A. ECONOMIC OVERVIEW:
i. INDIAN ECONOMY
Steel is one of the worlds most innovative and essential
materials. Steel is infinitely recyclable and exceptionally strong and offers an array of
sustainable benefits. Since it is produced in every region of the world, steel generates
jobs and economic growth. The growth in the Indian steel sector has been driven by
domestic availability of raw materials such as iron ore and cost-effective labour.
Consequently, the steel sector has been a major contributor to Indias manufacturing
output.
The Indian steel industry is modern with state-of-the-art steel mills.
It has always strived for continuous modernisation of older plants and up-gradation to
higher energy efficiency levels. Indian steel industry is classified into three categories
- major producers, main producers and secondary producers.
Steel is a product of large and technologically complex industry having
strong forward and backward linkages in terms of material flows and income generation. It
is also one of the most important products of the modern world and of strategic importance
to any industrial nation. From construction, industrial machinery to consumer products,
steel finds its way into a wide variety of applications. It is also an industry with
diverse technologies based on the nature and extent of raw materials used.
India is the worlds second-largest producer of crude steel. The growth
in the Indian steel sector has been driven by the domestic availability of raw materials
such as iron ore and cost-effective labour. Consequently, the steel sector has been a
major contributor to Indias manufacturing output.
In FY22, the production of crude steel and finished steel stood at
133.596 MT and 120.01 MT, respectively. The consumption of finished steel stood at 105.751
MT in FY22. Between April-December 2022, Indias finished steel consumption stood at 75.34
MT. In April-July 2022, the production of crude steel and finished steel stood at 40.95 MT
and 38.55 MT respectively. In FY23 (until January 2023), the exports and imports of
finished steel stood at 5.33 MT and 5.00 MT, respectively. In FY22, exports and imports of
finished steel stood at 13.49 MT and 4.67 MT, respectively. In FY22, Indias export rose
by 25.1% YoY, compared with FY21 i.e. 9.49 MT of finished steel.
The annual production of steel is anticipated to exceed 300 million
tonnes by 2030-2031. By 2030-31, crude steel production is projected to reach 255 million
tonnes at 85% capacity utilisation achieving 230 million tonnes of finished steel
production, assuming a 10% yield loss or a 90% conversion ratio for the conversion of raw
steel to finished steel. With net exports of 24 million tonnes, consumption is expected to
reach 206 million tonnes by the years 2030-2031. As a result, it is anticipated that
per-person steel consumption will grow to 160 kg.
ii. GLOBAL ECONOMY
World Steel Association provided a comprehensive overview of steel
industry activities, stretching from crude steel production to apparent steel use, from
indications of global steel trade flows to iron ore production and trade. The World Steel
Association has released its Short Range Outlook (SRO) steel demand forecast for 2023 and
2024. World Steel forecasts that this year, demand will see a 2.3% rebound to reach
1,822.3 million tonnes (Mt). Steel demand is forecast to grow by 1.7% in 2024 to reach
1,854.0 Mt. Manufacturing is expected to lead the recovery, but high interest rates will
continue to weigh on steel demand. Next year, growth is expected to accelerate in most
regions, but deceleration is expected in China.
China produced 95.7 Mt in March 2023, up 6.9% on March 2022. India
produced 11.4 Mt, up 2.7%. Japan produced 7.5 Mt, down 5.9%. The United States produced
6.7 Mt, down 2.1%. Russia is estimated to have produced 6.6 Mt, up 0.4%. South Korea
produced 5.8 Mt, up 1.9%. Germany is estimated to have produced 3.3 Mt, down 0.5%. Brazil
produced 2.7 Mt, down 8.7%. Turkiye produced 2.7 Mt, down 18.6%. Italy produced 2.2 Mt, up
2.7%. Africa produced 1.4 Mt in March 2023, up 8.4% on March 2022. Asia and Oceania
produced 124.8 Mt, up 4.1%. The EU (27) produced 11.9 Mt, down 5.6%. Europe, Other
produced 3.5 Mt, down 14.1%. The Middle East produced 3.1 Mt, down 17.5%. North America
produced 9.3 Mt, down 2.6%. Russia & other CIS + Ukraine produced 7.6 Mt, up 3.0%.
South America produced 3.5 Mt, down 7.6%.
For the future, structural changes in a post-pandemic world will bring
about shifts in steel demand shape. The steel industry will see exciting opportunities
from rapid developments through digitisation and automation, infrastructure initiatives,
reorganisation of urban centres, and energy transformation. All at the same time as the
industry is responding to the need to produce low-carbon steel.
