Bhuwalka Steel Industries Ltd Management Discussions

Industry Structure & Developments:

The Companys primary product, steel rolled product (Mainly TMT and Structural Steel), is catering to the demand of

Real Estate construction, infrastructure, power, Telecom and engineering industries. There are large no. of re-rolling mills across the country who are largely local players apart from Primary Steel Producers like Tata Steel, JSW etc. During the year under review, the steel prices continued to be volatile and the prices of rolled products were market driven. For improving margins, Company has taken serious steps for reduction in the cost of production and overheads. Company is concentrating to optimize its capacity utilization so as to achieve economies of scale. Company is also exploring Job work opportunities for better utilization of the capacities. Further to create a wide product base to cater other growing industries such as telecom and engineering, Company has already ready and modern facilities at Wada to achieve these objects. Company is exploring means to get additional working capital Finance by way of sale of surplus assets and also from equity investors so that company can achieve optimal capacity utilization.

Opportunities, Threats and Concerns:

Deep economic recession coupled with global meltdown has affected all the commodities market across the globe during last 4 to 5 years and steel was one of the worst affected commodity. There is no major surge in demand in current year, however there is growth opportunities in Infra sector based on expected Central Governments announcement of Infra projects. Further there are also expectations of export of companys product. In an emerging economy like India, there will be good opportunity for growth though may be lower than earlier targets and renewed emphasis on infrastructure by the newly elected central government may work as stimulus for the industries at large. Major Job work contracts with various large vendor will also help company for utilizing its capacities. Competition from un-organized sector is still a threat to the Company. However, renowned builders and infrastructure companies are keen to source their requirement from organized company like yours. Moreover, Companys better-structured product portfolio will enable it to penetrate into new markets and to meet the requirements of existing customers.

Accumulated losses, erosion in net working Capital, Price volatility, low demand, Capacity utilization and higher cost of borrowing remain serious concerns of the Company. Company has already initiated necessary steps to mitigate this risk.

Outlook:

The year ahead looks promising as there is growth envisaged in demand in various industries to whom companys products are catered to. Company is catering to requirements of Housing, Power, Telecommunication and Engineering Sectors. Large integrated plant mainly focuses on flat products and long products are generally the domains of secondary steel makers like us. A growth rate higher than the global industry average has been envisaged in the national steel policy. The long-term goal of the country is to become self reliant and globally competitive in steel sector.

Risks and concerns:

Erosion in Working capital and liquidity issues are major concerns for the company. It is impacting companys ability to produce at optimal level and generate profits. Further the cost of power (including fuel) and its availability is also one of the major concern. High power tariffs and volatility in input prices may adversely affect the profitability of the Company. However, it is not significant considering the level of operations of the Company and normal correlation in the price of raw material and finished goods. High volatility in commodity prices remain serious concern. Company is also exposed to financial risks like exchange fluctuation and interest rate variations. Management has already identified these risks and taking necessary steps to mitigate the risks by looking at alternative and cheaper source of finance and cost reduction exercise across the company.

Internal control systems and their adequacy:

The Companys internal control systems and procedures are adequate and commensurate with the size and nature of Companys operations. Company has sufficient procedures that form part of internal control system which provide for check and balances. In current year, Company has engaged industry and finance experts to further strengthen its internal control and audit system for reduction of various costs and overheads.

Cautionary Statement:

This report contains forward-looking statements, which are based on certain assumptions and future events. It cannot be guaranteed that these are accurate or realized in future. Companys actual results may materially differ from those projected in forward looking statements. The reader should bear this in mind. Further, Company undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.