‘Annexure - C to the directors report
ECONOMIC OVERVIEW
GLOBAL ECONOMIC OVERVIEW
Global economic developments have begun to improve, but the upturn
remains fragile. Lower energy prices are helping to bring down headline inflation and ease
the strains on household budgets, business and consumer sentiment are picking up from low
levels, and the earlier-than-expected full reopening of China has provided a boost to
global activity. At the same time, core inflation is proving persistent, reflecting higher
profits in some sectors and still-elevated cost pressures in resilient labour markets.
Global growth is projected to fall from an estimated 3.5% in 2022 to 3%
in both 2023 and 2024. The rise in central bank policy rates to fight inflation continues
to weigh on economic activity. Global headline inflation is expected to fall from 8.7% in
2022 to 6.8% in 2023 and 5.2% in 2024. Underlying (core) inflation is projected to decline
more gradually, and forecasts for inflation in 2024 have been revised upward.
Outlook
Prospects for a robust global economic recovery remain dim amid
stubborn inflation, rising interest rates and heightened uncertainties. Instead, the world
economy faces the risk of a prolonged period of low growth as the lingering effects of the
COVID-19 pandemic. Global trade remains under pressure due to geopolitical tensions,
weakening global demand and tighter monetary and fiscal policies. The volume of global
trade in goods and services is forecast to grow by 2.3% in 2023, well below the
pre-pandemic trend. Strong labour markets in developed economies only remains as a bright
spot towards global economy outlook.
INDIAN ECONOMIC OVERVIEW
Indias growth momentum continues to be steady despite increased
turbulence in the global economy India is on track to becoming a $7 trillion economy by
2030 powered by the triple engines of rapid growth, clean energy transition and digital
revolution. This would mean India doubling its economy in seven years from the existing
gross domestic product (GDP) of $3.5 trillion. The country has remained among the
fastest-growing major economies in the world, contributing to more than 12% global growth
on average during the past five years. As per the recent economy survey, India had a good
monsoon, and reservoir levels are higher than last year and the 10-year average. The
fundamentals of the Indian economy are sound as it enters its Amrit Kaal, the 25-year
journey towards its centenary as a modern, independent nation. As per the estimates of
Asian Development Bank, Indias GDP is expected to grow by 6.4% in the ongoing
financial year and 6.7% in FY25, driven by recovery in consumption demand, easing global
commodity prices and increase in private investment on the back of government policies to
improve transport infrastructure, logistics, and the business ecosystem.
Outlook
The recent announcement of increased government spending in the Union
Budget for 2023-24, along with a rise in private consumption and investment, is expected
to propel economic activity and boost demand. Nevertheless, caution should be exercised
due to potential global spillovers that could impact the steady growth momentum.
Therefore, a sense of cautious optimism is likely to be maintained in the economic system
shortly.
INDUSTRY STRUCTURE AND DEVELOPMENTS GLOBAL STEEL INDUSTRY OVERVIEW
Due to favourable properties of the product, such as malleability,
ductility, durability, hardness, and versatility, the demand within the steel industry has
witnessed a sustained growth, making it one of the leading industries globally. The market
growth has been further catalysed by the extensive adoption of steel within the production
processes of a wide variety of industries, including the transportation, manufacturing,
construction, and aviation industries, among others. As populations grow and the standards
of living improve, the demand for steel is also expected to be augmented. Looking forward,
the steel industry is expected to gain momentum owing to the rising demand for automobiles
and infrastructural growth. The growing demand for alternative and sustainable energy
sources is expected to provide a further impetus to the growth of the market as the
infrastructure of renewable energy sources like solar wind and hydropower make ample use
of stainless steel.
The World Steel Association (World Steel) forecasts that global steel
demand for 2023 see a 2.3% rebound to reach 1,822.3 MT and is forecasted 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.
Outlook
World Steel expects to see stronger global growth in 2024 led by
regions such as India and Europe, while China, the largest global steel producer and
consumer of iron ore, is expected to see steel demand steady after growing 2% in 2023.
Investments in decarbonisation and dynamic emerging economies will increasingly drive
positive momentum for global steel demand. It is expected that the global steel demand
growth in the future to rely on smaller-scale drivers, primarily concentrated in Asia.
