The operating and financial review is intended to convey the managements perspective
on the financial and operating performance of the Company for the financial year 2022- 23
and outlook for the current financial year. This report should be read in conjunction with
the Companys financial statements, the schedules and notes thereto and other information
included elsewhere in the Annual Report. This report is an integral part of the Boards
Report.
INDUSTRY STRUCTURE AND DEVELOPMENT
GLOBAL ECONOMY:
The global economy was expected to grow 2.8% in 2023, influenced by the ongoing
Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally
from 8.7% in 2022 to 7% in 2023. Despite these challenges; there are positive elements
within the global economic landscape. The largest economies like China, the US, the
European Union, India, Japan, the United Kingdom and South Korea are not in a recession.
Approximately 70% of the global economy demonstrates resilience, with no major financial
distress observed in large emerging economies.
The energy shock in Europe did not result in a recession and significant developments,
including Chinas progressive departure from its strict zero-covid policy and the
resolution of the European energy crisis, fostered optimism for an improved global trade
performance. Despite high inflation, the US economy demonstrated robust consumer demand in
2022. Driven by these positive factors, global inflation is likely to be still relatively
high at 4.9% in 2024. Interestingly, even as the global economy is projected to grow less
than 3% for the next five years, India and China are projected to account for half the
global growth
INDIAN ECONOMY:
Even as the global conflict remained geographically distant from India, ripples
comprised increased oil import bills, inflation, cautious government and a sluggish equity
market. GDP growth rate in 2023 is expected to be 5.9%, lower than the 2022 growth of 6.8%
due to subdued external demand and tightening monetary policy. However, India will remain
the fastest growing major economy. India emerged as the second fastest-growing G20 economy
in FY 2022-23. India overtook UK to become the fifth-largest global economy.
Indias export numbers have been continuously increasing. In FY 2022-23, India reached
a significant milestone with total exports (goods & service combined) estimated to be
USD 770 Billion for the first time in the history. The countrys retail inflation,
measured by the consumer price index (CPI), eased to 5.66% in March 2023. In 2022, CPI hit
its highest of 7.79% in April; Whole-sale Price Index reached its highest of 15.88% in May
2022. By the close of the year under review, inflation had begun trending down and in
April 2023 declined below 5%, its lowest in months.
Capital investment of close to 3.3% of GDP is expected to crowd-in private investment,
strengthen job creation and demand and raise Indias overall growth potential. Focus is
expected in the energy sector, with significant capital investments towards energy
transition and green hydrogen mission. To summarize, India economy is well posed to absorb
global exigencies and negative shocks better than major global economies in the world. The
private consumption has rebounded, higher capital expenditure would give a requisite boost
and government infrastructure spending would add significant value for the economy to grow
faster than its peers.
STEEL INDUSTRY:
The recovery momentum of global economy after the pandemic has been affected by
persisting inflation, US monetary tightening, Chinas economic deceleration and continued
supply disruptions due to Russia-Ukraine war. High energy prices, rising interest rates
and falling confidence have limited recovery of the steel demand after a dip in 2022. The
year witnessed very high volatility in raw material, especially coking coal on account of
the on-going geopolitical concerns and supply chain bottlenecks impacting steel price
across geographies. However, positive factors like Chinas re-opening, Europes resilience
during the energy crisis and preliminary easing in supply chain bottleneck will lead to a
Year-over-Year rise in global steel demand by 2.3% (1,822 MnT) in 2023.
Indian steel industry plays a pivotal role in the economic growth of the country.
Infrastructure projects led by government, increase in housing demand, auto sector coming
back to pre-covid levels etc. is helping domestic steel demand to grow. Steel sector
contributes around 2% to the GDP with current level of production and capacities. National
Steel Policy of 2017 envisages Indias steel production to reach at 300 Million tons by
2030 and thereby steel industrys contribution to the GDP is expected to rise further.
Indian steel industry faced numerous challenges in FY 2022-23 due to global negative
shocks. The year started with global uncertainty amid Russia-Ukraine war causing supply
chain disruptions across the world. For a country like India, where steel industry is
completely dependent on imports for its basic raw material Coking coal & coke, supply
chain related complications pose a significant challenge. Despite these challenges, India
remains the ‘bright spot for global steel demand. After growth of 8.2% in 2022,
demand is expected to show healthy growth of 7.3% in 2023 backed by consumption led
demand. Having managed inflation well, the Indian economy is on a healthy growth track,
with a rising share of investment in GDP, appropriate budget allocations and expenditure
by the Government in the infrastructure segment.
