Global economy
Overview: The global economic growth was estimated at a slower 3.2%
in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the
pandemic effect). The relatively slow global growth of 2022 was marked by the Russian
invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher
interest rates, global liquidity squeeze and quantitative tightening by the US Federal
Reserve.
The challenges of 2022 translated into moderated spending, disrupted
trade and increased energy costs. Global inflation was 8.7% in 2022, among the highest in
decades. US consumer prices decreased about 6.5% in 2022, the highest in four decades. The
Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result
is that the world ended in 2022 concerned that the following year would be slower.
The global equities, bonds and crypto assets reported an aggregated
value drawdown of USD26 trillion from peak, equivalent to 26% of the global gross domestic
product (GDP). In 2022, there was a concurrently unique decline in bond and equity
markets; 2022 was the only year when the S&P 500 and 10-year US treasuries delivered
negative returns of more than 10%.
Gross FDI inflows - equity, reinvested earnings and other capital -
declined 8.4% to US$ 55.3 Bn in April-December. The decline was even sharper in the case
of FDI inflows as equity: these fell 15% to US$ 36.75 Bn between April and December 2022.
Global trade expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023).
The S&P GSCI TR(Global benchmark for commodity performance) fell
from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There was a decline in
crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realisations. Brent
crude oil dropped from a peak of around USD 120 per barrel in June 2022 to USD 80 per
barrel at the end of the calendar year following the enhanced availability of low- cost
Russian oil.
| Regional growth (%) |
2022 |
2021 |
| World output |
3.6 |
5.9 |
| Advanced economies |
3.2 |
5.7 |
| Emerging and developing economies |
4.6 |
6.3 |
Outlook
The global economy is expected to grow 2.8% in 2023, influenced by the
ongoing Russia-Ukraine conflict. Concurrently, global inflation is projected to fall
marginally to 7%. Despite these challenges, there are positive elements within the global
economic landscape. The largest economies like China, the US, the European Union, India,
Japan, the UK and South Korea are not in a recession.
Approximately 70% of the global economy demonstrates resilience, with
no major financial distress observed in large emerging economies. The energy shock in
Europe did not result in a recession and significant developments, including Chinas
progressive departure from its strict zero-Covid policy and the resolution of the European
energy crisis, fostered optimism for an improved global trade performance. Despite high
inflation, the US economy demonstrated robust consumer demand in 2022. Driven by these
positive factors, global inflation is likely to be still relatively high at 4.9% in 2024.
Interestingly, even as the global economy is projected to grow less than 3% for the next
five years, India and China are projected to account for half the global growth (Source:
IMF).
Indian economy
Overview: Even as the global conflict remained geographically
distant from India, ripples comprised increased oil import bills, inflation, cautious
government and a sluggish equity market. Indias economic growth is at 7.2% in FY 2022-23.
India emerged as the second fastest- growing G20 economy in FY 2022-23. India overtook UK
to become the fifth-largest global economy. India surpassed China to become the worlds
most populous nation (Source: IMF, World Bank)
Growth of the Indian economy
|
FY 20 |
FY 21 |
FY 22 |
FY23 |
| Real GDP growth (%) |
3.7 |
(6.6) |
8.7 |
7.2 |
Growth of the Indian economy quarter by quarter, FY 2022-23
| Q1FY23 |
Q2FY23 |
Q3FY23 |
Q4FY23 |
| Real GDP growth (%) 13.1 |
6.3 |
4.4 |
6.1 |
(Source: Budget FY24; Economy Projections, RBI projections)
According to the India Meteorological Department, the year 2022
delivered 8% higher rainfall over the long-period average. Due to unseasonal rains,
Indias wheat harvest was expected to fall to around 102 Mn Metric Tonnes (MMT) in 2022-23
from 107 MMT in the preceding year. Rice production at 132 Mn Metric Tonnes (MMT) was
almost at par with the previous year. Pulses acreage grew to 31 Mn hectares from 28 Mn
hectares. Due to a renewed focus, oilseeds area increased 7.31% from 102.36 Lakh hectares
in 2021- 22 to 109.84 Lakh hectares in 2022-23.
Indias auto industry grew 21% in FY 2022- 23; passenger vehicle (UVs,
cars and vans) retail sales touched a record 3.9 Mn units in FY 2022-23, crossing 3.2 Mn
units in FY19. The commercial vehicles segment grew 33%. Two-wheeler sales fell to a
seven-year low; the three-wheeler category grew 84%.
