Bedmutha Industries Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis Report for the year under review, as per regulation 34 (2) of SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015 is presented as below.

Economic and Industry Overview:

Fiscal year 2020-21 ends. With an estimated annual contraction of 8% in GDP, 2020-21 has been the worst year in terms of economic performance in India since 1950-51, the earliest period for which data is available.

The bad growth performance in 2020-21 is largely on account of the 68-day long hard lockdown which was imposed on March 25 2020 to prevent the spread of Covid-19 infections.

While the Indian economy was losing growth momentum for several years before the pandemic, the exceptionally bad growth performance in 2020-21 is largely on account of the 68-day long hard lockdown which was imposed on March 25 2020 to prevent the spread of Covid-19 infections in the country, and continuing restrictions on economic and recreational activities for the rest of the year.

To be sure, the economy has been recovering with the easing of restrictions. Indias GDP re-entered growth territory in the quarter ending December 2020.

Retail inflation as measured by the Consumer Price Index (CPI) stayed above 6%; the upper limit of the Reserve Bank of Indias tolerance band, continuously between April and November 2020.

While headline CPI growth fell sharply from 7.6% in October 2020 to just 4.1% in January 2021, it accelerated once again in February to 5%.

The crucial difference between inflation in 2020 and 2021 is the trajectory of food and non-food prices. The 2020 inflationary surge and subsequent moderation was largely driven by food prices, but over the past few months non-food inflation has been slowly gaining momentum in the economy.

Among the biggest uncertainties regarding the pandemics impact on the Indian economy is its impact on taxes. Even provisional estimates for the central governments tax collections in 2020-21 will only be available in May.

The government slashed its Budget Estimates (BE) of 2020-21 Gross Tax Revenue collection by more than 21% in the Revised Estimates (RE) which were published in the 2021-22 Budget.

The gap between government expenditure and revenue was estimated at Rs.12 trillion due to increased borrowings by the government in May 2020 to address the COVID-19 outbreak.

Saving Lives and Livelihoods amidst a Once-in-a-Century Crisis

• India focused on saving lives and livelihoods by its willingness to take short-term pain for long-term gain, at the onset of the COVID-19 pandemic

• Response stemmed from the humane principle that Human lives lost cannot be brought back, GDP growth will recover from the temporary shock caused by the pandemic

• An early, intense lockdown provided a win-win strategy to save lives, and preserve livelihoods via economic recovery in the medium to long-term

• Strategy also motivated by the Nobel-Prize winning research by Hansen & Sargent (2001): a policy focused on minimizing losses in a worst-case scenario when uncertainty is very high

COVID-19 pandemic emphasized the importance of healthcare sector and its inter-linkages with other sectors - showcased how a health crisis transformed into an economic and social crisis.

While China is forecasted to continue its rapid growth in 2021, Latin America and the Eurozone is expected to lag behind. US saw overall GDP decline of 3.5%. Indias economy rebounded quickly from one of the worlds longest and most stringent lockdowns, which also came with steepest fall in GDP in Q2. Real GDP grew by 0.4% in Q3FY2021 after a contraction in the previous two quarters. Real GDP is estimated to have contracted by ~8% in FY 2020-21 India is expected to witness a full economic recovery in H2FY2022 driven by (a) ongoing vaccination supporting the current recovery momentum;

Disruption on both demand and supply resulted in global steel demand in 2020 to fall by 0.2% against a growth of 3.7% in 2019.

China and Turkey were two key countries that saw an increase in finished steel demand of 9% and 13% respectively in 2020.

India also contributed to global decline, as steel consumption in India declined by 13.7% to 88.5 MnT in 2020 against 102.6 MnT in 2019.

The construction sector was less affected, as it was supported by government stimulus schemes in many regions. As a result, steel prices rallied in all regions in late 2020.

Steel demand is expected to be strong due to recovery in manufacturing businesses around the world and global fiscal stimulus supporting infrastructure projects. The outlook for 2021 is expected to be positive because of the unprecedented fiscal stimulus provided by the governments across the Globe.

Steel demand in key emerging economies (like India, Turkey) and Europe is expected to witness double digit recovery Indias steel industry has also suffered the production loss due to lockdown last year and recovered gradually since then, initially driven by export followed by gradual recovery in domestic demand. Strong rebound in manufacturing and infrastructure development activity has led to a sharp rise in both production and consumption of steel in India. In 2021, Indias steel demand is expected to grow by 20% over 2020, taking the demand higher than the pre-pandemic level , driven by strong infrastructure spending and sustained demand of automotive and consumer durables.

