The supply and procurement of the products between the constituents of the composite manufacturing facility at Ginigera, under Strategic Alliance effective 1^st February 2005 are carried out on "Conversion basis" as against "Sales". Hence, the revenues and components of cost of goods sold in respect of current quarter are strictly not comparable with previous period. However this has no effect on the profits of the above periods. Because of this change the sales and OPM are not comparable.

Kalyani Steels (KSL) is one of the leading mini steel plants manufacturing forging quality carbon and alloy steels using the blast furnace route. It produces engineering and alloy steel rollings, blooms and billets conforming to international standards. Additionally Kalyani Steels has also commenced the production of Pig iron plant taken on lease on 24^th July 2005.

KSL has absorbed various technologies from Aichi Steels, Japan; Mann, Germany; Inteco, Austria; and Concast, Switzerland. Its clientele includes dominant Auto players like the group company Bharat Forge, Mahindra and Mahindra and Tata Motors.

Sharp growth in operating profit during the quarter and the half year is due to the following strategies adopted by the company on the raw material and power front, which not only assures the availability, but at much lower cost than the market rates. Thus while the product price remain stable, lower raw material and power cost are driving the profits.

Kalyani Steels manufactures rollings and billets using the Blast furnace route. The key raw materials in manufacturing the same are the iron ore, coke and power. The company has entered in to long term arrangements with the Karnataka government for its Iron ore requirements. The iron ore mines have been leased to the company for the next 25 years and hence the company is self sufficient for its iron ore requirements now and going forward. This enables the company to restrict its iron ore cost to around Rs 430/tonne against the prevailing price of around Rs 2000-3000/tonne.

Kalyani Steel has also commissioned its 7.5 MW capacity Power Plant in April 2005 and will generate power equivalent to approximately 52 Million units per annum. This is expected to take care of nearly 80% of its power requirements. Furthermore the heat content that is generated through the blast furnace is utilized to generate electric power. It is expected to reduce reliance on the state electricity grid as well as bring down the input cost of steel production and increase the competitiveness of the end products.

Furthermore in order to ensure the availability and low cost of coke, the company has entered into an agreement with Gujarat NRE Coke (GNCL), for setting up of Coke Oven Batteries Project. The Company has contributed to 40% Equity of Bharat NRE Coke (BNCL) viz. a company incorporated, in terms of the said agreement, for setting up coke oven batteries for conversion of coal into coke, by using the technology of GNCL. BNCL has proposed to set up eight coke oven batteries at Dharwad, in the State of Karnataka. The four coke oven batteries are already commissioned and are producing more than 10000 tonnes per month of coke. In April’06 all the batteries will be operationalised which will produce nearly 3,25000 tonnes of coke for Kalyani. This will meet nearly 80% of company’s requirement.

There was 55% fall in other income to Rs 0.17 crore. With a 73% fall in interest cost to Rs 0.90 and a 15% fall in depreciation charges to Rs 4.22 crore, the PBT before EO ended at Rs 26.58 crore, up by 132%.

During the quarter ended Sept'05 Kalyani Steels reported a net Income from extra ordinary items of Rs. 31.53 crore. The net EO Income for the quarter ended Sept'05 was on account profit on sale of shares of Kalyani Brakes.

Provision for tax (including deferred tax and fringe benefit tax) for the quarter ended Sept’05 stood Rs 7.61 crore resulting in PAT of Rs 50.50 crore for the quarter ended Sept'05, which was 563% higher when compared with corresponding previous quarter last year.

Half yearly results

The net sales revenue for the half year ended Sept'05 ended stood at Rs 286.55 and operating profit stood at Rs 62.23 crore which was 88% higher when compared to corresponding period last year.

There was 108% rise in other income to Rs 1.06 crore. With a 55% fall in interest cost to Rs 2.14 crore along with a 2% fall in depreciation charges to Rs 9.38 crore, the PBT before EO ended at Rs 51.77 crore, up by 169%.

During the half year ended Sept'05 Kalyani Steels reported a net Income from extra ordinary items of Rs. 31.53 crore. The net EO Income for the half year ended Sept'05 was on account profit on sale of shares of Kalyani Brakes.

Provision for tax (including deferred tax and fringe benefit tax) for the half year ended Sept’05 stood Rs 16.02 crore resulting in PAT of Rs 67.28 crore for the half year ended Sept'05, which was 458% higher when compared with corresponding periods last year.

Segment Results

Quarterly

For the quarter ended Sept’05 in sales revenue terms the Steel and Rolled products reported a fall of 12% to Rs 119.66 crore, while Hot metal and Pig Iron division reported a fall of 58% to Rs 58.08 crore. However the sales revenue of others segment grew exponentially to 31.6 crore.

For the quarter ended Sept’05 the PBIT before EO of the Steel and Rolled Products division reported a 78% growth and stood at Rs 23.56 crore while Hot Metal and pig iron division reported a rise of 373% to Rs 2.84 crore.

The EBITA margins for Steel and Rolled products division grew by 990 basis points to 19.7%, while the EBITA margins for the Hot Metal and pig iron division increased by 450 basis points to 4.9%.

Half yearly

For the half year ended Sept’05 in sales revenue terms the Steel and Rolled products reported a fall of 8% to Rs 238.28 crore, while Hot metal and Pig Iron division reported a fall of 61% to Rs 112.65 crore. However the sales revenue of others segment grew exponentially to 31.71 crore.

For the half year ended Sept’05 the PBIT before EO of the Steel and Rolled Products division reported a 115% growth and stood at Rs 45.22 crore while Hot Metal and pig iron division reported a rise of 112% to Rs 4.43 crore.

The EBITA margins for Steel and Rolled products division grew by 1090 basis points to 19.0%, while the EBITA margins for the Hot Metal and pig iron division increased by 320 basis points to 3.9%.

Other Developments

Kalyani Steels has entered into an arrangement with SJK Steel Plant (having a capacity to manufacture 250,000 TPA of Billets), for providing technical Consultancy to their plant located at Village Jambulapadu, District Ananthpur, Andhra Pradesh.

Outlook

Alloy Steel industry recorded a growth rate of over 10% from 1.88 MT (Million Tonnes) to 2.12 MT during the period 2004 -2005. The growth in the Alloy Steel Industry is directly linked with the growth in infrastructure of the country in general and the growth in auto and auto ancillary industry in particular. This year the auto industry is expected to grow around 10% while the auto ancillary industry is expected to grow around 13%.

Furthermore where the world is looking India as a destination of future auto and auto ancillary hub station, the demand of alloy steel is sure to rise and will continue irrespective of the cyclical swing in prices of the general steel industry, which reached its peak last year and is expected to ease up in the current financial year. Hence the expected healthy growth from the user Industry is expected drive the growth of Kalyani Steels.

On November 1, 2005 the closing price of Kalyani Steels was Rs 252.1.