MANAGEMENT DISCUSSIONS AND ANALYLSIS
A. Industry structure and developments:
Significant progress has been made in India towards an integrated approach of steel
making which uses sponge iron, hot metal and waste energy based power. Sponge iron is
produced with indigenous technology where non-coking coal is used as fuel. Waste heat is
generated during sponge iron production in the kiln operations which is used for
generating power. A significant quantity of long products used in the infrastructure
industry, is supplied by this industry. OSIL's own sponge iron making technology i.e.
'OSIL PROCESS' is used for own sponge iron production.
Capacity utilization of the rotary kiln used for sponge iron production depends on the
quality and quantity of the coal charged into the kiln. Usage of inferior quality Indian
coal with high ash content may restrict capacity utilization and to offset the same, it
may be necessary to import a part of the total coal requirement. Indigenous coal after
washing also improves average quality of coal. Different combinations of various inputs
and its costs are required to be closely monitored and evaluated constantly to cope with
the ups and down in the Commodity Market.
B. Opportunities, Threats and Risks:
Per capita consumption of steel in India is still very low and demand for steel in
India is growing. Opening up of economy and governmental efforts for improving
infrastructural facilities will lead to greater demand for steel in India.
Grant of iron ore mining and allotment of coal block to the Company will, in future,
ensure smooth and consistent supply of basic two raw materials i.e. iron ore and coal
which will enable the Company to reduce input costs of raw materials and consequent
reduction in the total cost of production.
ii) Threats and risks:
Movement of raw materials and finished goods faces bottleneck because of inadequate
infrastructure i.e. rail and road coverage in the area where your Company operates. Road
condition around the Plant has deteriorated over the last 4/5 years and poor road
condition has led to disproportionate increase in the cost of inputs. Keonjhar
Infrastructure Development Co. Ltd. (KIDCO), a SPV formed among the local Sponge Iron
Industries and Mine Owners, is engaged in building good quality road from the iron ore
mining area to Palaspanga. Rail link from Barbil to Paradeep (single line) is also now
available for raw materials and finished goods movement.
Increased cost and poor quality of raw materials as well as inadequate battered road
remain a bottleneck.
Price of sponge iron is sensitive to demand-supply position of steel scrap as well as
selling price of long products. Slow down in the economy also affects the margin
C. Internal Control System and its adequacy:
The Company has a proper and adequate system of Internal Control commensurate with its
size and nature of operations of the Company. It provides reasonable controls that all
assets are safeguarded, transactions are authorized, recorded and reported properly.
Internal Audit Department conducts audit on various activities of the Company and reports
to the Audit Committee constituted by the Board. Audit Committee meets regularly during
the year to review the audit issues and to follow up implementations of corrective
actions. Shareholders'/Investors' grievances are promptly dealt with and
Shareholders'/Investors' Grievance Committee, constituted by the Board, meets once in a
D. Material Development in Human Resources and the Industrial Relation Front:
Industrial relation remains cordial during the year. To meet evergrowing competition in
the market, it is necessary to have efficient work force. The same is ensured through
continuous training. Safety standards are maintained at every stage of manufacturing,
production and maintenance.
Company's target is to achieve a growth of one million tonne of steel making by
utilizing captive iron ore and coal. This will create wealth for the shareholders.
F. Cautionary Statement:
The Management Discussions and Analysis describing Industry Structure, Developments,
Opportunities, Threats etc. aims at a forward looking approach based on present applicable
Laws & Regulations. Actual Results may differ from such expectations, projections etc.
whether expressed or implied. Important factors that can influence and can make a
difference in Company's operations include effect of demand and supply leading to price
differentials in both domestic and international markets, changes in the regulations, tax
laws and other statutes and other factors like infrastructure facilities, natural
calamities etc. over which the Company do not have a direct control.