The key opportunities boosting the steel demand are as follows:

• Governments focus on strengthening the domestic manufacturing base under the flagship "Atmanirbhar Bharat" programme. The Production Linked Incentive scheme has been introduced to boost the manufacturing sector in industries like automobile & auto components, consumer durables, solar equipment, telecom, etc. These are expected to boost steel consumption.

• Government has announced an investment of over 01 trillion in infrastructure over the next 5 years.

• Emergence of new trends after COVID-19 such as work from home, preference to physical distancing would create additional demand for furniture, personal mobility, etc. In addition, the rise in e-commerce activity will support the growth of warehousing and light commercial vehicles.

‘ Atmanirbhar Bharat economic stimulus package which was announced by the Government of India included the following measures: -

• Reduction of tax burden for most vulnerable firms such as SMEs.

• Relaxation of NPA norms.

• For SMEs: reducing interest rates, increasing debt rollovers.

• Waiver of fixed charges such as fixed electricity charges for small businesses.

• Validity of licenses/approvals/NOCs (eg. Consent to operate, EC etc.) for another 6 months wherever required to ensure sustained operations post lockdown and avoid potential challenges due to clearance bottlenecks post lockdown.

• GST credit/rebate for salaries paid during lockdown, ESIC/EPF payment relaxation for high employment multiplier industries like steel.

• Deferred payment of mining dues including royalty without penal interests.

• 6 month moratorium on payment of registration charges, upfront payment etc. for recently auctioned mines.

• Extension of time to comply with new mining lease requirements.

• Waiver of compensation cess on coal.

Industry Structure and Development

During the period of January to December, 2020, India remained the 2nd largest producer of Crude Steel in the world.

The Crude Steel production expanded from 95.477 Million Tonne (MT) in 2016 to 99.57 MT (provisional) in 2020. However, the Crude Steel production showed a decline of 10.6% over the Corresponding Period Last Year (CPLY).

Capacity for domestic crude steel expanded from 128.277 Million Tonne Per Annum (MTPA) in 2016 to 142.724 MTPA in 2020.

Facts for total finished steel (non-alloy + alloy/stainless):

• Production of total Finished Steel stood at 91.435 MT showing a decline of 12.1% over the year.

• Export of total Finished Steel stood at 10.15 MT showing an annual growth of 23.7%.

• Import of total Finished Steel was at 4.463 MT, down by 40.0% over the CPLY.

• India was a net exporter of total Finished Steel (in volume).

• Consumption of total Finished Steel was 88.535 MT showing a decline of 13.7% over the CPLY

National Steel Policy (NSP) 2017 was implemented to encourage the Industry to reach the Global benchmarks.

Under the Union Budget 2021-22, the Government allocated Rs.39.25 crores (US $ 5.4 millions) to the Ministry of Steel.

Ease availability of low cost man power and presence of abundant iron ore reserves make India completive in the global set up.

Increased steel demand from sectors including infrastructure, oil and gas and automotive will drive the growth of the Industry. In April 2021, India finished consumption stood at 6.78 MT. According to CARE ratings crude steel production is expected to reach 112-114 MT, an increase of 8-9% YoY, in FY 2022, which will be supported by economic recovery, government spending and enhanced liquidity.

The industry is witnessing consolidation of players, which has led to investment by entities from other sectors. The ongoing consolidation also presents an opportunity to global players to enter the Indian market.

According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), the Indian metallurgical industries attracted Foreign Direct Investment (FDI) to the tune of US$ 14.24 billion in the period April 2000-September 2020.

Our business: our products are down-stream products, and we except vast potential in the years to come on account of the Government initiatives like Atmanirbhar Bharat, Production link Incentives announced recently and thrust of Government spending on building the national Infrastructure like rail, road, port, digitalization where there is application of our products.

Business Environment:

India jumped 14 places to 63 in the 2020 World Banks Ease of Doing Business ranking and was the only country in the emerging market basket that received positive FPIs of USD 23.6 billion in 2020; the country ranked eighth among the worlds top stock markets with a market capitalisation of USD 2.5 trillion in 2020.

Indias Gross Domestic Product (GDP) contracted 7.3% in 2020-21, as per provisional National Income estimates released by the National Statistical Office, marginally better than the 8% contraction in the economy projected earlier. GDP growth in 2019-20, prior to the COVID-19 pandemic, was 4%.