Till the end of Q3FY 2022-23, total gross non-performing assets (NPAs)
of the banking system fell to 4.5% from 6.5% a year ago. Gross NPA for FY 2022-23 was
expected to be 4.2% and a further drop is predicted to 3.8% in FY 2023-24.
As Indias domestic demand remained steady amidst a global slowdown,
import growth in FY 2022-23 was estimated at 16.5% to US$ 714 Bn as against US$ 613 Bn in
FY 2021-22. Indias merchandise exports were up 6% to US$ 447 Bn in FY 2022- 23. Indias
total exports (merchandise and services) in FY 2022-23 grew 14% to a record of US$775 Bn
in FY 2022-23 and is expected to touch US$ 900 Bn in FY 2023- 24. Till Q3 FY 2022-23,
Indias current account deficit, a crucial indicator of the countrys balance of payments
position, decreased to US$18.2 Bn, or 2.2% of GDP. Indias fiscal deficit was estimated in
nominal terms at ~ Rs.17.55 Lakh Cr and 6.4% of GDP for the year ending 31st March, 2023.
(Source: Ministry of Trade & Commerce)
The positive impact of government reforms aimed at fostering ease of
doing business, attracting foreign investment, and promoting entrepreneurship is expected
to be a key growth enabler.
These measures are likely to enhance the business environment, leading
to increased investments and job creation. Investments in the sector have been on the rise
and initiatives like Make in India are aiming to turn the south Asian country into a
global manufacturing hub. The annual growth rate of production in the manufacturing
industry was 11.40% during fiscal year 2022.
The countrys retail inflation, measured by the consumer price index
(CPI), eased to 5.66% in March 2023. Inflation data on the Wholesale Price Index, WPI
(calculates the overall price of goods before retail) eased to 1.3% during the period. In
2022, CPI hit its highest of 7.79% in April; WPI reached its highest of 15.88% in May
2022. By the close of the year under review, inflation had begun trending down and in
April 2023 declined below 5%, its lowest in months.
Indias total industrial output for FY 2022- 23, as measured by the
Index of Industrial Production or IIP, grew 5.1% year-on-year as against a growth of 11.4%
in 2021-22.
India moved up in the Ease of Doing Business (EoDB) rankings from 100th
in 2017 to 63rd in 2022. As of March 2023, Indias unemployment rate was 7.8%.
In 2022-23, total receipts (other than borrowings) were estimated at
6.5% higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by
11.1% Y-o-Y in RE 2022-23.
In conclusion, Indias economy is projected to grow at a healthy 7.5%
in 2023-24, driven by the expansion of the manufacturing and services sectors, alongside
government reforms. Nevertheless, prudent monitoring and strategic policy responses are
crucial to address the risks stemming from trade tensions, domestic political uncertainty,
and global economic developments, to ensure sustained and inclusive economic progress in
the country.
Outlook
There are green shoots of economic revival, marked by an increase in
rural growth during the last quarter and appreciable decline in consumer price index
inflation to less than 5% in April 2023. India is expected to grow around 6-6.5% (as per
various sources) in FY 2023- 24, catalysed in no small measure by the governments 35%
capital expenditure growth by the government. The growth could also be driven by
broad-based credit expansion, better capacity utilisation and improving trade deficit.
Headline and core inflation could trend down. Private sector investments could revive.
What provides optimism is that even as the global structural shifts are creating a wider
berth for Indias exports, the country is making its largest infrastructure investment.
This unprecedented investment is expected to translate into a robust building block that,
going ahead, moderates logistics costs, facilitates a quicker transfer of products and
empowers the country to become increasingly competitive. This can benefit Indias exports
in general, benefiting several sectors. The construction of national highways in 2022-23
was 10,993
Km; the Ministry of Road Transport and Highways awarded highway
contracts of 12,375 km in the last financial year (Source: IMF).
The global landscape favours India: Europe is moving towards a probable
recession, the US economy is slowing, Chinas GDP growth forecast of 4.4% is less than
Indias GDP estimate of 6.8% and America and Europe are experiencing its highest inflation
in 40 years.
Indias production-linked incentive appears to catalyse the downstream
sectors. Inflation is steady. India is at the cusp of making significant investments in
renewable energy and other sectors and emerging as a suitable industrial supplement to
China. India is poised to outpace Germany and Japan and emerge as the third-largest
economy by the end of the decade. The outlook for private business investment remains
positive despite an increase in interest rates. India is less exposed to Chinese economic
weakness, with much less direct trade with China than many Asian peers.
