described in the chapter titled "Risk Factors" beginning on page 33 respectively of this Draft Red Herring Prospectus. To our knowledge, except as discussed in this DRHP,

there are no known trends or uncertainties that have or had or are expected to have a material adverse impact on revenues or income of our Company from continuing operations.

4. Future changes in relationship between costs and revenues

Other than as described in the chapter titled "Risk Factors", "Business Overview" and "Managements

Discussion and Analysis of Financial Condition and Results of Operations" on pages 33, 151 and 249 respectively, to our knowledge, no future relationship between expenditure and income is expected to have a material adverse impact on our operations and finances.

5. Status of any publicly announced New Products or Business Segment

Except as set out in this Draft Red Herring Prospectus, we have not announced and do not expect to announce in the near future any new business segments.

6. Seasonality of business

Our Companys business is not seasonal in nature or cyclicality. For more details please refer to chapter titled

"Industry Overview" and "Business Overview" beginning on pages 131 and 151 respectively of this Draft Red Herring Prospectus.

7. Competitive conditions

Competitive conditions are as described under the chapters titled "Industry Overview" and "Business Overview" beginning on pages 131 and 151 respectively of this Draft Red Herring Prospectus.

8. Any significant dependence on a single or few customers.

The proportion of our revenues have historically been derived from the number of customers. The % contribution of our Company customer vis a vis the revenue from operations and direct expenses purchased for the financial year ended March 31, 2024, for the financial year ended March 31, 2023, and for the financial year ended March 31, 2022 are tabulated as follows:

Particulars	For the financial year ended March 31,
	2024		2023		2022
	( in Lakhs)	%	( in Lakhs)	%	( in Lakhs)	%
Top 10 customers	4,409.79	44.19	4,331.19	44.68	3,359.94	53.41
Top 10 suppliers	4,948.28	71.81	3,998.30	64.36	2,800.64	57.07