The fourth quarter of 2020-21 recorded a growth of 1.6% in GDP, the second quarter of positive growth, after the country had entered a technical recession in the first half of the year. The Gross Value Added recorded 3.7% growth in Q4, compared to 1% in Q3. GVA had contracted 22.4% and 7.3% in the first and second quarters of 2020-21.

GDP had contracted 24.4% in the April to June 2020 quarter, followed by a 7.4% shrinkage in the second quarter. It had returned to positive territory in the September to December quarter with a marginal 0.5% growth.

The country has witnessed good economic growth for two quarters consecutively with the unlocking of the economy that led the operations to scale up leading to better revenue generation. The second wave of pandemic may temporarily slower the economic growth in Q1FY22, however, the nationwide vaccination drive has helped in improving the business sentiment across the country.

India is expected to witness a full economic recovery FY 2022-23 driven by (a) ongoing vaccination supporting the current recovery momentum; (b) restart of investment cycle with significant spending on infrastructure and (c) continued recovery in consumption supported by urban demand.

According to the Industry chamber FICCIs survey, the overall capacity utilisation in manufacturing witnessed a rise to 74 percent in Q3 as compared to 65 percent in previous quarter. The future investment outlook was slightly better as 30 percent of respondents reported plans for capacity additions for the next six months as compared to 18 percent in previous quarter. Also growth assessment going forward for metal and metal products predicted at strong level as compared to earlier quarters of the FY 2020-21.

High raw material prices, high cost of finance, shortage of skilled labor and working capital, high logistics cost, low domestic and global demand due to imposition of lockdown across all countries to contain spread of coronavirus, excess capacities due to high volume of cheap imports into India, lack of financial assistance, uncertain demand scenario across globe, complex procedures for obtaining environmental clearances, high power tariff, are some of the major constraints which were highlighted.

The Indian government initiated structural reforms in agriculture, labour laws and medium-small enterprise segments. The labour reforms were intended to empower MSMEs increase employment, enhance labour productivity and wages.

The Government relaxed foreign direct investment (FDI) norms for sectors like defence, coal mining, contract manufacturing and single-brand retail trading.

Financial Performance:

The top line of the Company for the Financial Year 2020-21 is Rs.388.08 crores increased by Rs.28.30 crores in comparison for the Financial Year 2019-20.

As conveyed in the last Annual General Meeting regarding progress of implementation of Restructuring Plan, we further wants to keep you informed that the Restructuring Plan has been successfully implemented on January 16, 2021. It has created positive impact on the financials of the Company for the Financial Year 2020-21 due to following features of the Restructuring Plan:

a) Rs.42.50 crores has been invested by the Investors and Promoters into the Company as on January 16, 2021 at total price of Rs.55/- per share including premium of Rs.45/- and Rs.10/- face value.

b) Consortium Banks have converted unsustainable loan of Rs.230.15 crores into Non-Convertible Cumulative Redeemable Preference Shares (CRPS) with coupon rate of 1.00% w.e.f. 01/01/2018. Hence, bank loan on the Company reduced by Rs.230.15 crores w.e.f. 01/01/2018

c) The Banks have also reduced the interest rate on sustainable loan from 12% pa to 9.05% pa w.e.f. 01/01/2018.

Now, the Company is in full swing to ramp the production to the desired quantity so as to achieve the desired results as noted in the Restructuring Plan.

RISK, OPPORTUNITIES AND THREATS:

Opportunities:

Due to structural changes brought out by the present government, more particularly by introduction of GST (Goods & Service Tax). The whole Country has become one market, due to this sea change in taxation; our company sees seamless growth in the market for our products.

Our companies product namely Steel Wire, Wire Products, wire ropes & Copper products, has wide application in Infrastructure segment and same being the focus of our country for its growth, we see lot of opportunity for our products.

RISKS AND THREATS:

The risks which the Company may face are discussed as follows.

i) Present Pandemic Risk:

The rapid spread of Covid 19 since March 2020, has caught the whole world unaware of the risk. All are navigating the path of total uncertainty and this is the biggest risk for the Company going forward this Current Financial Year 2021-22.

ii) Health, Safety and Environment Risk:

The manufacture of steel wire involves processes that are potentially hazardous if not executed with due care.