OPPORTUNITIES AND THREATS:
OPPORTUNITIES:
The India government has stressed on making India ‘Atmanirbhar and has laid down
various incentives and policies. The Union Budget 2023-24 proposed a 33% increase in
infrastructure spending to Rs.10 trillion, or 3.3% of GDP, with the highest ever capital
outlay of Rs.2.4 trillion for railways. It has also identified 100 critical transport
infrastructure projects for last mile logistics and allocated Rs.75,000 crore towards it.
The Emergency Credit Line Guarantee Scheme (ECLGS), introduced as a part of the COVID-19
relief package, was extended to boost credit growth. To promote manufacturing and reduce
Indias import dependence, the Indian government had launched its flagship programme,
Production Linked Incentive Scheme (PLI), for which Rs.8,083 crore was earmarked for FY
2023-24.
The Indian automobile industry accounts for 7.1% of Indias GDP and by the end of the
year 2024; India has set a target to increase the size of its automobile industry to Rs.15
lakh crore, effectively doubling its current size. Additionally, the industry has
witnessed a significant inflow of Foreign Direct Investment (FDI) amounting to $33.77
billion from April to September 2022. This FDI inflow represents approximately 5.48% of
the total FDI inflows received by India during the same period. This indicates the
attractiveness of the Indian automotive industry to international investors and its
potential for further expansion. Under the Scrappage Policy 2022, the central and state
governments offer a 25% tax rebate on road tax for vehicles purchased after scrapping
older ones. Additionally, the government is actively working to establish scrapping
facilities within 150km of every city in the country. As per the latest announcement, all
central and state government vehicles over 15 years will be scrapped from April 1, 2023.
This will benefit automotive replacement demand and, in turn, drive steel consumption.
THREATS:
Indias steel exports dipped by 54.1% to 47.41 lakh tonnes from April to December 2022,
largely due to the weak global demand and the imposition of 15% export duty on steel
products between May 2022 and November 2022. Further post withdrawal of export duty in
November 2022, the import duty on coking coal, anthracite/PCI, and ferronickel, which are
used as raw materials in steel making, was hiked to 2.5%. Import duty for coke and
semi-coke was raised to 5% from zero, making Indian steel uncompetitive in global markets.
On the other hand, finished steel imports jumped 27.4% year-on-year between April 2022 and
December 2022, as the slowdown in the US and Europe prompted large steel producers like
South Korea, Japan and Vietnam to divert excess production to the Indian markets.
India is the second-largest producer of crude steel in the world, with an output of
126.2 MnT in FY 2022-23. Crude steel production rose 5.0% year-over-year while finished
steel consumption rose 13.3% to 119.9 MnT. Although production and consumption increased
due to robust domestic demand, margins came under pressure due to high raw material and
energy costs. The imposition of export duty on steel led to the built-up of domestic
inventories, as exports became unviable in the weak global price environment. Further, few
low-priced shipments from Russia and duty-free steel from FTA countries made their way to
domestic markets, as imports rose sharply putting more pressure on steel prices. However,
in 2022, the industry faced challenges due to falling global steel prices and rising input
material costs such as coking coal. The government introduced the production linked
incentive (PLI) scheme to incentivize the industry to invest in building especially steel
capacity, with an outlay of USD 847 million. Although India produces value-added steel, it
relies on imports of high-grade/special steels for advanced applications. India needs to
develop the technology know-how for manufacturing such grades on an economic scale.
SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:
The Company operates in only one segment, i.e. iron & steel. During the financial
year 2022-23, the company achieved production of steel product as under:
Own Unit (MT) 20,181.550 (Previous Year 19,073.590) Sales (Rs.) 14,326.98 Lakhs
(Previous Year 11,934.85 Lakhs) Conversion Service (MT) 4.300 (Previous Year 3.00) Sales
(Rs.) 0.35 Lakhs (Previous Year 0.24 Lakhs)
OUTLOOK FOR STEEL INDUSTRY:
Indian steel industry has shown resilient performance amid global uncertainty. With 76
Kg of per capita steel consumption as against a global average of 232 Kg, Indias growth
story of steel production & consumption has just begun. India is the bright spot in
global map of steel industry when it comes to steel production. Indias steel production
is continuously increasing and the country is witnessing newer capacities being added
every year. Indias crude steel production is expected to grow at 7.2% CAGR through
Financial Year 2031. As per World Steel Associations short-range outlook published in
April 2023, it is estimated that Indias steel demand would grow at 7.3% & 6.2% in
2023 & 2024 respectively supported by strong GDP growth forecast, private consumption
and government expenditure. Indias capital goods sector is also expected to benefit from
the momentum in infrastructure and investment in renewable energy. Automotive and consumer
durables are expected to maintain healthy growth driven by sustained growth in private
consumption.
