Economic Overview

Financial year 2015-16 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 2016-17 compared to 3.1% in 2015-16. The Indian GDP growth is expected to be 7.5% in 2016-17 compared to 7.2% in previous financial year due to improving economic sentiments.

Steel Industry

The Global Steel demand slowed down due to weak demand in developed countries. China continued to dominate the Global Steel Industry. In financial year 2015-16 the Indian Steel Industry recorded production of 90 Million Tonnes. Our Country is the 4th largest steel producing country in the world.

Opportunities and 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 sectors 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 market demand and prices. One of major threats to the industry is depleting availability and volatile pricing of raw materials. 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.

Risks and Concerns

Industry Risk

Demand is dependent on general economic conditions. A downturn can affect business and earnings. There is an urgent need towards infrastructure creation and surging consumption growth that will drive iron & steel demand.

The Company has been severely affected by the depressed domestic and global market conditions in the Steel Industries and as a result, its plant has been put under suspension of work since February, 2016.

Raw Material Risk

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 Captive Power Plant as well as the sponge iron unit.

Cost Risk

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.

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.

Segment-wise Reporting

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 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 system 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 recognises 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 fullfill 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. As on 31st March, 2016 the Company has 538 employees on its payroll.

Cautionary Statement

Certain statements in the Management Discussion and Analysis Report describing the Companys 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 regulations and government policies that may impact the Companys business as well as its ability to implement the strategy. The Company doesnt undertake to update the statements.

   

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