The business of the Company are subject to numerous laws, regulations and contractual commitments relating to health, safety of the staffs and laborers and the environment in the country and these rules and regulations are becoming more stringent. A better safety performance, not only enhances life and effectiveness of human and capital assets, but also improves their availability and reduces losses due to safety incidents.

To minimize the risk, and to enhance the health and safety of employees, our company is adhering to ISO. 18000 system.

iii) Technology Risk:

A key challenge before the Company is to ensure that its plants are equipped with updated technologies in order to serve clients better and secure cost competitiveness. To that effect, the management of the Company has continued to gear up the improving existing process so as to advance the groups cost competitive position.

The management upgrades the machineries with the latest improvements to cope up with the market demand and for development of the existing products. The company improves its product line to the next level in the competitive market.

iv) Currency Risk:

The Companys functional currency is Indian Rupees (INR). The Company undertakes transactions denominated in foreign currencies; consequently, exposure to exchange rate fluctuations arise. Volatility in exchange rates affects the Companys revenue from export markets and the costs of imports, primarily in relation to raw materials. The Company is exposed to exchange rate risk under its trade and debt portfolio. Adverse movements in the exchange rate between the Rupee and any relevant foreign currency results in increase in the Companys overall debt position in Rupee terms without the Company having incurred additional debt and favorable movements in the exchange rates will conversely result in reduction in the Companys receivables in foreign currency. The Companys currency exposures in respect of monetary items at March 31,2021 & March 31,2020 that result in net currency gains and losses in the income statement arise principally from movement in US Dollar and Euro exchange rates. Currently, this currency risk exposure is hedged with forward cover.

v) Financing Risk:

Our Company manages financial risks to maintain a prudent financing strategy, even when undertaking major investment, and therefore taking controlled risks in the area.

vi) Interest Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company at present does not have any floating interest rate borrowings and other Long term borrowings of the company are at fixed interest rate. Thus the company does not have any interest rate risk at present.

vii) Liquidity Risks

Liquidity Risk is defined as the risk that the company will not be able to settle or meet its obligations on time or at reasonable price. The Company is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. The Company monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Companys present operations and to mitigate the effects of fluctuations in cash flows. However, the liquidity crisis has led to defaults in repayments and interest payment to lenders, for which the Company had approached Lenders for Restructuring and has been sanctioned and implemented.

Further the repayment of loan is based on the cash flow from subsidies to be received from Government of Maharashtra for setting up the Mega Project in the backward area of the state, which is likely to get delayed due to Government priority to allot more funds to health sector, we are trying to mitigate the short fall by availing the funds through other sources like bridge loan etc.

viii) Regulatory and Compliance Risk:

There are number of complex laws and regulations and multiple compliances to be complied with by the Company. Further, unstable political system and frequent changes in investment and economic policies are common and any unforeseen change can expose the Companys business. This signifies the alignment of corporate performance objectives, while ensuring compliance with regulatory requirements.

RESEARCH & DEVELOPMENT

Your Companys Technology function continues to support the Companys growth strategy with focus on new capabilities/ technology development, development for substantially new products, feature enhancement of existing products and productivity improvement.

Internal control systems and their adequacy

The Companies Act, 2013 re-emphasizes the need for an effective Internal Financial Control System (IFC) in the Company which should be adequate and shall operate effectively. The Company has an Internal Control System including Internal Financial Controls, commensurate with the size, scale and complexity of its operations. The same is approved by Audit Committee. The Joint Internal Auditors evaluate the efficacy and adequacy of internal control system, accounting procedures and policies adopted by the Company for efficient conduct of its business, adherence to Companys policies, safeguarding of Companys assets, prevention and detection of frauds & errors and timely preparation of reliable financial information etc. The Internal Financial Controls are adequate and working effectively. The scope and authority of the Internal Audit is laid down by the Audit Committee and accordingly the Internal Audit Plan is approved.

The Board is of the opinion that the Company has a process in place to continuously monitor the existing controls and identify gaps, if any, and implement new and /or improved controls wherever the effect of such gaps would have a material effect on the Companys operations.

INFORMATION TECHNOLOGY

Your Company continues to be in forefront of leveraging relevant Information Technology trends to better facilitate the business and enhance the value proposition to its customers.

HUMAN RESOURCES DEVELOPMENT

As on 31st March 2021, the number of permanent employees in the Company is 525 at various levels. Talent management has always been the crucial factor for the Company, as your Company believes that its continued success will depend on its ability to attract and retain key personnel with relevant skills and experience. The attrition rate among the Top Management of the Company has been negligible in last many years. The Company has robust process of human resource development. The Company has a HR Policy in place and encouraging working environment. The Company has continued to focus on various aspects like employee training, welfare and safety thereby maintaining a constructive relationship with employees.

