Ashirwad Steels & Industries Ltd Management Discussions.


(Part of Board/Annual Report)

As per SEBI disclosure regulation 34(3) and schedule V (clause-B)

(For the Financial Year ended 31st March, 2020)

(a) Industry Structure and Developments:

The principal product of the Company is Sponge Iron which is manufactured at its Plant located at Jamshedpur. Sponge Iron is used by secondary steel melting shops (induction furnaces) for making steel billets/ingots which in turn are used by the rerollers for making long products (TMT BARS) used in the house building and in the infra-structure development. The selling prices of Sponge Iron are market driven and fluctuate widely and the Company has no control over it. The principal components of cost of Sponge Iron are coal, iron ore and freight and the Company has virtually no control on their availability and cost due to near monopoly status of mine owners and heavy unionism of local transporters. The standalone sponge iron plants in the country have been suffering for last several years for the said reasons particularly as the iron ore mine owners leave nothing much on the table for the industry with frequent hikes in the prices and as such several sponge iron plants are lying closed or operating at lower capacity and there is virtually no hope of any meaningful turn around in the near future particularly as iron ore availability and prices have become more uncertain as most of the iron ore mining leases had expired on 31.3.2020 and the govt has allotted the same to the highest bidders through E- Auction .The new allottees have made very aggressive bids and it is uncertain when will they start mining after completion of host of formalities and what will be the price of iron ore ?

(b) Opportunities and Threats :

The consumption of Sponge Iron is mainly linked with the consumption of TMT Bars used in house building and infrastructure sectors. The house building/real estate sector is undergoing slow down for the last several years and still struggling due to lower demand/sales and excess supply and the problem has accentuated due to prolonged lock down in the country declared by government since 25.03.2020 due to COVID Virus disease. The infrastructure and road building sector had seen some revival in the past few years on account of government spending and focus on these sectors but this sector will also suffer due to lock down. The demand for TMT bars keep fluctuating and are not stable and accordingly the selling prices also change quite abnormally and suddenly.

The availability of iron ore and coal in adequate quantity and at affordable prices have been and are the major threats to the Sponge Iron Industry. The government needs to put in to place a suitable mechanism to ensure availability of iron ore and coal to the sponge iron industry in adequate quantity and at affordable rates on a consistent basis by stopping/restricting the high profit taking attitude and mentality of the iron ore mine owners and of coal India limited. The government also needs to facilitate opening of new iron ore and commercial coal mines to create healthy competition so that their selling prices remain reasonable and affordable to the sponge iron/steel industry and the sponge/steel production in the country could increase speedily .

(c) Segment-wise Product-wise performance:

Your Company has only two segments namely Sponge Iron and gas taking into account the nature of the product, uses and production system. However, your Company mainly operates under the "Iron & Steel" Segment (the gas bottling plant at Raigarh being inoperative ) and hence segment-wise result has not been given.

(d) Outlook :

In view of what has been stated in foregoing paragraphs; your Management perceives that the outlook of the Sponge iron Industry in the current financial year 2020-2021 looks grim unless the input cost becomes reasonable and affordable and the Governments and private sector start investing heavily in-house building and infrastructures so as to boost the demand for TMT bars which in turn can boost the Sponge Iron selling prices to reasonable and remunerative levels. The govt needs to aggressively help the real estate sector which is in recession for past several years due to low demand resulting in high level of unsold inventory with builders/promoters.

(e) Risks & Concerns :

Risk is inherent in every business activity and Sponge Iron Industry is no exception. The steel industry displays strong commodity characteristics and is subject to cyclical price movements in business cycles. The Company is exposed to risks from overall market fluctuations, cheaper import of steel, changes in government policy, laws of the land, taxation, man-made disaster, political risks and increase in cost of inputs like Iron ore, coal, power, diesel, freight, etc. which affect the financial performance of the Company.

(f) Internal Control System and its Adequacy :

The Company has proper and adequate system of internal controls commensurate with its size and nature of operations to provide reasonable assurance that all assets are safe guarded, transactions are authorized, recorded and reported properly and applicable statutes are duly complied with. The Company has constituted an Audit Committee to monitor the adequacy and efficacy of internal control systems.

The adequacy of these compliances and their effectiveness is subject to statutory audit and the same has been adequately reported by the Auditors in their report as required under the relevant provisions of the Companies Act, 2013. The Company also has an Internal Audit System.

(g) Discussions on financial performance with reference to operational Performance:

During the year under review the Companys operational and financial performance has been quite dissatisfactory. During the year the production of Sponge Iron was only 4356 M.T. the Companys revenue from operations net of taxes stood at Rs 818.11 lacs (previous year Rs.276.47 lacs) and the other income stood at Rs 298.54 lacs (previous year Rs.1473.58 lacs) and hence the total income stood at Rs 1116.65 lacs (previous year Rs.1705.05 lacs). The company has incurred a net loss of Rs (367.28) lacs (previous year net profit of Rs.752.42 lacs). The Other Comprehensive Income (OCI) for the year stood at Rs.- 120.04 lacs (previous year Rs.42.71 lacs). The total comprehensive income for the year stood at Rs.-487.32 lacs (previous year Rs.795.13 lacs).

(h) Material Developments in HRD and industrial Relations Front:

Your Directors recognize the value of employees as valuable assets. Developing, motivating, and retaining talented employees is a key responsibility and policy of your Companys management. The total no. of people employed by the company were thirteen as on year end.

i) Cautionary Statements:

Statements in this management discussion and analysis report describing the Companys objectives, projections, estimates and expectations may be termed as forward looking statements within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed or implied. The readers of this report are, therefore, advised to read the same with this caution.

Place : Kolkata

For and on behalf of the Board

Dated : 19.06.2020
Dalbir Chhibbar Vishesh Chhibbar
Managing Director Director
(DIN :00550703) (DIN:03553892)