MANAGEMENT DISCUSSION AND ANALYSIS REPORT INDUSTRY STRUCTURE
Volatility due to speculation has become part of business activities and steel industry
world over is no exception to this which became evident during the year 2008-09 when price
of all the steel products and it's inputs increased to unprecedented high level (viz. H.R.
Coils to approx. US $ 1200 per MT) only to get corrected to a realistic level (of US $ 450
per MT) during the second half of the year. Such steep fall in prices coupled with
recession in developed countries/continents forced various international prime steel
manufacturers to cut down their productions. Consequently world steel production presently
has been curtailed down by approx.20% from its peak of 2007-08.
It also brought to the focus, need for widening of the product base and facilities to
produce value added products for each class of steel manufacturers. Steel industry in
India is an integrated part of World Steel Industry not only because of availability of
natural resources required for it but also because of the fact that various Indian
entrepreneurs have acquired during last 2/3 years well established steel manufacturing
unit world over and vice versa, which is sharpening technology and capability of Indian
steel industry. Infrastructure development of the country coupled with high targeted
spending by the Government to boost the economy would accelerate the domestic demand of
steel; a key input for the growth and at the same time Indian Steel Manufacturers have
established themselves as a reliable source for supply of quality steel products World
Over.
To sum up, steel industry in India is poised for a high growth at least during the next
10 years keeping in view low per capita of consumption of steel in India and competitive
edge enjoyed by them in supply of the steel World over.
Steel production in India during the last year has increased from 50 to 52 million
tonnages, a growth of 4% whereas consumption has increased by 9% to 54 million tonnages
and is further expected to increase to 124 million tonnages by year 2012. In India, demand
is accelerating faster than the production capacities, which would provide ample
opportunity for entrepreneurs to grow.
THREATS & RISKS
Timely availability of its main raw material from Indian sources is emerging as a major
constraint for the company to improve its capacity utilization as demand of steel i.e.
H.R. Coils in India is growing faster than production capacity. To overcome the same a
policy decision has been taken to meet part of its requirement by import and adequate
steps have already been taken.
Integration of prime steel manufacturers to produce value added products i.e. Cold
Rolled Steel & Galvanized Cold Rolled Steel exposes the company to severe competition
and to overcome the same company has undertaken to produce more specialized steel products
i.e. Black Tin Plate & Narrow Steel products of medium and high carbon content by
implementing the Narrow Mill Project.
Steel being one of the essential commodities of development; is always subject to risk
of rules and regulations of Government by tariff and non tariff barriers. Being an export
oriented company; it is also subjected to exchange fluctuation risk, both of which are
being managed prudently.
The Board of Directors is being informed periodically in respect of risk assessment and
steps being taken by the company to mitigate the same.
(A) REASONS FOR LOSS OR INADEQUACY OF PROFIT
(I) Steep increase in prices of raw material viz. H.R. Steel Coils during first six
month of the year could not be passed on to customer completely and also it's restricted
availability adversely affected the capacity utilization to 69%.
During the 3ra quarter of the year prices of H.R. Coils steeply crashed from approx.
US$ 1200 PMT to US $450 PMT resulting into inventory valuation loss of approx. Rs.8.5
Crores, which could not be recovered till year end as prices and sentiment remained
subdued till year end.
(II) Due to turmoil in financial market world over, interest & financial cost has
increased during the year in comparison to previous year which could not be recovered
fully.
(B) STEPS TAKEN FOR IMPROVEMENT
(i) During the year Company is supplementing the present domestic sourcing of it's main
raw material namely H.R. Coils by imports which would help to improve capacity
utilization, in turn profitability of the company.
(C) New project of Narrow Mill expected to be commissioned during second
half of the year would widen the product-mix of the company, adding further to capacity
utilization.
FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
During the period under review, the company produced 74933 MT of Cold Rolled Steel and
36657 MT of Galvanized Steel in comparison to 91,705 MT and 42,592 MT, respectively in the
previous year, which includes job work of 1469 MT of Cold Rolled Steel against 23456 MT in
previous year.
Keeping in view average thickness & width of material produced during the year
excluding the Job Work, the capacity utilization of plant improved by 5 % to 69 % against
64 % in previous year which could not improve further due to high volatility
&restricted availability of its main raw material viz. H R Steel Coil.
Export continues to be thrust area and during the year, the company exported good worth
Rs. 29779 Lacs approximately 77 % of the total prime sales against Rs. 25059 Lacs, 80 % of
the total prime sales of the previous year.
INTERNAL CONTROL SYSTEM AND THEIR EFFICACY
Your Company continues to be committed to ensure an effective internal-control
environment that provides assurance on the efficiency of operations and to safeguard its
assets. Further, in the context of the growing complexities in business, increased
attention is being paid to audit processes, to risk management and related control
systems. The Internal Audit Department reports to the Audit Committee through Dy. Managing
Director and continuously monitors adherence to laid-down systems and policies through a
structured internal audit process. To maintain the highest level of independence of the
function, internal audits are outsourced to internal audit firm of international repute,
while in-house team concentrates on strategic issues like system adequacy reviews and
internal controls.
The internal control systems are being further geared up in keeping with the Company's
philosophy on Corporate Governance, which envisages the attainment of the highest levels
of accountability, transparency, responsibility and fairness in all facets of its
operations and in its relationship and interaction with all its stakeholders.
STATUTORY COMPLIANCES
After obtaining confirmation from the various departments of the Company in respect of
compliance with all the statutory requirements, a declaration regarding compliance of the
provisions of various statutes is made by the Dy. Managing Director at each Board Meeting
and deviations, if any, are brought to the notice of Directors with reasons and remedial
measures taken to comply the same. The Asst. Company Secretary, as a Compliance Officer,
ensures compliance of the SEBI Regulations and provisions of the Listing Agreement.
QUALITY
In today's global competition and open economy, quality plays a vital role in marketing
the products and in staying ahead of others. Therefore more emphasis is being given to
manufacturing of products that meets high standards of quality in the global market and
customers' satisfaction. Proactive efforts are directed towards determining customers'
requirements and achieving all-round customer satisfaction. This is primarily achieved
through automated systems, high attention to complaint resolution, online communication
and information exchange, at various levels.
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS
Industrial relations had been cordial throughout during the year under review. The
Company created HR environment, which fosters, speed and ability in responding to the
changing environment by learning and innovation to survive and prosper. A relatively young
and technically qualified work force has helped the organization to create an atmosphere
of mutual trust and high degree of motivation amongst them. Further, regular induction of
talent from reputed institutes, multi-skilling through training, planned job rotation and
cross-functional team activity has been established as a process.
The Company regularly organizes housekeeping competition for ensuring cleanliness and
conducive environment at the work. Further, the Company encourages individuals to go
beyond the scope of their work, undertake voluntary projects that enable them to learn
more and contribute innovative ideas in meeting goals of the company.
CAUTIONARY STATEMENT
Statement in this management discussions and analysis detailing the Company's
objectives, projections, estimates, expectations or predictions may be "forward
looking" statements within the meaning of applicable laws and regulations. Actual
results may differ materially from those expressed in the statement. Important factors
that may influence your Company's operations include Global and domestic supply and demand
conditions affecting selling prices, input availability and prices, changes in Government
policies, regulations, tax regimes, economic development within and outside the country
and other allied factors. The Company assumes no responsibility to publicly amend, modify
or revise the forward looking statement on the basis of subsequent developments,
information or events.