Broad-based credit growth, improving capacity utilisation, governments
thrust on capital spending and infrastructure should bolster investment activity.
According to our surveys, manufacturing, services and infrastructure sector firms are
optimistic about the business outlook. The downside risks are protracted geopolitical
tensions, tightening global financial conditions and slowing external demand.
Union Budget FY 2023-24 provisions
The Budget 2022-23 sought to lay the foundation for the future of the
Indian economy by raising capital investment outlay by 33% to Rs.10 Lakh Cr, equivalent to
3.3% of GDP and almost three times the 2019-20 outlay, through various projects like PM
Gatishakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise
Opportunities, Energy Transition and Climate Action, as well as Financing of Investments.
An outlay of Rs.5.94 Lakh Cr was made to the Ministry of Defence (13.18% of the total
Budget outlay). An announcement of nearly Rs.20,000 Cr was made for the PM Gati Shakti
National Master Plan to catalyse the infrastructure sector. An outlay of Rs.1.97 Lakh Cr
was announced for Production Linked Incentive schemes across 13 sectors. The Indian
government intends to accelerate road construction in FY 2023-24 by 16-21% to
12,000-12,500 km. The overall road construction project pipeline remains robust at 55,000
km across various execution stages. These realities indicate that a structural shift is
underway that could strengthen Indias positioning as a long-term provider of manufactured
products and its emergence as a credible global supplier of goods and services.
Indian steel industry overview
Indias annual production of steel is expected to exceed 300 Mn tonnes
by FY 2030-31. The forecast indicates a significant increase in steel manufacturing
capacity, reflecting the countrys efforts to grow the steel industry and meet the growing
demand for steel in sectors like construction, automotive and miscellaneous industries.
The projected growth in steel production is a positive sign for Indias industrial and
economic growth.
Indias steel production grew by 4.18% to125.32 Mn Tonnes during FY
2022-23, compared to 120.29 Mn Tonnes in FY 2021- 22, and finished steel at 121.29 in FY
2022- 23. The growth in the Indian steel sector was catalysed by growing consumer demand
and higher domestic raw material availability (iron ore and cost-effective labour).
Indias finished steel consumption is expected to increase to230 MT by FY 2030-31 from
119.17 MT in FY 2022-23.
Exports and imports of finished steel stood at 5.33 MT and 5 MT,
respectively in FY 2022-23. The per capita steel consumption in India stands at around
77.2 kg, a 50% increase over the last eight years. The Government of India raised the
import duty on most steel items twice with each increase of 2.5%, imposed measures
including anti-dumping and safeguard duties on iron and steel items.
The National Steel Policy, 2017 aims to achieve a steelmaking capacity
of 300 Mn tonnes (Mn Tonnes) by 2030. This target would require an additional investment
of Rs.10 Lakh Cr and the employment of 1.1 Mn additional workers in the steel sector by
2030-31. The Policy aims to raise the per capita steel consumption to 160 kg by 2030-31
from the current level of approximately 61 kg.
Despite concerns of global and demand uncertainties, the Indian steel
sector is anticipated to remain robust due to the strong domestic demand from the
government and private sectors.
For the FY 2023-24, India Ratings and Research (Ind-Ra) has maintained
a neutral outlook for the steel sector. The agency predicts steel demand to grow between
7% and 9% year-on-year for the FY 2023-24. This growth projection indicates a decline from
the CAGR of 12% ending 2022-23, which was followed by a 5% growth rate.
The Government has approved Rs.6,322 Cr under the Production Linked
Incentive (PLI) scheme to provide a renewed boost to the steel sector. The Ministry of
Steel signed 57 Memorandums of Understanding (MoUs) with 27 companies under the Production
Linked Incentive (PLI) schemes for specialty steel. Indias steel and energy ministries
signed a MoU with Russia in October 2021 to expand coking coal sources, procure raw
materials and collaborate on mining and steel manufacturing technologies.
The MoS for Steel and Rural Development inaugurated India Steel 2023
in Mumbai.
The PLI scheme for specialty steel was approved by the Union Cabinet.
The Ministry of Steel, in collaboration with public and private sector steel companies,
established the Steel Research and Technology Mission of India, an industry- driven
initiative.