(Source: World Steel Association)
B. INDUSTRY STRUCTURE AND DEVELOPMENTS:
Iron and steel sector is the backbone of an economy. It is one of the
primary vehicles of economic development of a country. The per capita production and
consumption of steel is the index of the depth of a countrys economic
infrastructure. Increase in the use of iron and steel leads to infrastructure development
and rapid industrialization of the country.
The Indian steel industry has entered into a new development stage,
post de- regulation, riding high on the resurgent economy and rising demand for steel.
Rapid rise in production has resulted in India becoming the 2nd largest producer of crude
steel during 2018 and 2019, from its 3rd largest status in 2017. In a de-regulated,
liberalized economic/market scenario like India, the Governments role is that of a
facilitator which lays down the policy guidelines and establishes the institutional
mechanism/structure for creating conducive environment for improving efficiency and
performance of the steel sector.
In this role, the Government has released the National Steel Policy
2017, which has laid down the broad roadmap for encouraging long term growth for the
Indian steel industry, both on demand and supply sides, by 2030-31. The Government has
also announced a policy for providing preference to domestically manufactured Iron &
Steel products in Government procurement.
Steel industry and its associated mining and metallurgy sectors have
seen major investments and developments in the recent past. According to the data released
by Department for Promotion of Industry and Internal Trade (DPIIT), the Indian
metallurgical industries attracted Foreign Direct Investment (FDI) inflows of US$ 17.22
billion in the period April 2000-December 2022.
Some of the major investments in the Indian steel industry are as
follows:
• In a move towards becoming self-reliant, Indian steel companies
have started boosting steel production capacity. To this end, SAIL announced doubling of 5
(Five) of its steel plants capacity in September, 2020.
• The production capacity of SAIL is expected to increase from 13
MTPA to 50 MTPA in 2025 with total investment of US$ 24.88 billion.
• Tata Steel is planning to set up more scrap-based facilities
that will have a capacity of at least a billion tonnes by 2025.
• Tata Steel announced to invest 8,000 crore (US$ 1.08 billion)
in capital expenditure to develop operations in India in FY22.
• Arcelor Mittal announced to invest 1 lakh crore (US$ 13.48
billion) in Gujarat for capacity expansion.
• Tata Steel announced to invest 3,000 crore (US$ 404.46
million) in Jharkhand to expand capacities over the next three years.
• In a virtual roundtable conference organised by the Indian
Chamber of Commerce, Mr. Shin Bongkil, the South Korean Ambassador to India, announced
that POSCO, the South Korean steel giant, is planning to set up an integrated steel plant
in Odisha at an investment of US$ 12 billion, which would make it the countrys
biggest FDI project.
• 67 applications from 30 companies have been selected under the
Production Linked Incentive (PLI) Scheme for Specialty Steel. This will attract committed
investment of 42,500 crore (US$ 5.19 billion) with a downstream capacity addition of 26
million tonnes and employment generation potential of 70,000.
• In September, 2022, Steel Authority of India Limited (SAIL), a
Maharatna PSU, supplied 30,000 tonnes of the entire DMR grade specialty steel for the
nations first indigenously built Aircraft Carrier INS Vikrant.
• Tata Steel announced a CAPEX of 12,000 crore (US$ 1.50
billion) and recently signed an MoU with Punjab Government to set up a steel scrap based
electric arc furnace steel plant. • JSW Steel invested Rs. 150 billion (US$ 19.9
million) to build a steel plant in Jammu and Kashmir and boost manufacturing in the
region.
• Jindal Steel & Power Ltd. announced plans to invest US$ 2.4
billion to increase capacity over the next six years to meet the rising demand from
customers.
C. GOVERNMENT INITIATIVES:
The Government of India is aiming to scale up steel production in the
country to 300 million tonnes (Mt) by 203031. Some of the recent Government initiatives in
this sector are as follows:
• In October 2021, the government announced guidelines for the
approved specialty steel production-linked incentive (PLI) scheme.
• In June 2021, Minister of Steel & Petroleum & Natural
Gas, Mr. Dharmendra Pradhan addressed the webinar on Making Eastern India a manufacturing
hub with respect to metallurgical industries, organised by the Indian Institute of
Metals. In 2020, Mission Purvodaya was launched to accelerate the development of
the eastern states of India (Odisha, Jharkhand, Chhattisgarh, West Bengal and the northern
part of Andhra Pradesh) through the establishment of an integrated steel hub in Kolkata,
West Bengal. Eastern India has the potential to add >75% of the countrys
incremental steel capacity. It is expected that of the 300 MT capacity by 2030-31, >200
MT can come from this region alone.
