Ankit Metal & Power Ltd Management Discussions.

ECONOMIC OVERVIEW

The global economy enters 2022 in a weaker position than previously expected. As the new Omicron COVID-19 variant spreads, countries have reimposed mobility restrictions. Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging market and developing economies. Further, the ongoing retrenchment of Chinas real estate sector and slower-than-expected recovery of private consumption and the ongoing tension between Russia and Ukraine have limited the growth prospects. The imposition of economic sanctions by US and its NATO allies on Russia pushed up global energy prices.

Global growth is projected to slow-down from an estimated 6.1% in 2021 to 3.6% in 2022—0.8 percentage-point lower than what was envisioned in the last World Economic Outlook (WEO) of January 2022. Elevated inflation is expected to persist longer, with ongoing supply chain disruptions and high energy prices continuing in 2022. Risks to the global baseline are tilted to the downside which is primarily brought by the new COVID-19 variant which may prolong the pandemic and induce renewed economic disruptions. Moreover, supply chain disruptions, energy price volatility, and localized wage pressures have enhanced the uncertainty around inflation and policy paths. Other global risks may crystallize with the surging geopolitical tensions, and the ongoing adverse climate conditions leading to the probability for natural disasters.

With the pandemic continuing to maintain its grip, the emphasis on an effective global health strategy is more salient than ever. Worldwide access to vaccines, tests, and treatments have become essential to mitigate the risks posed by new variants of COVID-19. Monetary policy in many countries will need to curb inflationary pressures, while fiscal policy will need to prioritize health and social spending.

STEEL INDUSTRY

The global steel industry has partially recovered with increase in global steel production by 3.7% during 2021, compared to 2020. This is primarily due to economies opening up after wide scale vaccinations, gradual commencement of economic activity, and significant change in retail consumer behaviour mainly in automotive and construction sectors. Further, increase in raw material prices mainly concerning coking coal, iron ore and oil & fuel have pushed the market prices of steel. Global crude steel production reached at 1,951 MnT in 2021, which was higher by 70 MnT than 2020. While China continued to be the largest global crude steel producer, there were moderate growth in steel production in countries such as India, Japan, USA, Germany and Brazil, amongst others, signifying normalcy in operations during the pandemic.

The Russia-Ukraine conflict has caused panic in the market about supply shortage with the result that prices have moved north radically, be it iron ore or coking coal. Prices of steel have also responded to the crisis but its northward movement so far has been limited. Increasing risk of procurement, constraints of financial approval, non-accessibility due to port blockage, growing uncertainty about availability, rising safety and security concerns are among the major factors that have driven sentiments in the commodity markets around the world. To what extent, steel prices would be impacted hinges significantly on the extent of aggravation of the Russia-Ukraine crisis and its longevity.

OUTLOOK

The current forecast assumes that, with the progress of vaccinations across the world, the spread of variants of the COVID -19 virus will be less damaging and disruptive than seen in previous waves. Strong manufacturing activity bolstered by pent-up demand will remain as a significant contributor. The developed economies have outperformed the expectations by a larger margin than the developing economies, reflecting the positive benefit of higher vaccination rates and government support measures. In the emerging economies, especially in Asia, the recovery momentum was interrupted by the resurgence of pandemic. While the manufacturing sectors recovery remained more resilient to the new waves of infection than expected, supply side constraints led to a levelling off the recovery in the second half of the year thereby preventing a stronger recovery in 2021. However, with high backlog orders combined with a rebuilding of inventories and further progress in vaccinations in developing countries, we expect steel demand will continue to recover in 2022. Persistent rising inflation, continued slow vaccination progress in developing countries and further growth deceleration in China continues to pose threat to this forecast.

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. During the year, the Company has planned to increase its Pellet production capacity from the existing capacity of 6,00,000 MT p.a to 12,00,000 MT p.a in F.Y. 202223 at an overall CAPEX outlay of Rs 12,500 Lacs approx. These investments, efficiently executed, shall give the Company higher productivity, superior cost profile to serve a growing domestic and global market.

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 2021-22 Financial Year 2020-21 Change (%) Reason for change
Operating Profit Margin (%) (6.91) (16.08) 57.04 Increase in Sales prices
Net Profit Margin (%) (7.49) (21.31) (64.85) Due to decrease in losses & increase in revenue
Interest Coverage Ratio (X) (9.92) (3.06) (224.03) Reduction in Finance cost
Inventory Turnover Ratio (X) 1.12 0.65 72.89 Due to increase in revenue

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 3.47 Lacs MT of Ferrous and Non-Ferrous material as against 3.23 Lacs of MT of Iron & Steel in previous year registering an increase of 7.43% over previous year. This is mainly on account of increase 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.

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, 2022, the Company has 999 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.