GLOBAL RAW MATERIAL OVERVIEW
Iron ore: Global iron ore supply increased modestly owing to better
weather in some mining locations. Prices rose sharply by the end of FY 2022-23, reaching
US$128.37/per dry metric ton unit (dmtu) (Source: Statista). It is expected that iron ore
demand will grow by 0.8%, and supply will increase by 3% in 2024.
Coking coal: Global coking coal demand is likely to reach around 819
million tonnes (mnt) in 2023 from roughly 800 mnt in 2022. Total global consumption of
coking coal + PCI may rise to 1.04 bnt in 2023 from 1.02 bnt in 2022. Australian premium
coking coal prices decreased to $350/t FOB in March 2023 from $480/t in April 2022
(Source: Coal Mint). It is expected that Chinas imports of seaborne coking coal may
drop 20% y-o-y in 2023. Thermal coal prices have fallen sharply and the incentive to sell
coking coal in the thermal coal market is lacking currently unlike last year. It is thus
expected that supplies will increase further and exert pressure on prices.
INDIAN STEEL INDUSTRY OVERVIEW
India, being the second largest steel producer and consumer globally,
is currently experiencing a consolidation and an influx of investments from external
entities in its steel sector. This situation offers an advantageous prospect for global
manufacturers to explore opportunities within the Indian steel industry. To maximize
efficiency and foster cost-effectiveness in the value chain, steel manufacturers in India
are increasingly integrating both forward and backwards. Benefiting from a thriving
economy and an escalating demand for steel, the Indian steel industry has undoubtedly
embarked upon a new phase of development after deregulation.
The outlook for the Indian steel industry in 2023 appears promising,
considering the countrys ambition of becoming a US $5 trillion economy by 2030 (or
possibly even sooner). Market predictions and reports suggest that the steel industry in
India will have a critical role in achieving this objective, as indicated in the EY-CII
report. With a production of 125.32 million tonnes (y-o-y growth of 4.2%), India currently
stands as the second largest producer of crude steel worldwide, closely following China.
The iron and steel industry is spread across various states in India, including Odisha,
Jharkhand, Chhattisgarh, Karnataka, Maharashtra, West Bengal, and Gujarat. It is expected
that domestic steel demand in India is expected to be 128.9 million tonnes during 2023-24,
up from 119.9 million tonnes during the previous year (Source: Economic Times, Indian
Steel Association, Reuters).
Outlook
The growth prospects and steel industry outlook in India is favourable.
Recent changes in import duties on steel, complemented by the rising demand for affordable
housing, infrastructure development and construction projects, has led to a pan-India need
for steel metal. Moreover, the governments initiative to make India self-sufficient
has made room for sustainable urban development, construction of proposed logistics parks
and industrial corridors – all adding to the meteoric demand for finished steel and
steel as a raw material. The steel industry is also expected get a boost from government
spending on infrastructure as almost 62% of steel goes into infrastructure construction.
Also, the recent announced by the government of almost Rs.10 lakh crore of infrastructure
spending in the current budget, which is around 3.3% of the GDP and further, the
performance linked incentive or PLI schemes are also expected to positively impact various
sectors thereby encouraging the growth and overall outlook of the Indian steel industry.
Steel pricing in India
Steel has always had its demand in India. However, in the last few
months, especially following the global economic crisis caused by the pandemic, the price
of steel in India has been dynamic. During the FY 22-23 prices of steel averaged to
Rs.49,710 per tonne. It remained ranged bound between Rs.49,500-Rs.53,000 per tonne during
the year. Although a weak domestic demand during 1st quarter of FY 23-24 due to
monsoon and maintenance shutdowns may result in a decline of 2%-5% on the prices of steel
but a bullish domestic sentiment aided by various government programmes to boost economy
are expected to keep the prices above the comfortable level of Rs.60,000 per tonne.
GLOBAL PIG IRON INDUSTRY OVERVIEW
Iron is the least expensive and most widely used metal in the world.
