http://www.pennarindia.com/turnaround-story.

asp The recession of the nineties had adverse effects on the Indian economy and also affected global businesses. During those troubled times, industries and reforms were tested, and so was Pennar. But as they say, when the going gets tough, the tough get going. We also got tougher and embraced the economic challenge with a clear approach and a dedicated team. We adopted a three pronged strategy of business transformation, financial restructuring and productivity improvements that empowered us to make a remarkable turnaround from the downturn during the economic recession of the nineties to highest ever sales in the year 2005-06. Here is how we tackled the recession and managed to turnaround the events in our favour: The Growth Period We began our industrial journey in 1988 by setting up a Cold Rolled Steel complex on a 26 acre site at Isnapur near Hyderabad with a capacity of 30,000 metric tonnes per annum. In the very first year of operation, we achieved cash profits and followed it up with profits and dividend in the second year. Buoyed by continuous growth in turnover and profitability, we expanded our capacity to 50,000 metric tonnes per annum. Liberalization and globalization of the Indian economy unleashed competitive forces. We felt that need to have a higher capacity to achieve economies of scale and diversified product mix. Consequently, we merged with Nagarjuna Steel plant located on a 43 acre site at Patancheru near Hyderabad in 1997. This resulted in increase of production capacity to 142,000 MTPA and a diversified product mix consisting of cold rolled steel, cold formed profiles and pressed components. The Downturn Though the merger of Nagarjuna was a sound business decision, it coincided with the recession in the Indian economy and the steel sector in particular from 1998 to 2002. The competition in commodity cold rolled steel intensified with increase in domestic capacity and due to imports. The finances of the company were also stressed. The Company's operations and margins were under pressure, resulting in the sales turnover decreasing to Rs. 76 Crores in FY'02 from a high of Rs. 320 Crores achieved in FY'98. The Turnaround In a span of just four years from 2002 to 2006, we achieved a remarkable turnaround with profits in five successive quarters starting March 2005. Sales zoomed to Rs.647 Crores in the 16-month period ending 2006 (Annualized amount Rs.485 Crores). The gross profit (EBIDT) for the period was Rs. 50 Crores and the operating profit was Rs. 26 Crores. After accounting for remission of loan due to financial restructuring mounting to Rs. 23 Crores, the profit before taxes (PBT) was Rs. 49 Crores. We earned a net profit (PAT) of Rs. 41.6 Crores resulting in annualised Earning per Share (Rs. 5/-) of Rs. 3.74. The Turnaround Strategy A dedicated and committed management team crafted the turnaround by adopting a threepronged strategy of business restructuring, productivity improvements and financial restructuring. Business Restructurin 1. To reduce the risk in the business, we shifted focus from commodity cold rolled steel to value-added steel products. The proportion of value-added products to total sales was improved from 20% to 50%.

2. New business segments were developed including Electrostatic Precipitators (ESP), PreEngineered Building Systems, Tube products, Road Safety Systems, Railway Coach Profiles. 3. We began exporting products as Pennar was selected as a global source for F.L.Smidth, Denmark and Hammon Research & Cotrell of Belgium for the steel profiles used in Electro Static Precipitators. 4. We also set up fabrication facilities for supplies to Industrial buildings, ESP's and seed processing plants. 5. Special efforts were made to develop manufacture of components for the Auto and White Goods Sectors. 6. Focused marketing efforts - strong relationships were forged with prestigious customers like Tata Motors, Ashok Leyland, ICF, BEML, L&T, Thermax, ABB, and ACC who are giving continuous business to Pennar. Productivity Improvements 1. Improvement in manufacturing operations resulted in productivity increases across many of the areas. Yield improved from 87% to 92%. The power consumption was reduced resulting in energy savings. Machine utilization was improved significantly. 2. Improved quality with ISO 9001:2000 certifications for the rolling forming and components divisions. 3. Post-merger, manpower was rationalized and productivity was improved. Training imparted in various technical and operational areas. Manpower motivation and commitment was always high and IIM, Ahmedabad has made a Case Study of the company's restructuring with the full cooperation of the workforce. 4. Improved management of inventories and receivables resulted in better productivity of working capital. Financial Restructuring In early 2004, the Corporate Debt Restructuring Forum (CDR) approved a restructuring scheme which resulted in reduction of interest rates and also reduced debt through a one-time settlement with some banks. Induction of additional equity further reduced the leverage. Even though the Company successfully implemented the CDR Scheme, we still had large amount of long-term debt and the solution lay in replacing it with a combination of equity and debt. Accordingly, in July 2006, we restructured the debt for a second time with the induction of foreign investors who brought in Rs. 122.4 Crores. This amount was used to retire the long-term debt and for capital expenditure required for the new plant near Chennai. Environment The company conforms to all the norms with regard to water and air pollution. We have also put up a waste water recycling plant to conserve water resources. In addition to maintaining excellent employee relations and industrial harmony, we have given a helping hand to the neighbouring village of Bandalaguda in the setting up of a primary school and a place of worship. Expansion/Diversification Even during the revival period, Pennar was open to new opportunities and acquired the Press Metal profiles division of the Tube Investments Group (TI). This plant located at Tarapur near Bombay was helpful in sourcing supplies to Tata Motors and Eicher Motors. In order to service the growing auto sector and the Rail Coach Factory based in Chennai, our fourth facility is being set up on a 35 acre site near Chennai. The new plant will produce value-added profiles and components for the automobile and railway sectors. Outlook for the Future

With the fundamentals of the economy remaining strong and the requirement for materials in the Auto industry, Railways and Building Industries expected to increase, the outlook for the demand for our products is very encouraging. In view of the financial restructuring undertaken by us and with the strategic association of foreign investors, we intend to diversify further in the domestic markets while also forging international linkages to take Pennar beyond the Indian shores. The overall strategy to increase turnover as well as profitability is as follows: Increase the proportion of value added niche steel products and reduce the quantum of commodity cold rolled steel Focus on heavy engineering products through the enhanced manufacture of wider range of products for railway wagons and coaches Manufacture of auto components Increase the quantum of exports for which a beginning has been done Inorganic growth through acquisitions of companies in allied fields Focus on pre-engineered steel buildings which have high potential due to large scale investments in infrastructure