• In January, 2021, the Ministry of Steel, Government of India,
signed a memorandum of Cooperation with the Ministry of Economy, Tarde and Industry,
Government of Japan, to boost the steel sector through joint activities under the
framework of India-Japan Steel Dialogue.
• Government introduced Steel Scrap Recycling Policy to reduce
import.
• Government of Indias focus on infrastructure and
restarting road projects is aiding the demand for steel. Also, further likely acceleration
in rural economy and infrastructure is expected to lead to growth in demand for steel.
• The Union Cabinet, Government of India approved the National
Steel Policy (NSP) 2017, as it intends to create a globally competitive steel industry in
India. NSP 2017 envisaged 300 million tonnes (MT) steel-making capacity and 160 kgs per
capita steel consumption by 2030-31.
• The Ministry of Steel is facilitating setting up of an industry
driven Steel Research and Technology Mission of India (SRTMI) in association with the
public and private sector steel companies to spearhead research and development activities
in the iron and steel industry at an initial corpus of 200 crore (US$ 30 million).
• In addition, enhanced outlays for key sectors such as defence
services, railways, roads, transport and highways would provide impetus to steel
consumption.
• Under the Union Budget 2023-24, the government allocated 70.15
crore (US$ 8.6 million) to the Ministry of Steel.
• In addition, an investment of 75,000 crore (US$ 9.15 billion)
(including 15,000 crore (US$ 1.83 billion) from private sources) has been allocated for
100 critical transport infrastructure projects for last and first mile connectivity for
various sectors such as ports, coal, and steel.
(Source: India Brand Equity Foundation)
Your Company is engaged in the production of TMT bars and Wire Rods
which are mainly used in the construction industry. As such, the outlook for your Company
is closely Unked to that of the steel, infrastructure and real estate industry and the
demand for TMT and Wire Rods in particular is influenced by the price & availability
of raw materials.
D. OPPORTUNITIES AND THREATS:
The outlook for the global economy were mostly positive with growth
picking up in the US, India and Southeast Asia, while several emerging markets are
experiencing a deceleration in growth. Further, countries and businesses are becoming
increasingly interdependent through trade, investment and financial systems across the
world. The risks and opportunities in the steel business are getting larger in scale and
impact, with their sources becoming more diverse and global. The businesses that ride the
next wave of growth will be those that understand the trends and refine their strategies,
business models and portfolios according to a truly global mind-set. The steel producers
must find the right balance between globalisation and customisation.
The steel industry is faced with dwindling investments, financial
market turbulence and geopolitical conflicts in many developing regions. The
industrys low-growth outlook will persist until other developing regions of
sufficient size and strength can support another major growth cycle. India has always been
seen as a potential for significant steel market expansion. There have been various
forecasts at different points, raising expectation of the steel industry and investors
about growth prospects of the industry.
India has enormous scope and untapped potential to increase steel
consumption in almost all sectors, especially in automobiles, engineering industries and
infrastructure development. The consumption of steel per capita in India in last five
years is much lower compared to the global average leaving significant headroom for
growth. Growing investments for infrastructure, rapid growth in the industrial sector,
increase in urban population and strengthening of rural steel market can raise the
countrys per capita steel consumption considerably. Indias GDP growth is
likely to move higher in the coming years due to compulsive focus by policy makers for
development of infrastructures & other sectors.
E. SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:
The company has identified iron & steel products as its sole
operating segment and the same has been treated as primary segment. The Company is mainly
involved in the production of steel related rolled products only.</p>
F. FUTURE OUTLOOK:
The National Steel Policy, 2017 envisage 300 million tonnes of
production capacity by 2030-31. As per Ministry of Steel, Government of India, the per
capita finished steel consumption in 2020 was 228 Kg for world and 691 Kg for China. The
same for India was 70 Kg (Source JPC) in 2020-21. So, there is much potential in Indian
steel industry in terms of home consumption itself.
The New Industrial policy opened up the Indian iron and steel industry
for private investment by (a) removing it from the list of industries reserved for public
sector and (b) exempting it from compulsory licensing. Imports of foreign technology as
well as foreign direct investment are now freely permitted up to certain limits under an
automatic route. Ministry of Steel plays the role of a facilitator, providing broad
directions and assistance to new and existing steel plants, in the liberalized scenario.
