MANAGEMENT DISCUSSION AND ANALYSIS REPORTOverview
The financial year (FY) 2010-11 saw the Indian economy rapidly emerging from theslowdown caused by the global meltdown in 2007-09. As per Advanced Estimates of theCentral Statistics Office, the economy grew by 8.6 percent in 2010-11. The gross domesticproduct (GDP) at constant market prices showed an upswing of 9.7 percent in 2010-11. SIELsaw through this challenging period has achieved healthy growth in sales and profitabilityand is poised to emerge as a stronger Company to deliver enhanced shareholder value overthe coming years. Your Company registered a stable performance during 2010-11 with almost1.5 times growth in revenues to Rs 8058.48 million, almost 3 times growth in EBIDTA to Rs.421.99 million, 2 times in PBT to Rs.388.44 million and 3.5 times rise in PAT to Rs.365.36 million.
Industry Structure & Developments
Steel Industry Overview
The Steel Industry has entered into the current fiscal on a promising note. Based onthe estimates and studies, the India's steel industry will record a compound annual growthrate (CAGR) of close to 10% during 2010- 13 in view of government proactive incentiveplans to boost economic growth by injecting funds in various industries,
such as construction, infrastructure, automobile, and power. Further, Steel consumptionin India is expected to grow significantly in coming years as per capita finished steelconsumption is far less than its regional counterparts. India has already stepped up to bethe fourth largest producer of steel in the world with its total steel production of closeto 78 Million MT in 2011 and is aiming for the number two position by 2015. In the recenttimes, the Indian Steel industry has earned a central position in the global steel marketwith global acquisitions, continuous modernization, improving energy efficiency, andbackward integration into global raw material sources. On the whole, the outlook for thedomestic operating environment is positive, driven by robust growth in infrastructure,power, autos and construction.
Indian Steel Industry & Its Prospects
As per Ministry of Steel's annual report 2010-11, India continues to maintain its leadposition as the world's largest producer of direct reduced iron (DRI) or sponge ironduring January-December 2010, a rank it has held on since 2002. During April -December2010: production for sale was at 47.30 million tonne (MT), a growth of 7.9 per cent. Steelexports increased by 17.3 per cent as it reached an estimated 2.46 MT while steel importswere at an estimated 5.36 mt, a growth of 2.8 per cent during the same period. Domesticsteel consumption at 44.27 mt during April- December 2010 registered an increase of 8percent indicating a robust growth. Indian steel industry has come out of the slowdownthat affected its performance during 2008-09. Domestically, 2010 ended on a relativelybetter and encouraging note. Globally also there are signs of improvement in economicconditions and firming up of demand and prices.
Company Overview
Your Company is focused on its vision to emerge as a low cost producer of value addedSteel products with captive mineral resources and captive power. The Company is alsofocused on mining its own iron ore in order to improve margins & also to setup aBeneficiation Plant to exploit the resources.
Strategic Initiatives
• Project Expansion
Your Company has charted a vision for expanding the existing facility at Kottayi,Palakkad in Kerala to enhance the production capacity of Steel Ingots and Billets to 55440TPA & Rolling Mill plant with Capacity 74250 TPA. The plan is to raise the total Steelproduction of the Company to 0.13 million TPA over the next few years and provide thefoundation to maintain high quality growth and enhance value creation for itsshareholders.
• Acquisition Of Integrated Steel Plant
As a part of its forward integration strategy, your Company is poised to seize theopportunities in the Iron & Steel Industry (both for steel & intermediary saleableproducts) through its Acquisition of Integrated Steel Plant. Company is strengthening'sits raw material linkages, technology edge and management expertise. These opportunitieswill be linked directly to the growing demand from the automobile and auto components,infrastructure, construction and power sectors. The Target Company was engaged in themanufacturing of Carbon Steel Forging and also in the business of manufacturing spongeiron, steel and steel rolled products like billets, blooms, bars etc. & has alsoforging and machining facilities to manufacture steel flanges, bearing races, rings, etc.It is an integrated steel plant having capability to manufacture products across theentire value chain of steel from sponge iron to forged and machined products.
• Acquisition Of Iron Ore Mines
Your Company has also taken necessary steps for securing its raw material requirementsand integrating backwards into mining of Iron Ore, Coal and Chrome Ore. SIEL in talks toacquire 50% stake, in Buxwaha Iron Ore mine spread over 150 Hectares in Chattarpur area ofMadhya Pradesh, India. The mining division has its iron ore operations in the mineral richChattarpur belt of Madhya Pradesh. The mines have a substantial resource base of superiorquality iron ore with high Fe (iron) content and bulk density. The Fe content variesbetween 63 to 66 per cent, which makes it one of the best quality materials available inthe country. SIEL Mining will hold a leading position in the Indian mining industry forits superior mining techniques, equipment, and scale and flexibility of operations andsystems. The potential of the proven deposit, as well as the quality and quantity ofreserves, are good enough to sustain the mining operations for the next 20 years at thecurrent operating capacity. The main products are:
Calibrated iron ore lump - inputs for steel making through the DRI/BF process
Iron ore fines - inputs for sinters and pellets, used for making steel
The mining operations are mechanized, adopting state-of-the-art technology andequipment namely hydraulic drifter, in-pit crusher, cone crushers and mobile crushers.Flexibility in operations enables the division to maximize the utilization of resources,as well as cater to the needs of diverse customers.
