Financial Year 2014-15 witnessed divergent trend among major economies. According to the International Monetary Fund, the global economy is expected to grow at 3.4% in Financial Year 2015-16. This is due to the fact that slowdown in production in China and Russia is expected to be more than off set by recovery of the developed economies and growth in South-East Asia.
The currency movements and interest rates continue to be risks for growth. Developed economies are expected to grow moderately. After posting stronger and broader growth at the end of 2014, the USA is carrying the momentum into 2015 with increased consumer spending and trade activity, falling unemployment rate and improved investor sentiment.
The Indian GDP growth expanded to 7.2% in previous Financial Year due to improving economic sentiments but demand at the grass root level remained stagnant and is only expected to pick up from 2015.
There is hope for improving economic scenario worldwide which may lead to a revival of demand with better opportunities. Steel Industry
The Global steel demand slowed down due to weak demand in developed countries. China continued to dominate the global steel industry. In FY 2014-2015 the Indian steel industry recorded production of 81.54 Mnt. The production was impacted by the inadequacy of iron ore with inconsistency in quality and supply.
Demand from the sectors like infrastructure, real estate, automobiles, uses of specialised steel in automobiles and power sectors has put Indian steel industry on the world map. The country is maintaining the 4th largest steel producing country.
Opportunities & Threats
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 steel demand in India is expected to remain robust in long term due to increasing demand from several sector including automotive, consumer durables, oil and gas, industrial machinery, real estate and infrastructure.
The steel industry is subject to cyclical swings arising from factors such as excess capacity, regional demand and supply imbalances and volatile swings in market demand and prices. One of major threats to the industry is depleting availability and volatile pricing of raw materials. Any firmness in steel prices gives iron ore producers an opportunity to increase the prices in the next contract, however the reverse may not be true as steel companies cannot always pass on the rise in iron ore prices to end consumers due to the fragmented market.
India possess the world's eighth largest iron ore reserve, it is the fourth largest iron ore producer in the world but yet fell short in supplying adequate quantity of iron ore to the iron and steel producer as a large chunk of the production is exported. Coking coal, a primary ingredient in steel making is also in short supply. A majority of the coking coal requirement is met by importing from Australia. The Indian iron and steel producers are widening their sourcing bases to South Africa, Indonesia, US and Canada. Insufficient infrastructure and logistic, land availability and environmental issues are also a concern for the growth of domestic Iron and Steel industry. Many steel makers are also considering alternatives to manage raw material cost and supply by hedging long term contracts.
Risks and Concerns
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 & steel demand.
Raw Material Risk
Non-availability and price volatility of key raw materials in manufacturing of steel namely iron ore and coal has increased significantly in past few years. The Company is working with major suppliers of key raw materials to achieve competitive prices on long term basis. The Company has linkages with Coal India Ltd. to feed coal requirements of the Sponge Iron Unit.
Managing costs is a key to protect profitability, especially across volatile market cycles. The Company has created well- integrated assets comprising WHRB and ABFC Captive Power Plants, which ensure cost-effective availability of power. The Company has also setup a Pelletisation Plant (utilising the readily available iron ore fines for DRI operations) to optimise costs.
Health, Safety and Environment Risk
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 which minimises calamities during plant operations. The safety team conducts regular training programmes to install the concept of maintaining safe operations among the employees and to educate the team on the safety norms and procedures to be followed in an unfortunate situation.
The business activity of the Company primarily falls within a single business segment-Iron and Steel. The Company also generates power from Captive Power Plant, which is entirely consumed in manufacturing of iron and steel without any sale to third parties.
Internal Control and System
The Company has implemented proper and adequate system of internal control commensurate with the size and nature of its operations to provide reasonable assurance that all assets are safeguarded, transactions are authorised, recorded and reported properly, applicable statutes and corporate policies are duly complied with. Some significant features of internal control systems are:
Adequate documentation of policies, guidelines, authorities and approval procedures covering all important functions.
Deployment of an ERP system which covers most operations and is supported by a defined on-line authorisation protocol.
Ensuring complete compliance with laws, regulations, standards, and internal procedures and systems.
Ensuring the integrity of the accounting system; the properly authorised recording and reporting of all transactions.
Ensuring a reliability of all financial and operational information.
The Company has an Audit Committee with Independent Directors as members. The committee periodically reviews significant audit findings, adequacy of internal control and compliance with Accounting Standards, amongst others. The Company also takes quarterly compliance certificate in respect of various applicable laws from the concerned departmental heads and place the same before the board.
Industrial Relations and Human Resources
The Company recognise people as the primary source of its competitiveness and continue to focus on people development by leveraging technology and developing a continuously learning human resource base to unleash their potential and fulfill their aspirations. The Company recruits judiciously through industry contacts, newspaper advertisements and consultancies. The Company also recruits trainees from reputed ITIs, technical and professional institutes. The Company maintained harmonious relationship with all its workers and there were no strikes or lockouts during the year under review. As on the date of this report the Company has 632 employees on its payroll.
Certain statements in the Management Discussion and Analysis Report describing the Company's objective and predictions may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates new regulati ons and government policies that may impact the Company's business as well as its ability to implement the strategy. The Company doesn't undertake to update the statements.