The liberalization of industrial policy and other initiatives taken by the Government have
given a definite impetus for entry, participation and growth of the private sector in the
steel industry. While the existing units are being modernized/expanded, a large number of
new steel plants have also come up in different parts of the country based on modern, cost
effective, state of-the-art technologies. In the last few years, the rapid and stable
growth of the demand side has also prompted domestic entrepreneurs to set up fresh
Greenfield projects in different states of the country.
As per Indian Steel Association (ISA), steel demand will grow in coming
years. Huge scope for growth is offered by Indias comparatively due to low per
capita steel consumption and the expected rise in consumption due to increased
infrastructure construction and the thriving automobile and railways sectors.
G. RISKS AND CONCERNS:
The Company follows a well-defined and exhaustive risk management
process, which is integrated with its operations. This enables the company to identify,
categorize and prioritised operational, financial and strategic business risks. Across the
organization, there are teams responsible for these processes who report to the
management. The risks are prudently evaluated and necessary preventive steps or actions
are taken to mitigate these probable risks.
In the context of the steel operations, although our country has rich
and abundant resources of the key inputs for steel making, namely iron ore and coal, the
mining sector in the country has witnessed severe obstacles in the past few years on
account of regulatory and environmental issues, which has severely affected the
development and opening up of new mines. The biggest challenges before any steel company
remain to be the tie up of interrupted supplies of coal and iron ore on one hand and the
fear of glut of cheap imports from countries like China, Korea and Japan on the other.
Risk Management comprises of three key components as below:
i) Risk Identification
ii) Risk assessment and its mitigation
iii) Risk monitoring and its assurance
Your Company has identified the following aspects as the major risks
for its operations:
i. Industry Risk
Demand is dependent on general economic conditions. A downturn can
affect business and earnings. The low per capita steel consumption in India coupled with a
large population base provides significant growth opportunities to the iron and steel
industry. The urgent need towards infrastructure creation and surging consumption growth
are visible opportunities that will drive iron and steel demand.
ii. Raw Material Risk
Inability of the Company to procure right quality and quantity of raw
material at right price could affect business sustainability. Further, the requirements
can partly be mitigated by supply from the related companies(s).
iii. Regulatory Risk
The Companys business could be affected by potential regulatory and
judicial actions.
iv. Operational Risk
The Companys business is prone to high proportion of fixed costs
and volatility in the prices of raw materials and energy. Mismatches between trends in
prices of raw materials and steel, as well as limitations on or disruptions in the supply
of raw materials, could adversely affect its profitability. Further, the industry is
highly cyclical and a volatility in steel prices may adversely impact its financial
condition. The Companys operations and financial condition could be adversely
affected if it is unable to successfully implement its growth strategies. However the
Company aims to mitigate these risks through development of well-structured processes for
effective project planning & management.
v. Health, Safety and Environment Risk
Your Company is firmly committed to conservation of natural resources;
reduction of emissions and discharges to the environment and preservation of bio-diversity
in all its operations.
The manufacture of steel involves steps that are potentially hazardous
if not executed with due care. The Company maintains the highest safety standards within
its operating units and is an ISO certified (ISO 9001:2015, 14001:2015 & 45001:2018)
organization. Further, there are team of professionals who conducts regular training
programs to implement the concept of maintain safe operations among the employees and to
educate the team on safety norms and procedures to be followed in an unfortunate
situation. This is progressively taking the Company towards achieving the target of Zero
Accidents. Company continues to adopt best safety practices which have resulted into a
reduced accident and severity rate.
H. KEY CHALLENGES:
The constant fluctuations in price of raw materials and weak steel
prices have put significant pressure on steel margins. However, steel manufacturers have
been working hard to become competitive in other ways. They have been taking several steps
to gain more control of their raw material pricing, while cost-cutting has led to
production cuts in some regions. Several steel manufacturers are also investing a
considerable amount of money into R&D for differentiating their products from other
players in the market.
I. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
The Company has a well-established internal control framework, which is
designed to continuously assess the adequacy, effectiveness and efficiency of financial
and operational controls. The management is committed to ensure an effective internal
control environment, commensurate with the size and complexity of the business, which
provides an assurance on compliance with internal policies, applicable laws, regulations
and protection of resources and assets. The Audit Committee of the Board oversees the
adequacy of the internal control environment through regular reviews of the audit findings
and monitoring implementations of internal audit recommendations through the compliance
reports submitted to them. The Statutory Auditors of your Company have opined in their
report that your Company has adequate internal controls over financial reporting.
J. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL
PERFORMANCE:
The financial year 2022-23 is overall a good year for Indian steel
makers in spite of several challenges. With the increase in government investments in
infrastructure as well as demand from other structural sectors, domestic steel prices have
been fetching good prices. Thus, the overall profitability of the Company is increased.