• Setting Up Of An Beneficiation & Pelletization Plant
Your Company is planning to set up a Beneficiated & Pelletizing plant with aninstalled capacity of 12,00,000 TPA in area of Gujarat, India for Agglomeration ofbeneficiated and ground iron ore into spherical shaped green balls and subsequent heathardening them is termed as Pelletizing. Pellets thus produced to desired physical andchemical properties are much superior to the conventionally sized iron ore lumps. Iron orePellets are in very high demand. No difficulties are foreseen regarding its marketability.Indeed, Iron Ore Pellet fills a long standing demand and supply gap in the steel industryby use of abundant and easily available iron ore fines which otherwise find no buyer inIndia. The demand of high quality sized iron ore is ever increasing and constantly echoedat various apex bodies. Moreover, Pelletizing units are using low grade iron ore availablein abundance. The company has also acquired adequate land near to mines for setting up ofa Beneficiation & Pellatization plant for exploiting the mining operations &maximizing profits.
• Entering Into Solar
Your Company as a group is diversifying by going into manufacturing of solar gradeSilicon ingots and bricks, which are the vital component of Solar cells. With the dying ofnatural resources, solar energy, though in its infancy still, has enormous potential to bethe leading energy supplier in the near future. In this regard, we have taken a fewpositive steps in assessing about the need, the resources available and various otherfactors which would influence the setting up of a manufacturing facility for Siliconingots and bricks. In this regard a lot of groundwork has gone into the appraisal ofvarious parameters and the requirements for setting up such a facility, Such as thecompany have established contact and have gone into various contracts with leadingmanufacturers of equipments required for the facility like GT Solar, Centrotherm, ALDVacuum Tech., Schmid Silicon, Cyberstar and various other reputed conglomettes & havedetailed our project to them and have received instructive quotations and estimatesregarding the equipments. We have also visited colossal industrial fairs and exhibitionscatering to ad hoc Solar technology and its allied fields and have received a great dealof information after meeting up with the industry personnel at the fairs in Shanghai inChina and San Francisco in USA and Ontario, Montreal and Bencouver in Canada where we haddefinite discussions with industry and ministry officials in Ontario and Quebec districtsin Canada. We had also talked about the establishment of our project in their locality(which is very business advantageous) and we had many conclusive possible funding andventure capital from the Government. We have aproposition for collaboration with aconglomerate name Calisolar there in setting up of their Polysilicon production plant.This will give us a leading edge in Supply chain management environs, as upgradedPolysilicon is the raw material and at the same time we will procure the ingotmanufacturing furnaces. Thus in a nutshell this is the description of the future plans fora probable expansion and diversification into this vastly emerging solar energy industry,by fist charting ahead with a solar ingot and brick manufacturing plant, with Canadiancollaboration. The Company had also signed a MOU with Gujarat Govt. in 'VIBRANT GUJARAT2011' for a capital Expenditure to tune of Rs 50000 Millions.
• Buisness Operations
With an view to expand the Buisness operations, SIEL has opened three branches acrossthe country & also floated a foreign subsidiary in the name of "SIEL FZE" toexploit the Global oppurtunities which inturns boost the operations and maximize thewealth of shareholders.
Segment-wise Performance And Outcome
The company is in the business of Manufacturing & Trading of Steel Items and henceoperates in a single business segment. Performance of the company has been dealt with inthe Directors' Report.
Outlook
With continued focus of the government on the infrastructure development & Powersector, the consumption of steel is expected to increase, which is expected to translateinto demand growth for sponge iron and finished steel in form of rods, bars and wires.Domestic demand is also expected to remain robust because of sustained growth of majorsteel consuming sector such as construction, infrastructure and capital goods, barringtemporary decline in the growth due to collapse of global financial markets.
Internal Controls
The company has in place an adequate and appropriate system of internal control,commensurate with its size and nature of business to ensure efficacy of operations andcompliance with applicable legislations. The company has comprehensive budgetary controlsystem. The management regularly reviews actual performance. The company has well definedorganization structure, clear authority levels and detailed internal guidelines forconducting business transactions. Besides this, the company has Audit Committee of theBoard which periodically review the audit plans, evaluates the observations andrecommendations of the internal and external auditors with reference to significant riskareas and adequacy of the internal control systems.
• Developments In Human Resources & Industrial Relations
Your Company recognizes the fact that manpower is one of the vital constituents of asuccessful organization. The growth of your Company and execution of new projects placesemphasis on the recruitment process and your Company has been successful in attractingprofessional talent.
Cautionary Statement
Statements in this "Management Discussion & Analysis" describing theCompany's objectives, projections, estimates, expectations or predictions may be 'forwardlooking statements' within the meaning of applicable securities laws and regulations.Actual results could differ materially from those expressed or implied. Important factorsthat could make a difference to the Company's operations include global and Indian demandsupply conditions, finished goods prices, input availability and prices, cyclical demandand pricing in the Company's principal markets, changes in Government regulations, taxregimes, economic developments within India and the countries within which the Companyconducts business and other factors such as litigation and labour negotiations.