Pig iron, or crude iron, is an intermediary good that is produced by smelting iron ore or
scrap iron, with coke in a blast furnace or an electric arc furnace. Pig iron, while not
very useful on its own. It is used as an important primary and intermediate product in the
manufacturing cycle of iron and steel semi-finished and finished products. Different
mechanical properties of the final product are achieved by adding appropriate alloys
making pig iron the ideal material for industrial use.
Global Pig Iron industry is currently valued at USD 660.27 billion
during 2022. It is expected that the market will achieve USD 719.08 billion by 2028,
exhibiting a CAGR of 1.43% during the forecast period. The Russia-Ukraine conflict has had
a huge impact on the global pig iron trade. Russia and Ukraine together controlled a
whopping 50% of the global trade of the metal in 2021, which stood at around $7.16
billion. However, following Russias aggression last year, pig production in Ukraine
decreased by around 9.5%. On the other hand, following the conflict, the U.S. and other
nations have imposed strict sanctions on Russia, which was the largest exporter of pig
iron in 2021, but this changed significantly in the following year. This led to a decrease
in the global production of pig iron, with a total global production of 1.3 billion tons
in 2022, while production stood at 1.35 billion tons in 2021, revealing a decline of 3.7%
in the pig iron industry. Forecast for Calendar Year 2023 indicates an increase in global
pig iron exports, although it will be still lower than in 2021 (11.7 million tons). Demand
is also expected to improve as a result of a more favorable macroeconomic environment at
many nations.
INDIA PIG IRON INDUSTRY OVERVIEW
Domestic production of merchant pig iron stood at 5.85 million tonnes
(mnt) in FY23. Production increased by 2% y-o-y compared to 5.76 mnt recorded in FY22.
Indias hot metal production stood at 80.87 mnt in FY23, up by 3.5% y-o-y compared to
78.12 mnt in FY22. The rise in hot metal production was in line with an increase in steel
production.
Merchant pig iron prices in India dropped around 10% y-o-y in financial
year 2022-2023 (FY23) compared with FY22. The average price of steel grade pig iron in
eastern Indias Durgapur market - considered the benchmark in price assessments -
sunk to INR 43,023/t exw in FY23 from INR 47,553 exw in FY22 (Source: Steel Mint). The
decline can be attributed to a variety of factors, most prominent among which being the
imposition of export duty on pig iron which led to the noticeable increase in domestic
supplies as well as a negative correction in coal and coke prices.
Reasons for subdued pricing in the domestic market
• Global premium hard coking coal prices have corrected sharply
from over $650/t FOB Australia in March-April 2022 to around $285/t FOB. With the
resumption in supplies post weather-related disruptions from Australia, supplies have
increased in the seaborne market and prices have corrected as a result. This has reduced
the cost of production of pig iron and impacted prices. On the other hand, domestic steel
prices weakened in FY23 with scrap prices being a rare exception, rising around 4% on
monthly basis in March on global cues. Thus, pig iron prices due to lack of support from
the steel market and availability of substitute of raw material saw a downside.
• Indias imports of pig iron from the CIS edged up in the
just-concluded fiscal due to viability compared with domestic prices. This naturally kept
domestic prices under pressure. Further, subdued steel demand in neighbouring countries
due to high inflation and liquidity crunch impacted pig iron exports, which dropped around
50% on the year in FY23. The 15% export tariff on pig iron weighed on exports. Therefore,
domestic prices lacked support. After the Russia-Ukraine war erupted there was a pig iron
supply crunch in the global market due to sanctions on Russia, the largest pig iron
exporter. Indian mills seized this opportunity and started selling in the global market.
However, after the government announced export duty, volumes started falling and so did
domestic prices. Provisional figures show that India exported 550,000 t of pig iron in
FY23, down from 1.247 mnt in FY22.
Outlook
With export enquiries increasing, especially from the US due to
tightening of sanctions on Russia, pig iron demand have received some support. However,
the steel market in China his yet to take off due largely to its debt-ridden property
market. In addition, monetary policy tightening is also impacting steel demand from user
industries worldwide thereby impacting the domestic pig iron industry. Moreover, coking
coal and coke prices are sliding on abundant supplies amid stagnant demand. Projections
are that coking coal prices are likely to fall in the near-term. This, too, poses a
downward risk for pig iron. But, India - with a surplus production of 4.5 mnt - is poised
to cater to the major consumers like EU, US and Turkey in the coming fiscal year. Also,
with varied government support to the domestic steel industry and the growing demand for
steel in the end user industries abodes well for the domestic pig iron industry in the
current financial year.