The Government of India increased import duty on most steel items
twice, each time by 2.5% and implemented measures including anti-dumping and safeguard
duties on iron and steel items.
The global impact of the Russia-Ukraine war was evident through higher
energy and commodity prices, particularly raw materials for steel production and ongoing
disruptions in the supply chain experienced worldwide.
According to ICRA, new export markets are projected to emerge, while
Indian steelmakers may face input cost pressures in the near term due to Russias role as
a primary supplier of steelmaking materials, such as iron ore pellets.
(Source: Economic Times, Ibef.org, Business Standard, SP global, Invest
India, Business Line, News on air, Pib.gov.in, steel.gov.in, Livemint.com)
Government initiatives
The Indian governments initiatives to strengthen the domestic steel
industry comprise the following:
• Under the Union Budget 2023-24, the government allocated
Rs.70.15 Cr (US$ 8.6 Mn) to the Ministry of Steel.
• The government imposed an Export duty @ 15% on select steel
products and export duty of 50% on all grades of iron ore and 45% on iron ore pellets.
• The government has proposed the identification of 100 critical
transport infrastructure projects for last and first- mile connectivity in steel, ports,
coal and fertiliser sectors with an investment of Rs.75,000 Cr, including Rs.15,000 Cr
from private sources.
• The National Steel Policy 2017 of the Indian government aims to
achieve a globally competitive industry with a crude steel capacity of 300 MT by 2030-31.
• The Indian government aims to meet the entire domestic demand
for high-grade automotive steel, electrical steel, special steels and alloys for strategic
applications, while concurrently increasing the domestic availability of washed coking
coal to reduce dependence on imports to 50% by 2030-31.
• By 2025-26, India is set to become a net exporter of steel.
• In 2019, the Government introduced Steel Scrap Recycling Policy
with a focus to minimise import.
• In 2021, the Indian Railways announced its plan to procure over
11 Lakh Tonnes of steel from Steel Authority of India Limited (SAIL) for track restoration
and laying new lines across the country.
• In October 2021, the government announced guidelines for the
approved specialty steel production-linked incentive (PLI) scheme, while India and Russia
signed a MoU to carry out R&D in the steel sector and produce coking coal used in
steel making.
• The Vehicle Scrap page Policy, 2021 aims to phase old and unfit
vehicles out by de- registering private cars over 20 years old and commercial vehicles
over 15 years old, facilitating the recycling of materials used in old vehicles.
• The production-linked incentive (PLI) scheme for specialty
steel, sanctioned by the Union Cabinet in July 2021, is expected to attract an investment
of approximately Rs.400 Bn (US$ 5.37 Bn) and expand the capacity of specialty steel from
18 MT in FY 2020-21 to 42 MT in FY27, thereby increasing it by 25 Mn tonnes (MT).
• The Indian Steel Association (ISA) has praised the governments
Agnipath scheme, stating that it is crucial to achieve the countrys target of reaching a
steel production capacity of 300 MT as outlined in the National Steel Policy 2017.
(Source: ibef.org, economictimes.indiatimes.com,
constructionweekonline.in, newsonair.com, steel.gov.in)
Financial performance
The Companys revenues decreased by 12.96% to reach 1128.43 Cr in FY
2022-23, the Companys EBIDTA stood at 180.19 Cr compared to Rs.240.33 Cr in the previous
year. Interest costs increased to Rs.9.77 Cr in FY 2022-23 compared to Rs.12.16 Cr in FY
2021-22. The Company reported a post-tax profit of Rs.109.20 Cr in FY 2022-23 compared to
a post-tax profit of Rs.156.71 Cr in FY 2021-22.
Sectorial growth drivers
Per capita consumption: Over the last five years, there was an increase
in the per capita consumption of steel from 57.6 kgs to 74.1 kgs. The government of India
set a target of doubling rural consumption of steel from 19.6 kg per capita to 38 kg per
capita.
Growing population: Indias population has grown from 450.55 Mn in 1960
to more than 1.43 Bn in 2023, a 216% increase in 63 years. Further, it is expected to
reach 9.8 Bn by 2050.
Urbanisation: As of 2022, the urban population in India accounted for
35.87% of the total population. By 2050, it is expected that over 50% of the countrys
population will be urbanised.
Government support:
In an effort to streamline and expedite various initiatives, the
Harmonised Master List of Infrastructure identified all projects, whether greenfield or
brownfield, with costs greater than INR 100 Cr per project and brought them under the
National Infrastructure Pipeline (NIP). The primary focus of this inclusion is to enhance
project preparation and attract investments into the infrastructure sector.
