Ankit Metal & Power Ltd Management Discussions.
Global growth is projected to pick up modestly in 2017. Global GDP grew at 2.3% in 2016 while eurozone economy grew by 1.7%. The most significant development has been the depreciation of the pound against major currencies including the euro and the US dollar. Growth in China again decelerated in 2016 to 6.7% . The Government is seeking to transform the economy from being investment led to become more consumer driven.
Despite the deceleration in 2016, the global economy managed to navigate its way through troubled waters and perform at a decent growth rate of 2.6 % owing to the good performance in the last quarter.
Indias economic growth is estimated at 7.1 % for the fiscal year ending 31st March, 2017 as compared to 7.6 % in 2016. The lower growth is due to the impact of the demonetisation and other drive. The growth estimates have been reduced in all the sectors, except for agriculture due to good monsoon.
India is the worlds third-largest producer of crude steel and consumption of steel in India is projected to maintain its growth potential. The Industry posted a 11 % growth in production in FY 2017. The growth in the Indian steel sector has been driven by domestic availability of raw materials such as iron ore and cost-effective labour.
With the implementation of various infrastructure projects including housing ,roads, ports, railways etc., the demand for steel is likely to increase substantially. The steel sector has been a major contributor to Indias manufacturing output.
Opportunities and Threats
The low per capita steel consumption in India coupled with a large population base provides significant growth opportunities to the iron and steel industry. The steel demand in India is expected to remain robust in long term due to increasing demand from several sectors including automotive, consumer durables, oil and gas, industrial machinery, real estate and infrastructure. The government has already initiated so many steps for the betterment of Indian economy and has also undertaken two large initiatives viz. putting more money into the rural economy especially after demonetisation and putting a renewed focus on infrastructure development and this would certainly enable the Steel producers to grow.
The steel industry is subject to cyclical swings arising from factors such as excess capacity, regional demand and supply imbalances and volatile market demand and prices. One of the major threats to the industry is depleting availability and volatile pricing of raw materials.
Risks and Concerns
Demand is dependent on general economic conditions. A downturn can affect business and earnings. There is an urgent need towards infrastructure creation and surging consumption growth that will drive iron & steel demand.
Raw Material Risk
Price volatility of key raw materials in manufacturing of steel namely iron ore and coal has increased significantly in past few years. The Company is working with major suppliers of key raw materials to achieve competitive prices on long term basis. The Company has linkages with Coal India Ltd. to feed coal requirements of the captive power plant as well as the sponge iron unit.
Managing costs is a key to protect profitability, especially across volatile market cycles. The Company has created well-integrated assets comprising WHRB and ABFC captive power plants, which ensure cost-effective availability of power.
Health, Safety and Environment Risk
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. New employees are being given intensive safety induction training and are being issued with "Safety Passports" related to their work area. All the statutory requirements related to safety, health and environment are being complied with
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.
Internal Control and System
The Company has implemented proper and adequate system of internal control commensurate with the size and nature of its 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. Some 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 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 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
The Company recognises people as the primary source of its competitiveness and continue to focus on people development by leveraging technology and developing a continuously learning human resource base to unleash their potential and fullfill their aspirations. The Company recruits judiciously through industry contacts, newspaper advertisements and consultancies.
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.