OPPORTUNITIES AND THREATS
Opportunities
Pig Iron, a major product of the Company, is primarily used for
manufacturing a variety of grey iron and ductile iron castings by foundries for a host of
industries like automotive, agriculture, pump, valve, compressor, railways, defence, wind
mills, heavy machinery etc. Besides this, the Company also manufactures basic grade PI in
small quantities which is consumed by secondary steel makers. Both these industries -
casting as well as steel, are expected to grow at good pace in the coming financial year,
driven by Government of India initiatives which includes: The National Steel Policy 2017
(NSP 2017) is a strategic plan to boost the growth and development of the steel industry
in India. The policy aims to create a "technologically advanced and globally
competitive steel industry that promotes economic growth". Some of the key objectives
of the policy are to achieve a crude steel capacity of 300 million tonnes per annum (MTPA)
and a crude steel production of 255 MTPA by 2030-31. The policy also envisages increasing
the per capita steel consumption to 158 kg by 2030-31, from the current level of 61 kg.
One of the initiatives taken under the policy is the Policy for
providing preference to Domestically Manufactured Iron and Steel Products (DMI & SP
Policy) in government procurement. This policy aims to encourage domestic steel production
and reduce imports. According to the Ministry of Steel, this policy has resulted in import
substitution of Rs.34,800 Crore approximately.
The PLI Scheme is a key initiative to boost the domestic production of
speciality steel and create a competitive edge for Indian steel in the global market.
Speciality steel is used in various sectors such as defence, aerospace, automobile,
railways, etc. and has high-value addition and export potential. The scheme is expected to
increase the per capita steel consumption in the country
Threats
The Indian steel industry is vulnerable to cheaper imports of Pig Iron
countries like China, Russia, Turkey, etc which have currently excess capacity and subdued
demand.
Increased awareness and stricter environmental regulations can lead to
higher compliance costs for pig iron producers. Failure to meet these regulations can
result in fines or even plant shutdowns, putting additional pressure on the domestic
industry.
Some countries might be investing in newer, more efficient, and
environmentally friendly iron-making technologies, such as direct reduced iron (DRI) or
electric arc furnace (EAF) methods. This shift could reduce the demand for traditional
blast furnace-produced pig iron and impact the domestic industry.
The pig iron industry relies on consistent and affordable access to raw
materials such as iron ore, coke, and scrap metal. Fluctuations in the availability and
prices of these inputs can impact production costs and profitability. The Indian pig iron
market is currently trending lower, with the prices being the lowest of FY 22-23. The key
reasons for this trend are sufficient supply and weak domestic demand, with the decline in
coke and steel prices of mid-sized mills also contributing to the price correction.
RISKS AND CONCERN
The Company is exposed to normal industry risk factors. The Company
manages these risks, by maintaining a prudent financial profile and by following healthy
business and risk management practices.
• As the customs duties on Pig Iron are altered from time to time
there is an import risk to that extent. However, given the importers profile of Pig
Iron who are mainly foundries and are in an unorganised sector, the import threat is
minimal. Moreover, with the surge in domestic demand for Iron and Steel is going to
increase the domestic demand of Pig Iron in the future.
• Risk to continuing growth arises from the fact that the Indian
economy cannot remain isolated from the global changes. Also growing protectionist
measures and geopolitical tensions can adversely impact the world economy including India.
But the long-term future of the pig iron industry is bright, as India is among the largest
and fastest growing developing countries with emerging demand for steel on the back of the
governments focus on infrastructure development
• Global slowdown in the steel industry may lead to lower exports
of Pig Iron and therefore result in surplus availability in the domestic market. Further,
with expansion of large integrated steel plants, there could be a mismatch between iron
making and steel making capacities especially during the commissioning and ramp-up period
resulting in surplus of Pig iron. Activation of these factors may put pressure on the Pig
Iron prices and impact margins. Similarly, global iron ore/ coke prices may also exert
pressure on the demand/pricing of Pig Iron. The Companys business is mainly
commodity business. The financial health of the unit may be affected by adverse changes in
the industry and commodity markets.