The growth could also be driven by broad-based credit expansion, better capacity
utilisation and improving trade deficit. Headline and core inflation could trend down.
Private sector investments could revive. What provides optimism is that even as the global
structural shifts are creating a wider berth for Indias exports, the country is making
its largest infrastructure investment. This unprecedented investment is expected to
translate into a robust building block that, going ahead, moderates logistics costs,
facilitates a quicker transfer of products and empowers the country to become increasingly
competitive. This can benefit Indias exports in general, benefiting several sectors. The
global landscape favours India as Europe is moving towards a probable recession, the US
economy is slowing, Chinas GDP growth forecast of 4.4% is less than Indias GDP estimate
of 6.8% and America and Europe are experiencing its highest inflation in 40 years. Indias
production-linked incentive appears to catalyse the downstream sectors. Inflation is
steady. India is at the cusp of making significant investments in renewable energy and
other sectors and emerging as a suitable industrial supplement to China. India is poised
to outpace Germany and Japan and emerge as the third-largest economy by the end of the
decade. The outlook for private business investment remains positive despite an increase
in interest rates. Broad-based credit growth, improving capacity utilisation, governments
thrust on capital spending and infrastructure should bolster investment activity.
According to surveys, manufacturing, services and infrastructure sector firms are
optimistic about the business outlook. The downside risks are protracted geopolitical
tensions, tightening global financial conditions and slowing external demand.
RISK & CONCERNS:
The Company operates in an increasingly complex, volatile and uncertain business
environment with stringent regulatory and environmental requirements. The Company aspires
to create long term value for its stakeholders by embedding risk intelligence and building
resilience within the organisation. The Company is in a continuous process of
identification of risks and risk owners for regular tracking, mitigation and reporting of
risks to help the Company meet its business objectives. The Company has identified key
risks under various categories such as financial risks, macroeconomic and market risks,
operational risks, safety risks, commodity risks, supply chain risks, information security
risks, regulatory risks, climate change risks and community risks. The Company has also
mapped the severity of these risks and the likely impact on the Company and has developed
mitigation strategies to eliminate or minimize the impact of the risks.
Alongside identification of risks, the Company has a continuous process of monitoring
and leveraging opportunities presented by the external and internal environment. For
mitigating the risk of statutory compliances, the Company has the procedure in place for
monthly reporting of compliance of statutory obligations and reported to the Board of
Directors at the Board meetings.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
Internal control systems are an integral part of any organization to safeguard its
assets & interests and the Company always puts greater emphasis on strengthening and
reviewing its control systems in place for continuous improvement. The company has well
established and effective system of internal controls corresponding to its size, nature of
business & complexity of operations. The system provides a reasonable assurance in
respect of providing financial and operational information, complying with applicable
statutes, safeguarding of assets of the Company and ensuring compliance with corporate
policies.
The internal control system is supplemented by internal audits and its review by the
management on a periodic basis. The Company has availed the services of independent
professional firms for Internal Audit, which checks the effectiveness of the internal
controls with an objective to provide an independent, objective and reasonable assurance
of the adequacy and effectiveness of your Companys risk management, control and
governance processes. Such audit ensures and evaluates the effectiveness of the internal
control structure on a regular basis. The scope and authority of the internal activity are
approved by the Audit Committee. The Internal Auditor reports directly to the Audit
Committee of the Board. Based on the report of the Internal Auditor, process owners
undertake corrective actions in their respective areas and thereby strengthen the control.
Audit Committee periodically reviews the Internal Audit Reports and issues guidance and
advice. Minutes of the Audit Committee are put up to the Board of Directors. The Companys
Audit Committee reviews adherence to internal control systems, internal audit reports and
legal compliances. This committee reviews all quarterly and yearly results of the Company
and recommends the same to Board for its approval.
DISCUSSIONS ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:
During the fiscal year 2022-23, the Company achieved the sales turnover of Rs.
