Economic Overview

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.

Industry structure and developments

The Indian Ferro Alloys industry, which has completed five decades of its existence and a part of the core sector, is engaged in supplying crucial intermediaries to iron and Steel industry. Ferro-alloys are critical additives in the production of iron & steel and the fortune of Ferro Alloys industry is directly linked with the growth of iron & Steel industry. The product mix of ferro alloys consists of bulk ferro alloys which includes HC ferro manganese, silicon manganese, ferro silicon, HC ferro chrome, charge chrome, etc. and noble ferro alloys consisting of ferromolybdenum, ferro-anadium, ferrotungsten, ferro-silicon magnesium, ferro-boron and ferro-titanium.

india accounts for around 7-8% of the world's ferro alloys production. india emerged as a preferred supplier of ferro alloys on account of abundant availability of key resources comprising chrome ore and manganese ore, trained and cost-effective manpower and favorable location.

The demand driver of ferro-alloys consists of crude steel production, alloy and special steel production and stainless steel production. The anticipated infrastructure development, investment plan in road sector, expansion in railway, increase in volume by automobile sector, uses of special steel in power sectors and refocus on manufacturing sector, the demand for ferro alloys is expected to improve in coming years.

Opportunities and Threats

The growth of Ferro-Alloys industry is directly linked with the growth of iron and Steel industry, which in turn depends on its user industry i.e. infrastructure, housing, automobile and consumer durable industries. india, at a per capita steel consumption of 60 kg, is much below the global average of 215 kg, thereby reflecting massive under-penetration and immense opportunities for growth, which will in turn, drive ferro-alloys demand as these are key input resources for iron and steel manufacture. The industry has tremendous potential for growth as the per capita steel consumption in the Country is one of the lowest in the world. With burgeoning population, drive towards industrialisaton and focus on better quality of life, the steel demand in the country is expected to rise significantly which will in turn, drive ferro-alloys demand as these are the key input resources for iron and steel manufacture. The significant investments envisaged in india's infrastructure sector in the creation of capital assets including roads, bridges, airports, seaports, flyovers and railway tracks, opportunity of utilising special steel by power and automobiles sector, the demand for steel and hence, ferro-alloys is expected to grow in coming years.

Electrical energy is one of the major inputs in production of ferro-alloys and high power tariff is a threat for the Ferro-Alloys industry. Apart from electrical energy, the industry faces challenges of acquiring good quality raw materials like high grade ores and coke.

As regards the power cost, ferro-alloys producers are now focusing on settng up their captive power units. This will reduce the input cost and ensures continuous supply of power to the downstream project. in the long run this effort of backward integration shall eventually help the domestic ferro-alloys producers to compete in the international market. Moreover with india remaining as one of the largest producers of manganese ore, there is adequate availability of this resource for the production of manganese based ferro-alloys.

Further, it is hoped that the government would recognise the challenges arising out of periodic administered price increases of power and input materials which hamper the competitiveness of this industry and take steps to address them urgently to enable the ferro alloys producers to compete in the domestic as well as international markets.

Risks and Concerns

The cost-effective availability and quality of key raw material is a global challenge. The volatility in prices of raw materials including the mismatch between the prices of raw materials and ferro alloys as well as limitation on and disruption in the supply of inputs, could adversely affect the profitability of the Company. Maintaining greater raw material security to insulate the Company from the price swing in key inputs and resultant impact on the profitability continues to be a key strategic objective. The Company is maintaining a healthy position for key raw materials having arrangements with domestic and international ore suppliers.

Electricity comprises a key cost component in the total operating cost structure and an inability to manage this might impact the Company's operations. The 30 MW captive power plant enables the Company to emerge self-reliant in its power needs and reduce dependence on the expensive grid electricity.

The Company's sales may in the future be concentrated in a few markets as a consequence of continued global slow down, thereby negatively impacting its operations. Currently the Company's sales are well-spread to key consumption centers across the globe. The Company presently caters to the needs of several multinational customers, thereby mitigating concentration risks.

The Company deals in sizeable amount of foreign exchange in import of raw materials and exports of finished products. A comprehensive and robust forex policy has been formulated for insulating the Company by hedging foreign exchange exposure.

Segment-wise Reporting

The Company is mainly in the business segment of manufacturing & sales of ferro-alloys and trading in iron & steel products. The key financial of the business segments including secondary segment details identified as the geographical segment based on the location of customers within India and outside India is given in Notes No. 36 to the Annual Accounts. The Company also generates power from its Captive Power Plant, which is entirely consumed in the manufacture of ferro-alloys without any sale to third parties.

Segment-wise Performance

Ferro Alloys:

During the year under review the Company has produced 43,943.560 MT of ferro alloys against 42,325.860 MT of ferro alloys in previous year registering a growth of 3.82% over previous year. The Gross revenue from the ferro alloys segment was Rs. 265.54 Crores. The ferro alloys export during the year under review has increased by 8.22% to 33,847 MT.

Internal Controls and Systems

The Company has implemented proper and adequate system of internal controls commensurate with its size and nature of 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. The Company has an Audit Committee with majority of Independent Directors as members. The committee periodically reviews significant audit findings, adequacy of internal control and compliance with Accounting Standards, amongst others. The management duly considers and takes appropriate action on the recommendations made by the Statutory Auditors, Internal Auditors and the Independent Audit Committee of the Board of Directors. 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

Human resource is the Company's principal asset. The Company provides continual training to its staff to help them upgrade their skills and seeks to balance individual aspirations with Company goals. The Company is an equal opportunities employer. The Company employs contract labourers in its manufacturing facilities. 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 231 employees on its payroll.

Cautionary Statement

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 regulations 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.