The Management had taken all required efforts for implementation of terms and conditions laid down by Ministry of Home Affairs of Central Government of India for prevention of outbreak at work places through detailed Standard Operating Procedure and Human Resource Department had taken effort in its implementation at all the sites. Moreover, all the required insurance policies were obtained for employees of the Company and its subcontractors, manpower suppliers for providing treatment cover for COVID-19 infection. The necessary arrangement were made through site HR officials for groceries, vegetables during lockdown phases and the required home isolation facilities were allocated to the workers of subcontractors too during the entire period.

Details of significant changes in key financial ratios

Particulars FY 2020-21 FY 2019-2020
Current Ratio 1.37 0.47
Net Profit Margin ratio(%) 50.44 -19.83
Return on Net Worth(%) 249.47 -
Debt Equity Ratio 3.40 -2.88
Interest Coverage ratio(%) 4.19 -0.11
Operating Margin ratio(%) 66.56 -1.94

The significant changes in the ratios and net worth was mainly on account of implementation of Restructuring Plan on January 16, 2021. It has created positive impact on the financials of the Company for the Financial Year 2020-21 due to following features of the Restructuring Plan:

a) Rs.42.50 crores has been invested by the Investors and Promoters into the Company as on January 16, 2021 at total price of Rs.55/- per share including premium of Rs.45/- and Rs.10/- face value.

b) Consortium Banks have converted unsustainable loan of Rs.230.15 crores into Non-Convertible Cumulative

Redeemable Preference Shares (CRPS) with coupon rate of 1.00% w.e.f. 01/01/2018. Hence, bank loan on the Company reduced by Rs.230.15 crores w.e.f. 01/01/2018

c) The Banks have also reduced the interest rate on sustainable loan from 12% pa to 9.05% pa w.e.f. 01/01/2018.

d) During the Quarter 4 FY 2020-21, the Company has reserved interest provision on account of issued CRPS. Gain arising from the reversal is shown under other income. Also under IND AS, CRPS is shown as financial liability and discounted to its net present value (NPV). The difference between issue proceeds and NPV has been shown as gain on initial recognition under other income.

In line with the requirements of the restructuring, the Board of Directors has approved and completed the following Preferential Issues of Equity & Preference Shares of the Company:

• Allotted 68,23,182 Equity Shares of Rs.10/- each for cash @ 55/ per Equity Share (including a premium of Rs.45/- per Equity Share) aggregating to Rs.37,52,75,010/- to 3 Corporates belonging to Non-Promoter category;

• Allotted 9,09,091 Equity Shares of Rs.10/- each for cash @ Rs.55/- per Equity Share (including a premium of Rs.45/- per Equity Share) aggregating to Rs.5,00,00,005/- to K.R. Bedmutha Techno Associates Private Limited, Promoter Group category; and

• Allotted 23,01,500, in aggregate, 1.00% Non-Convertible Cumulative Redeemable Preference Shares ("CRPS") having a face value of Rs.10/- each, at Rs.1000/-, aggregating to Rs.230,15,00,000/-, to Punjab National Bank, Bank of Baroda, Bank of India, Exim Bank and Andhra Bank (now Union Bank), as per the Loan Restructuring scheme.

DISCLOSURE OF ACCOUNTING TREATMENT:

The Company has consistently followed a treatment that has been prescribed in Indian Accounting Standards (Ind AS) in the preparation of financial statements and the same shows true and fair view of the financial statements.

CAUTIONARY STATEMENT:

Statement in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be ‘forward-looking statements within the meaning of applicable Securities Laws and Regulations. Actual results could differ materially from those expressed or implied. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise.

Outlook:

IN FY 2022, we look better year than FY 2021 on account of two factors internal and external. On front of internal, our loans has been restructured by the Lenders and thus financial cost has been brought on realistic level and we have plans to ramp up the production to maximize the capacity utilisation on all product segment.

On external front, due to control on spread of Covid 19, the economic activity is expected to be back to normal and also due to long term initiatives by Government to take the National GDP to 5.00 trillion dollar economy by 2025.

For Bedmutha Industries Ltd.
Vijay Vedmutha
Chairman and Managing Director
Date: August 13, 2021 DIN:00716056
Place: Sinnar