14,327.33 Lakhs (20,257.220 MT) as against Rs. 11,935.09 Lakhs (18,164.955 MT) during the
previous year. After providing depreciation of Rs. 79.88 Lakhs in the Current Year and Rs.
71.90 Lakhs in the Previous Year and interest of Rs. 82.67 Lakhs in the Current Year and
Rs. 67.57 Lakhs in the Previous Year and further adjusting Rs. 137.90 Lakhs for taxation
(net), the Company posted a net profit after tax of Rs. 399.46 Lakhs as against Rs. 302.12
Lakhs during the last year. During the year under review, the Companys operational
performance has increased, as the Company achieved the growth of 11.52% in the quantity
sold. In the Current year, the Company has done the conversion work of 4.300 MT as against
3.00 MT in the last year. In the financial year 2022-23, the Company registered a growth
of 20.04% in revenue from operations. The Company has developed new sizes to cater the
requirements of Original equipment Manufacturer. The Original equipment manufacturer has
approved the new sizes and hence they order repeatedly. The Company also gets the raw
material from main producers. The Companys fund flow has improved because of the easy
realization of funds from the customers.
INITIATIVES TAKEN BY THE COMPANY:
The Company is committed to create more value for all of its stakeholders. The
Companys various functional teams have taken some remarkable initiatives to not only
strengthen its profitability in near future but also to gain medium to long-term
competitive advantage over its peers. In a significant move towards backward integration
to add value to the current operations and to aid the Company by providing the raw
material, the Sharda group is expected to commission its under construction billet
manufacturing plant in financial year 2024.
The billet so produced shall be used for captive consumption and the surplus, if any,
will be sold to external agencies. The benefits of such initiatives are the dependency on
other supplier of raw material will be reduced. The availability of raw material will be
under Companys control. In the group company, we are planning to set up a steel making
facility which will supply the billet i.e. raw material to the company.
KEY FINANCIAL RATIOS:
The details of changes in the key financial ratios as compared to previous year are
stated below:
| Ratios |
Units |
2022-23 |
2021-22 |
Change (%) |
Explanation for Significant changes |
| Debtors Turnover Ratio |
Times |
11.58 |
9.49 |
22.02% |
|
| Inventory Turnover Ratio |
Times |
14.30 |
15.56 |
-8.07% |
|
| Interest Coverage Ratio |
Times |
7.50 |
7.10 |
5.66 |
|
| Current Ratio |
Times |
2.18 |
3.00 |
-27.27% |
Ratio has decreased due to increase in current liabilities |
| Debt Equity Ratio |
Times |
0.47 |
0.23 |
101.80 % |
Ratio has increased due to increase in borrowings |
| Operating Profit Margin |
% |
0.11 |
0.11 |
1.09 |
|
| Net Profit Margin |
% |
2.79 |
2.53 |
-10.14 |
|
| Return on Net worth |
% |
11.55 |
10.07 |
-14.65% |
|
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT, INCLUDING A
NUMBER OF PEOPLE EMPLOYED:
The Company believes that human capital is a critical factor of success. Our Companys
HR Vision is to build a high performing organization, where everyone is motivated to
perform to the fullest capacity to contribute to developing and achieving individual
excellence with organizational objectives. Hence constantly strives to strengthen its work
ethics, work culture and align the workforce towards the common goal. Your Company
continues to maintain positive work environment and constructive relationship with all its
employees with a continuing focus on productivity and efficiency. We believe that our
success is driven by the success of our people, who are at the core of everything we do
believe in nurturing and creating a workforce for tomorrow while being responsible towards
society.
Current workforce of the Company is rightly poised to navigate through the current
Volatile, Uncertain, Complex situation and to always maintain industry leading quality
standards while maintaining the highest service levels. The Company continues to focus on
upgrading knowledge and skill levels among its employees through various Learning &
Development, training activities to enable them to move up the ladder. The Company has
well defined Human Resource policies in place which enables it to build a strong
performance-oriented culture, belongingness to work and commitment to work. During the
year ended 31.03.2023, the total number of employees employed by the Company was 35
(thirty five).
CAUTIONARY STATEMENT
The below Management Discussion and Analysis, describing the Companys objectives,
projections, estimates and expectations may be “forward looking statements”
within the meaning of applicable securities laws and regulations. Actual results could
differ materially from those expressed or implied. Important factors that could make a
difference to the companys operations include external economic conditions affecting
demand/supply influencing price conditions in the market in which the Company operates
changes in government regulations, tax laws and other incidental factors.
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