The outlook for the Indian steel industry in 2023 is promising, with
the country gearing to become a US$ 5 trillion economy by 2030.
Demand for affordable housing:
It is estimated that the Indian affordable housing market could witness
a 1.5x growth, increasing from approximately 25 Mn households in 2010 to 38 Mn households
by 2030.
Infrastructure growth:
The growing applications of steel, particularly in roofing, gates,
parking spaces, false ceilings etc. are expected to further enhance steel usage in urban
areas in the medium term. On the real estate sector is expected to witness a significant
increase in steel demand due to a rise in the usage of steel in construction.
Furthermore, a positive support and assistance from the industrial and
commercial segments will be facilitated by a steady improvement in the investment cycle
and robust growth in end-use.
(Source: ibef.org, pewresearch.org, worlddata.info.un.org,
tradingeconomics. com, clearias.com, wavecity.in)
Risk management
Funding risk: Insufficient funding for capital expenditures in a
cost-effective manner may restrict the Companys performance.
Mitigation: The Company reduced its debt-equity ratio to 0.18 times
in FY 2022-23 from 0.21 times in FY 2021-22; the interest cover stood at 19.47x as of 31st
March, 2023.
Currency volatility risk: Profitability can be adversely affected
in the case of product exports due to unfavourable forex movements.
Mitigation: The Company secured its receivables through timely and
effective hedging to mitigate this risk.
Competition risk: The Companys market share may face competition
with the entry of new competitors.
Mitigation: The Companys profitability may be affected in the
event of a change in its B2B business. To mitigate this, the Company has expanded into new
countries, acquired new customers and increased business vertical with existing customers.
Employee risk: The steel industry faces challenges in attracting
skilled professionals due to attrition and inefficiency.
Mitigation: The employee strength of the Company in FY 2022-23
stood at 1679. More than 50% of the employees were employed with the Company for more than
five years; retention of senior management executives was a high 75% in FY 2022-23.
Quality risk: A decline in product quality can have an impact on
the Companys brand and revenue.
Mitigation: The Companys operations are in line with stringent
quality norms stated by customers or quality agencies and certifications (ISO 9001:2015
and ISO TS 16949).
SWOT analysis
Strengths
• Substantial availability of iron ore and other minerals
• Experienced manpower and low per unit labour cost
• Increasing demand during post pandemic period
Threats
• Slow industrial growth
• Technological evolution
• Substitution from aluminum and plastics
• Extended Russia-Ukraine war
Weaknesses
• High cost of capital
• Reduced labour productivity
• High cost of basic inputs
• High social costs
• Poor quality of basic infrastructure
• Unorganised distribution network
Opportunities
• Low per capita consumption
• Growing rural market
• Governments thrust on infrastructure development
• Affordable international market penetration
Internal control systems and their adequacy
The internal control and risk management system is organised and
adapted in accordance with the principles and criteria accredited in the corporate
governance code of the organisation.
It is an essential part of the general organisational structure of the
Company and engages a range of personnel who act in a coordinated manner while executing
their respective responsibilities. The Board of Directors offers its guidance and
strategic supervision to the Executive Directors and management, observing and supporting
committees. The control and risk committee and the head of the audit department work under
the supervision of the Board-appointed Statutory Auditors.
Human resources and Industrial Relations
Beekay Steel considers that its dynamic edge lies within its people.
The Companys people bring to the stage a cross-industry experience, technological
experience and domain knowledge. The Companys HR culture is embedded in its ability to
abolish age-old norms in a bid to improve competitiveness.
The Company always takes decisions in accordance with the professional
and personal goals of employees, achieving an ideal work-life balance and improving a
pride of association. The Company maintains harmonious industrial relations The Companys
employee strength stood at 1,679 as on 31st March, 2023.
Cautionary statement
This statement made in this section describes the Companys objectives,
projections, expectations and estimations which may be forward looking statements within
the meaning of applicable securities laws and regulations. Forward- looking statements are
based on certain assumptions and expectations of future events. The Company cannot
guarantee that these assumptions and expectations are accurate or will be realised by the
Company. Actual results could differ materially from those expressed in the statement or
implied due to the influence of external factors which are beyond the control of the
Company. The Company assumes no responsibility to publicly amend, modify or revise any
forward- looking statements on the basis of any subsequent developments.
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