But, the various integration measures including increase in the Hot
Metal production capacity would further minimise such risk.
OPERATIONAL AND FINANCIAL OVERVIEW
K I C Metaliks Ltd operates in a single segment i.e. ‘Iron and
Steel and allied products which, in context of the Accounting Standard issued by the
Institute of the Chartered Accountants of India, is considered to be the only business
segment. Its plant is located at District Raturia, Angadpur, Durgapur, West Bengal. Pig
Iron, the only product manufactured the Company, is primarily consumed by secondary steel
makers.
These user industries expected to grow at good pace in the coming
financial year, driven by various initiatives of the Government to boost domestic economy
and make the country self-reliant. Being in the intermediate stage in the industry there
is an opportunity for both backward integration and forward integration.
The Company has set up a Sinter Plant, Waste Heat Recovery based
Captive Power Plant, Pulverized Coal Injection System (PCI) for the Mini Blast Furnace
(MBF). The Companys total production capacity stands to 2,24,698.63 MT. During the
year, Hot Metal production stood at 1,61,857 MT.
Its brief financial performance of consolidated basis for 2022-23 is
given below :
| Particulars |
Year ended March |
Year ended March |
|
31, 2023 |
31, 2022 |
| Revenue from Operations |
74,927.09 |
51,385.38 |
| PBDIT |
5,574.87 |
8,840.06 |
| Interest and Financial Charges |
1,119.33 |
1,896.33 |
| Depreciation and amortization |
1,423.80 |
1,181.41 |
| Tax expenses |
1,177.10 |
1,897.52 |
| Net Profit |
1,854.64 |
3,864.80 |
DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS COMPARED
TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS, ALONG WITH DETAILS
EXPLANATION THEREFOR :
| Ratios |
2022-23 |
2021-22 |
% Change |
Reason |
| Debtors Turnover (Days) |
0.87 |
3.41 |
-74.49 |
Reduced average receivables and better collections |
| Inventory Turnover (Days) |
59.51 |
66.29 |
-10.23 |
- |
| Interest Coverage Ratio (Times) |
3.71 |
4.04 |
-8.17 |
- |
| Current Ratio (Times) |
1.18 |
1.13 |
4.42 |
- |
| Debt Equity Ratio (Times) |
0.72 |
0.98 |
-26.53 |
Decrease in Borrowings |
| Operating Profit Margin (%) |
5.83 |
12.45 |
-53.17 |
Decrease in profitability |
| Net Profit Margin (%) |
2.44 |
7.18 |
-66.02 |
Decrease in profitability |
| Return on average Net Worth (%) |
11.00 |
27.61 |
-60.16 |
Decrease in profitability |
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has adequate Internal Control Systems commensurate with the
size and nature of its business. Internal Control Systems are supplemented by internal
audits carried out regularly by outside independent qualified auditors. The Audit
Committee interacts with the statutory and internal auditors. The Management also
regularly reviews the operational efficiencies, utilisation of fiscal resources and
compliance with laws so as to ensure optimum utilisation of resources, achieve better
efficiencies and comply with the laws of land.
HUMAN RESOURCES AND INDUSTRIAL RELATIONS
Employees are the valuable assets and the strength of an organisation
in its growth, prosperity and development. Your Company has a team of qualified and
dedicated personnel who have contributed to the growth and progress of the Company. The
employees are imparted training on site and are encouraged to participate in the
decision-making process.
The management acknowledges the contributions made by each employee at
all levels and records its appreciation for the co-operation extended, but for which the
present growth would not have been possible.
CAUTIONARY STATEMENT
Statements in this report on 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 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 global and domestic demand supply conditions, finished goods prices,
raw material cost and availability, changes in Government regulations, tax regimes,
economic developments within India and other factors such as litigation and industrial
relations. The Company assumes no responsibility to publicly amend, modify or revise any
forward looking statements on the basis of any subsequent developments, information or
events.
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