Ankit Met.Power Management Discussions


MANAGEMENT DISCUSSION AND ANALYSIS REPORT

ECONOMIC OVERVIEW

Global growth is projected to grow from $168.84 billion in 2022 to $255.91 billion by 2029, at a CAGR of 6.1% in the forecast period, 2022-2029.The global COVID-19 pandemic has been unprecedented and staggering, with aluminium experiencing lower-than-anticipated demand across all regions compared to pre-pandemic levels.

The Steel market is expected to register fluctuating growth trends in the long term, while inflation and supply chain concerns are expected to continue in 2023.

Shifting consumer preferences in a projected economic downturn scenario, amendments to industrial policies to align with growing environmental concerns, huge fluctuations in raw material costs triggered by prevailing geo-political tensions, and expected economic turbulences are noted as key challenges to be addressed by the Steel industry players during the short and medium term forecast.

Concerns of global economic slowdown, the Impact of war in Ukraine, lockdowns in China with resurging COVID cases, and the Risks of stagflation envisaging numerous market scenarios are pressing the need for Steel industry players to be more vigilant and forward-looking.

Dominating presence of major manufacturing sectors of Steel in countries, such as China, India, Vietnam, Japan, and South Korea are positively influencing the demand for the same. China is projected to play a crucial part for increasing the sales of Steel owing to its extensive construction sector. The Chinese government is planning to invest in transport and energy infrastructure. This, in turn, is likely to increase the demand for Steel. Thus, Asia Pacific is expected to possess nearly 70% market share for Steel.

COVID-19 IMPACT

During COVID-19 pandemic, extended lockdowns in key manufacturing industries such as construction, automotive, electronics, industrial machinery, and consumer appliances across all regions led to short term production halts. Thus, demand for Steel from the industrial sector suddenly went down. Due to supply chain disruptions across key consuming countries across all regions, in 2020, the year-on-year growth rate of the global market considerably dropped as compared to 2019. Moreover, the demand for Steel all regions was significantly impacted due to shortage of raw material & inventory, short-term production halt, economic slowdown, trade restrictions, and changing consumer behavior with response to the COVID-19 outbreak and other reasons.

The post-Covid-19 pandemic recovery is being hit by a potentially huge global supply shock that will reduce growth and push up inflation.

The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution. Economic damage from the conflict will contribute to a significant slowdown in global growth in 2023. A severe doubledigit drop in GDP for Ukraine and a large contraction in Russia are more than likely, along with worldwide spill overs through commodity markets, trade, and financial channels. Even as the war reduces growth, it will add to inflation. Fuel and food prices have increased rapidly, with vulnerable populations — particularly in low- income countries —most affected. Elevated inflation will complicate the trade-offs central banks face between containing price pressures and safeguarding growth. Interest rates are expected to rise as central banks tighten policy, exerting pressure on emerging market and developing economies. Moreover, many countries have limited fiscal policy space to cushion the impact of the war on their economies. The invasion has contributed to economic fragmentation as a significant number of countries sever commercial ties with Russia and risks derailing the post-pandemic recovery. It also threatens the rules-based frameworks that have facilitated greater global economic integration and helped lift millions out of poverty. In addition, the conflict adds to the economic strains wrought by the pandemic.

STEEL INDUSTRY

In 2023, it was previously predicted that steel demand would increase by 1% due to the expected slowdown in inflation, the end of credit tightening by central banks and the recovery of consumption and employment. However, due to the Chinese real estate market slowdown and strict COVID policies, demand for steel is expected to grow slower than anticipated. The real estate and infrastructure sector, which is the largest consumer of steel, is experiencing high debt and bankruptcy rates leading to a contraction in real estate investment and price declines. The Chinese government introduced measures to support the real estate sector, but it is unclear whether these measures will be effective. Strict COVID policies are also expected to continue to weigh down on steel demand. Global steel prices are expected to stabilize steel demand and could see further growth at a CAGR of 2.2% during the forecast period 2023-24 to reach a capacity of 1,881.4 Mt. On the price front, global steel prices are set to stabilize in FY 2022-23 year-on-year, after falling over 40% to USD 570-590 per tonne in December 2022 from the early-April peaks of USD 1,000 per tonne on tepid steel demand. While China continued to be the largest global crude steel producer, there was moderate growth in steel production in countries such as India, Japan, USA, Germany and Brazil, amongst others, signifying a normalcy returning to operations.

