Name Registered office

VARDHAMAN SPECIAL STEEL

Vardhman Premises, Chandigarh Road, Ludhiana 141010, Punjab Ph.: +91-0161-2228943-48 Fax: +91-0161-2601048, 2222616, 2601040 Email:- secretarial.lud@vardhman.com C-58, Focal Point, Ludhiana 141 010, INDIA Ph.: +91-0161-267 0707, 09, 501 4243 - 44 Fax: +91-0161-267 0503 Email:- mktg@vardhmansteel.com

Head Office and Works

Date of Incorporation Constitution Business

May, 2010 Public Limited Company Steel Industry

FINANCING
Project Cost
Brief description of the various project cost components is as under:

(Rs. Lacs) Particulars Land Site Development Buildings Plant & Machinery Provision for Contingencies Hard Cost Prel. & Pre-operative expenses Interest during construction period Provision for Contingencies Margin money for working capital Excise Duty / Service Tax / Sales Tax on above Electricity Board & Other Deposit 2048 736 Hyderabad 775 105 974 10098 559 12510 226 467 0 1412

Soft Cost Total

4889 17400

Working Capital
Particulars Current Assets Raw Materials Consumables WIP Finished goods Receivables Sub- total Current Liabilities Creditors Raw Materials Consumables Sub- total 0 30 0 140 140 30 30 2 5 5 3401 140 316 875 1055 5786 Days 2010-11

Working capital gap Bank Finance 75%

5646 4235

Margins for working capital

25%

1412

Means Of Finance
The project is proposed to be funded at a Debt/ Equity ratio of 2:1 and the financing pattern for the project is proposed as under:

Means of Finance Rs. in Lacs Equity Debt Total 5800 11600 17400

% Total 33% 67% 100%

Of

EQUITY The Total equity contribution for the project is estimated at Rs 5800 lacs and the same will be brought in as per details below:

Equity

Amount (RS. Lacs)

% Of Total In Equity

Promoters Public Issue Total

3480 2320 5800

60% 40% 100%

SPSL proposes to award the project on turnkey basis & would keep a lean project organization. It will hire professionals and workers, near the project completion stage.

Term Loan
The company proposes to raise rupee Term Loans from Banks & Financial Institutions to fund the project. The terms & conditions for the proposed Term Loan are as under:

Nature of Loan Loan Amount Rate of Interest

Rupee Term loan Rs 11,600 lacs 11% p.a. with quarterly rests

Moratorium Period Tenor Repayment Terms Security

12 months from commercial Operation( 1st October 11) 7 (1+6) years from COD with twelve months moratorium )))October 099000000000092009 22222009 2009) 24 equal quarterly installments of Rs 483 lacs each, commencing from 30 September 2010 - First Charge, by way of equitable mortgage on the Companys Factory land & Building and hypothecation of all Plant & Machinery and other fixed assets of the company Second Charge on all the current assets of the

Upfront Fees

0.25% company.

Working Capital Loan

The details of the working capital limits and the broad terms & conditions for the same are as under:

Nature of borrowings

Working capital facility in the form of Cash Credit loans for stock / Bill Purchase / Bill Discounting

Loan amount Rate of Interest Security

Rs 1412 lacs 11.5% First charge on all current assets of the company Second charge on reciprocal basis with the term lenders, on all the fixed assets which will include the equitable Mortgage on Companys Factory land & building and hypothecation on all the Plant & Machinery and other Fixed assets of the company

Period

12 Months, subject to review every year

PROMOTERS CONTRIBUTION AND DEBT- EQUITY RATIO

The project is proposed to be funded at a Debt/ Equity ratio of 2:1. Total cost of project is about Rs. 17400 lacs in which equity contribution is Rs. 5800 lacs and debt

part is Rs. 11600 lacs. Equity is proposed to by contributed by promoter and public issue.

DEMAND & SUPPLY FORECASTS

Demand, availability and resultant gaps/surpluses

The following tables show the demand supply projections estimated by our researchers for structural in India.

Demand-supply tonnes) Structural Demand Production

forecasts

('000 20010-11

2011-12

2,700 2,670

2,790 2,750

As evident from above there is likely to be a demand supply gap in favor of the structural manufacturers. The primary reason for this is the growth in the end user industries like construction. The infrastructure spending is likely to be on the rise too, which would further support the growth of the structural steel sector. Our research estimates the growth based on different parameters as evident from the above table.

MARKETING AND SELLING ARRANGEMENTS

Company shall be selling its entire production at Vizag plant to Sunflag rolling mills for rolling purpose and then it will be used in their construction purpose, hence transportation of Finished Goods will be an advantage

Thus, there would not be any external selling requirement. Beside this, there are many rolling mills situated in and around the proposed locations. If excess left then it can be marketed to these units. This will reduce transportation cost for them procuring from far places like VSP etc. The company is not envisaging any problem to market its product.

