haryana steel alloys ltd Management discussions

HARYANA STEEL AND ALLOYS LIMITED ANNUAL REPORT 2006-2007 MANAGEMENT DISCUSSION AND ANALYSIS: BUSINESS REVIEW: In 2006,the global economy enjoyed one of its strongest period of growth in last several years with economic growth in real term accelerating from 3.3% in 2005 to 3.9% 2006. The Indian economy witness robust growth in FY-2006- 2007,India GDP grew by 9.4% as compared to 9% in the previous year. India continue to be a high growth economy. The Indian economy grew at the stepped up rate for the consecutive fourth year from 3.8% In FY 2002-2003 to 9.4% in 2006-2007. GLOBAL STEEL INDUSTRY REVIEW: Global crude steel out put, grew by 8.9% to 1,222 million tonnes in 2006 as compared to 1,142 million tonnes in 2005 mainly drives by strong growth of 18% in China. The finish steel consumption grew by 8.5% at 1113 million tonns in 2006 compared to 1026 million tonnes In 2005 China accounted for 3.3% of the global steel consumption and 50% of the global demand growth. The demand for raw materials (i.e) Iron ore, coal, scrap, Ferro Alloys etc. nave increased significantly due to robust growth in global crude steel production led by China. The shortage of Raw material and constrains of logistics led to increase in prices of Raw material. DOMESTIC STEEL INDUSTRY OVERVIEW: India steel Industry Required a strong growth in steel consumption driven by strong growth in all steel consuming sectors like automotive 14%, capital goods 18% etc. during the Financial year 2006-2007. Indian apparent steel consumption grew by 11.7% to 44(approx) million tonnes. The flat products & long products consumption grew by 11.5% and 12%(app) respectively. Domestic steel production grew by 11.10% to 4.7 million tonnes and steel import increased by 6.4% to 4.1 million tonnes. COMPANYS PERFORMANCE & GROWTH STRATEGY: Your Company has incurred a net loss of Rs.1119.32 lac against net loss of Rs.278.50 lac in the previous year. The turnover of the Company increased by 36.65% from Rs.54. 66 crores to Rs.74.69 crores in the year under review. The company has incurred the loss due to significant increase in the prices of key raw material such as metallic scrap, Ferro Alloys and Freight rates during the year in comparison with the steel prices. As there is acute shortage of Power in the State of Haryana, your Company had to face 100% power cuts in the peak season which also added to the losses. Further, your Company is an industrial unit with negative net worth and working capital as well. Most of the Indian steel manufacturers had been able to reduce their cost of production by modernizing their plants and by acquiring some in-house facilities like their own gas plants, ore mines and power generation system. They acquired all these facilities by their internal accruals and by financing through external sources. But Your company due to negative networth and working capital could not add anything to the pool of its existing facilities, hence, been unable to reduce the cost of production. That is why inspite of boom in the steel market when most of the companies earned huge profits your company could not do better. OPPORTUNITIES: The Indian economy is expected to grow by 8% and domestic steel growth is likely to be around 8 to 9% during, the year 2007-2008. The apparent steel corruption in India has grown at a steady rate of about 5% to 6% over the last decade. This growth rate is likely to accelerate in future with increased expenditure on infrastructure projects like ports, airports, power projects dams,metro rail system,special economic zones,urbanisation etc. Further, the Bharat Nirman Yozna for rural infrastructure, rural housing and major construction activities underway for Common Wealth Games scheduled to be held in the 2010 would also boost the consumption of Steel. THREATS RISK & CONCERNS: The Steel Industry today faces several significant strategic issues which includes inter-alia industry consolidation issues, execution of profitable growth options. Raw material linkage and security technology development raising financial from global financial market. The steel industry is still highly fragmentated and cyclical in nature as well as demand for steel products is generally affected by macroeconomic fluctuations in the global market. Further, major capacity addition by large producers and continuous appreciation in the value of Rupee resulting a revision of export targets set by the exporters may keep the prices under pressure. Industrial output growth in the year to come is expected to decline sharply. Rising inflation may also affect the demand. Rising interest rates is another factor which may increase the cost of production on one side and scale down the demand on other side. Due to poor financial the company could not undertake any major initiative to insulate itself from the volatility in steel prices and decided to suspend its operations till the situation improves. Further the company is looking for the approval of the rehabilitation scheme filed before Honble BIFR INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY: The Company has a proper and adequate system of internal controls to provide reasonable assurance that all assets are safeguarded and protected against loss from unauthorized use or disposition and that transactions are authorized, recorded and reported correctly. The internal control system provides for well-documented policies, guidelines, authorizations and approval procedures. Management Information System (MIS) is the backbone of the Companys control mechanism. Well conceived annual planning and effective budgetary control assures Adequate control on all the expenditures of the Company. The Internal Auditors Report significant audit observations, at regular intervals, to the Audit Committee comprising of Independent Directors. The Committee met regularly during the financial year and followed up the implementation of corrective action as suggested by the Internal Auditors on their audit observations. The Audit Committee also met the Companys Statutory Auditors to ascertain their views on the adequacy of the Internal Control systems in the Company. INDUSTRIAL RELATIONS & HUMAN RESOURCE MANAGEMENT: Your Company is of the firm belief that good Human Resources Management would ensure success through high performance. HR strategy and plans at your company are deeply concerned with the organizational goals. All the operational goals of the top management emanate from the business plan. CAUTIONARY STATEMENT: Statements in this report on Management Discussion and Analysis of the Companys objective, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable securities laws or regulations. These statements are based on certain assumptions and expectations of future events. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic condition effective global and domestic demand and supply, finished goods prices in the domestic and overseas markets in which the company operates, raw materials cost and availability thereof, changes in Government regulations etc. tax regimes, economic developments with in India and other factors such as litigation and industrial relations etc. The Company assumes no responsibility to publicly s amend, modify or revise any forward looking statements,on the basis of any subsequent developments,information or events.