OUTLOOK

In 2023, steel demand is expected to grow by 8% and the recent removal of export duties bodes well for the domestic steel industry to compete aggressively in the global market. However, the year 2022 was a mixed one for the domestic steel industry due to the impact of the Russia-Ukraine war on the global steel industry. While global steel prices fell, domestic prices also came down. On the other hand, the cost of input materials, especially coking coal, saw a steep price rise. Steel companies are planning to increase their capacities to meet the growing demand. While CPSEs are planning to add around 18 MT, private companies are likely to add around 95 MT and SSI (Secondary Steel Industry) around 33 MT capacity by 2030. Despite the challenges of inflation, recession and energy crisis in Europe, the Indian steel industry has performed well in 2022. India currently ranks as the worlds second-largest producer of crude steel, with an output of 10.14 million tonnes (MT). The World Steel Association (WSA) has also predicted growth in the Indian steel sector, with a projected increase of 6.1% in 2022 and 6.7% in 2023. Between January and November 2022, India produced 113.43 million tonnes of crude steel, representing a 10% increase compared to the same period last year. The Indian government aims to double the countrys current annual crude steel production capacity from 150 MT to 300 MT. To this end, the government introduced the Production Linked Incentive (PLI) scheme last year to increase the production of high-end alloy specialty steel. Special grade steel is used in a range of sectors, including power, shipping, railways and automobiles and its demand is currently met through imports. The governments focus will be on ensuring raw material security for steel production, as the country depends heavily on the import of raw materials such as coking coal. In FY22, India imported 57 MT of coking coal to produce 120 MT of crude steel. In 2022, the government took various measures to support the steel industry, including removing export duties on steel items and extending export benefits under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to products of iron and steel for a specified period. In April- October 2022, finished steel imports stood at 3.151 MT, up 14.5% over the same period last year. The yearon- year increase in October was around 78%

Ankit Metal & Power Limited is one of the significant manufacturers of Iron and Steel in Eastern India. The Company currently operates an integrated iron and steel plant at Jorehira, Dist., Bankura in West Bengal.

DETAILS OF SIGNIFICANT CHANGE IN KEY FINANCIAL RATIO

The significant changes in the financial ratios of the Company as compared to the previous year are summarised below:

Ratio Financial Year 2022-23 Financial Year 2021-22 Change (%) Reason for change
Debt service coverage ratio (0.05%) (0.00%) 1344.66 Due to increase in losses
Net profit ratio (12.76%) (7.49%) (70.32) Due to increase in losses
Return on capital employed (44.39%) (13.22) (235.87) Due to increase in losses

RISK, OPPORTUNITIES AND THREATS

Inflation concerns have been mounting globally particularly in the US and Europe. The recent war in eastern Europe has also disrupted supply chains and led to heightened volatility in financial markets which has further exacerbated the inflation concerns. Central banks throughout the world have begun hiking rates in response.

The steel sector is subject to an extensive, complex and evolving regulatory framework that may have material impact on operations. Any deviation in compliance and adherence has the potential to not only impact the Companys operating performance but also impact its reputation adversely.

The Company has defaulted in payment of its financial commitments to the lenders and is working on means to settle the loan outstanding. The Company has a Risk Management framework in place which is designed to identify, assess and monitor various risks related to key business and strategic objectives. All identified risks are categorised based on a matrix of likelihood of occurrence and impact thereof and a mitigation plan is worked out to extent possible

The government has already initiated many steps for the upliftment of Indian economy and has provided stimulus package to different sectors of industries to revive the economy to pre covid-19 pandemic level which would certainly be favourable towards the growth of the Company.

SEGMENT-WISE PERFORMANCE

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. During the year under review the Company has produced 2.57 Lacs MT of Ferrous and Non-Ferrous material as against 3.47 Lacs of MT of Iron & Steel in previous year registering a decrease of 25.93% over previous year. This is mainly on account of decrease in operating level of the plant.

HEALTH, SAFETY AND ENVIRONMENT

The Company is committed to conducting its activities in a manner that promotes the health and safety of its employees, assets and the public, as well as protection of the environment. The Companys Integrated Management System comprises of quality, environment and occupational health and safety certification. The Company has also taken the safety measures for the protection of health to the employees as advised by Government agencies in this regard. All the statutory requirements related to safety, health and environment are being complied with.

MANAGEMENT DISCUSSION AND ANALYSIS

Requirements of environmental acts and regulations are complied with. Monitoring and analysis of water, stack emissions and ambient air quality etc., are undertaken periodically to verify whether the level of environmental parameters are maintained and are well within the specified limits.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company maintains adequate Internal Control Systems in all areas of operation. Services of Internal and External Auditors are utilised from time to time, as also in-house expertise and resources. The Company continuously upgrade these systems in line with the best available practices. An independent Audit Committee of the Board reviews the adequacy of Internal Control. Some of the significant features of Internal Control Systems 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 Internal Audit Reports are placed before the Audit Committee for consideration. 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 management is not only important but also a critical asset for a Companys growth. The Companys human capital comprises a prudent mix of youth and experience. The Company employs contract labour in its manufacturing facilities. The Company partners with its employees to ensure a highly engaged and motivated workforce dedicated to achieving the Companys goals. We ensure a safe work environment for all our women employees. We also promote gender equality. Abiding by the Sexual Harassment Policy, we have a Complaint Committee which addresses any complaint from women employees in this relation and take necessary action. The Policy is being reframed as per the provision of Sexual Harassment of Women at the Work Place (Prevention, Prohibition & Redressal) Act, 2013. During the year the Company has not received any complaints of sexual harassment. As on 31st March, 2023, the Company has 1016 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.

For and on behalf of the Board of Directors
Ankit Metal & Power Limited
Place: Kolkata Subham Bhagat
Date: 14th August, 2023 Chairman cum Managing Director