CORPORATE GOVERNANCE
The company aims at achieving transparency, accountability and equity in all facets of its operations, and in all interactions with the stakeholders, including the shareholders, employees, government, lenders and other constituents while fulfilling the role of a responsible corporate representative committed to good corporate practices. The company is committed to achieve the good standards of corporate governance.

The company believes that all its operations and actions must result in enhancement of the overall shareholder value in terms of maximization of shareholders benefits etc. over a sustained period of time

PROJECTIONS

Project Status
Land has been finalized and agreement for the same has been signed. Land acquisition process is underway. Company is in the process of making application for various Statutory / Government Approvals and clearances. The negotiation for

turnkey EPC contract is in final stages

Profitability Projections
(Rs. in lakhs)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Months in Operation Capacity Utilisation Gross Sales Excise Duty Net sales Other Income Total Raw material 6 75% 36751 5156 31486 110 31595 20407 12 80% 78403 11000 67169 234 67403 43536 12 90% 88203 12375 75565 263 75828 48978 12 95% 93104 13063 79763 278 80041 51699 12 95% 93104 13063 79763 278 80041 51699 12 95% 93104 13063 79763 278 80041 51699 12 95% 93104 13063 79763 278 80041 51699

Consumable Stores Power & fuel & Utilities Other Manufacturing Salaries & wages Exp. Administrative & Selling exp. Total cost of production Gross profit (PBDITA) Interest - on Term Loans - on working Capital Total Financial PBDTA Expenses Depreciation Amortization Profit/(loss) before tax Tax (PBT) Net profit after Tax Dividend (PAT) Retained earnings Net Cash Accruals PBDIT/Sales % PAT/Sales % Interest Coverage (Times) Equity share capital Net Worth Current ratio Long Term Debt TOL / TNW Equity DSCR Min DSER Avg DSCR

838 5178 1588 307 95 28412 3183 944 122 1066 2117 314 0 1803 152 1651 0 1651 1965 10.07 5.71 2.99 5800 7451 2.24 2.00 2.13 3.08

1788 10856 3387 644 212 60423 6980 1249 503 1753 5227 642 0 4586 641 3944 0 3944 4586 10.36 6.80 3.98 5800 11395 2.89 1.83 1.33 2.63

2011 11857 3811 676 251 67584 8244 1063 552 1615 6629 655 0 5975 1747 4228 0 4228 4883 10.87 7.88 5.10 5800 15623 3.19 1.50 0.88 1.98 1.98 2.53 22% 15% 26.5%

2123 12357 4022 710 278 71190 8851 851 600 1451 7400 668 0 6732 2171 4561 0 4561 5229 11.06 8.41 6.10 5800 20184 3.63 1.17 0.60 2.18

2123 12357 4022 746 292 71239 8802 638 616 1254 7547 681 0 6866 2336 4530 0 4530 5211 11.00 8.58 7.02 5800 24714 4.17 0.83 0.41 2.27

2123 12357 4022 783 306 71291 8750 425 616 1042 7708 695 0 7014 2479 4535 0 4535 5229 10.93 8.76 8.40 5800 29248 4.72 0.50 0.28 2.40

2123 12357 4022 822 322 71345 8695 213 617 829 7866 708 0 7159 2599 4559 0 4559 5267 10.86 8.94 10.49 5800 33808 5.28 0.17 0.19 2.55

Operating Break Even (2011-12)) Cash Break Even (2011-12) Project IRR

The capacity utilization for the project has been considered as given in table above. With the above capacity utilization, the project has a healthy IRR of 26.5%. The cost of Rupee loan is considered at 11%, which is much lower than the projected IRR.

DSCR levels for the project may be considered comfortable with minimum being 1.98 and average being 2.53. The BEP and Cash BEP levels are also comfortable. The EBIDTA and net profit margins are about 11% and 8.5% respectively, which may be considered satisfactory and is comparable to that of similar units

SENSITIVITY ANALYSIS
A sensitivity analysis has been carried out to ascertain the effect of the following scenarios on the profitability and consequent debt servicing capacity of the Company.

Scenario Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7

Description Increase in project cost by 5 % Increase in Raw Material Cost by 5 % Reduction in Realisation by 4% Reduction in capacity utilization by 5 % Increase in Power Cost by 5% Interest Rate @ 12% Interest Rate @ 10%

The summary of the sensitivity analysis is as under:

Base Case Scenario 1 Scenario 2 Scenario 3 Scenario 4

Project IRR 26.5% 26.5% 17.9% 16.1% 24.7%

Min DSCR 1.98 1.89 1.58 1.48 1.86

Avg. DSCR 2.53 2.41 1.82 1.68 2.37

Scenario 5 Scenario 6 Scenario 7

24.5% 26.6% 26.4%

1.86 1.93 2.04

2.36 2.47 2.60

The sensitivity Analysis shows that the project IRR and DSCR levels are most sensitive to Raw Material Cost & Billet Realisation. However, even in this scenario, the minimum DSCR is 1.58 and IRR is above 15%. As may be seen from the table above, the base case IRR and DSCR levels are robust enough to withstand adverse variations in critical parameters.