The overall state of affairs of the Company keeping in mind the present market scenario of
iron and steel industry is satisfactory.
K. HUMAN RESOURCES/INDUSTRIAL RELATIONS:
As the Company is moving towards consumer centricity, it is vital to
keep the people motivated and constantly aligned to the business vision. The
Companys human resource philosophy mainly focussed on empowering employees with
essential skills and endowed them with aspirations.
Your Company considers its employees as the most valuable resource and
ensures the strategic alignment of human resource practices to business priorities and
objectives. Your Company strives to provide a conducive and competitive work environment
for all its employees to excel and create new benchmarks of work culture, employee
engagement, productivity, effectiveness, efficiency and customer delight. Human Resources
Department ("HRD") works continuously for maintaining healthy working
relationship with the workers and other staff members.
The underlying principle is that workers and staff at all levels are
equally instrumental for attaining the Companys goals. Training programmes are
regularly conducted to update their skills and apprise them of latest techniques. Senior
Management is easily accessible for counselling and redressal of grievances if any. There
are 209 number of permanent employees employed in your Company as on 31st
March, 2023. Employees are your Companys most valuable asset and your Companys
processes are designed to empower employees and support creative approaches in order to
create enduring value. The HR Department strives to maintain and promote harmony and
co-ordination amongst workers, staff and members of the senior management.
L. DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS
COMPARED TO IMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS, ALONG WITH
DETAILED EXPLANATION:
S. No. Key Financial Ratios |
2022-23 |
2021-22 |
Change(%) |
Explanation |
1 Debtors Turnover (Number of
Times) |
23.32 |
11.94 |
95.31 |
With the
efficient Receivable management Policy, the Company is able to achieve smooth and timely
realization of payment from Debtors within allowable credit period and even with the
increase in turnover, the Company was able to reduce the outstanding amount of Trade
Receivables. Thus, the ratio gets improved. |
2 Inventory Turnover (Number
of Times) |
14.30 |
12.52 |
14.23 |
NA |
3 Interest Coverage Ratio (Number
of Times) |
3.38 |
3.04 |
11.14 |
NA |
4 Current Ratio (Number of Times) |
2.75 |
3.13 |
(12.17) |
NA |
5 Debt Equity Ratio (Number of
Times) |
0.32 |
0.33 |
(3.21) |
NA |
6 Operating Profit Margin (%) |
1.64 |
2.07 |
(21.09) |
NA |
7 Net Profit Margin (%) |
0.66 |
0.66 |
0.40 |
NA |
8 Return on Net Worth |
0.04 |
0.03 |
31.65 |
Due to improvement in profit,
the ratio gets improved. |
M. ENVIRONMENT & SAFETY:
Your Company has always believed in an integrated approach for
embedding environment in sustainable business goals & has continually focussed on an
effective Environmental Management System. The Company has integrated the environmental
concerns and decision making towards achieving its goals. It has taken effective steps to
spread environmental awareness among its employees and has always encouraged them to work
in an environmentally responsible manner to fulfil the environmental commitment of the
Company towards its clients, customers & the public. Company has insisted on
consistent improvement in the environmental performance by minimizing the social impact
and damage to environment by periodically reviewing the environmental policy of the
Company in light of its current and planned future activities. Some of the key areas
towards fulfilment of its environmental responsibility are management of natural
resources, energy management, carbon emission reduction, conservation of water resources
& waste management. The Company is committed to provide a safe and healthy workplace
to its employees by operating in compliance with all relevant environmental legislation
and by adopting the environmental best practices.
N. CAUTIONARY STATEMENT:
Statement in this "Management Discussion and Analysis"
describing the Companys objectives, projections, estimates, expectations or
predictions may be "forward looking statements" within the meaning of applicable
securities laws and regulations. Actual results could differ materially from those
expressed or implied in the Report. Important factors that could make a difference to the
Companys operations include global and Indian demand and supply conditions, finished
goods prices, input materials availability and prices, cyclical demand and pricing in the
Companys principal markets, changes in Government regulations, tax regimes, economic
developments within India and the countries within which the Company conducts business and
other factors such as litigation and labour negotiations. The Company assumes no
responsibility to publicly amend, modify or revise any forward looking statements, on the
basis of any subsequent development, information or events or otherwise.
O. DISCLOSURE OF ACCOUNTING TREATMENT:
Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting
Standards adopted by your Company as per the requirements of the Companies Act, 2013 and
rules made thereunder and SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015.
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