Bihar Sponge Iron Ltd Management Discussions.

1. INDUSTRY STRUCTURE AND DEVELOPMENTS

The Company produces sponge iron from three kilns with an installed capacity of 2,10,000 MT per annum. The Companys primary product, sponge iron, is a high quality prereduced ferrous material and, therefore, is preferred to most other materials in place of steel scrap by secondary steel producers operating induction and electric arc furnaces for producing long products for meeting the demand of the construction and infrastructure sectors.

Since the price of sponge iron is purely market driven in the present economy, the Company continuously makes efforts for reducing the cost of production to sustain its margins. The principal cost components of sponge iron consist of coal, iron ore and capital service charges. With the successful operation of its captive 5.0 MW power plant, the power cost of the Company is expected to reduce significantly.

In view of the closure of the operations of the Company for some time and with a view to earn some revenue, the Company has, after considering and evaluating various possibilities and viability, entered into the activity of trading of plastic packaging materials.

However, of late the iron ore market has started looking viable. Resultantly, some parties have evinced interest in using the facilities of the Company and operating the plant.

In the month of August, 2020, the Company was approached by Mr. Manoj Kumar Agarwal on behalf of Vanraj Steels Private Limited to enter into an arrangement with them thereby, permitting Vanraj Steels Private Limited to utilize the Sponge Iron Plant to undertake and operate the business of manufacturing and selling sponge iron as well as utilize the Railway Siding. The aforesaid proposal was discussed by the Promoters at length and only with a view to earn some revenue, the Company entered into a Facility User Agreement dated 30.12.2020 with Vanraj Steels Private Limited, Mr. Manoj Kumar Agarwal and Parasnath Advisory Private Limited.

The Company had undertaken overhauling and renovation work of the plant and the same is in full swing. The overhauling work is likely to be completed by 31st August, 2021 pursuant to which the plant will be permitted to be utilized by Vanraj Steels Private Limited as is agreed under the Agreement dated 30.12.2020.

With the restart of the plant by them, the management believes that the company shall gradually start earning surplus and losses incurred in the past will get wiped out in due course and thereafter, the company will be able to operate profitably in normal course of its business.

2. OPPORTUNITIES AND THREATS

Coal and iron ore are the two major raw-materials for producing sponge iron. The price of both iron ore and coal are quite volatile and on most of the times increased by the suppliers, which adversely affects Companys margin. Therefore, the Company has been exploring various avenues for procuring good quality iron ore and sufficient coal.

3. SEGMENT WISE/ PRODUCT WISE PERFORMANCE

The Company is engaged only in the segment of manufacturing and selling of sponge iron.

4. OUTLOOK

The Government is going ahead with the economic reforms process albeit at slower pace. The main thrust is on developing rural economy and agriculture, flowing of funds through budget and plan towards the vast rural area will increase the income levels of the countrys huge rural population and spurt demand. The increase in disposable income of the rural economy will be utilized in housing construction which is the biggest user of mild steel. Sponge Iron is basic raw material used by induction furnaces to produce mild steel. Thus there will be a huge demand for Sponge Iron.

5. RISKS AND CONCERNS

Management periodically carries out risk assessment exercises. Risk factors are also discussed in Audit Committee Meetings. Wherever possible and necessary, insurance cover is taken for risk mitigation. However, an economic slowdown can adversely affect the demand-supply equation in the sponge iron industry. The price of sponge iron is sensitive to the demand-supply position of steel scrap in the country and also to the selling prices of long products. On the financial front, the Companys debt had been restructured pursuant to the rehabilitation scheme sanctioned by the Ld. BIFR, however, before the scheme could be fully implemented, the Sick Industrial Company (Special Provisions) Act 1994 as well as the proceedings pending before the Ld. BIFR/AAIFR stood abated with effect from 01.12.2016 as a result thereof, the net worth of the Company has not turned positive. All the installments of principal and interest thereon has already been paid under the scheme, except for the exchange fluctuation on foreign currency loan and interest thereon in respect of which LPA has been filed with the High Court of Jharkhand, Ranchi. In addition, the entire rehabilitation loan along with the interest is due for payment to Government of Jharkhand, for which the Company will make representation for waiver of interest upon re-start of Companys operations.

6. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has adopted policies and procedures for ensuring the orderly and efficient conduct of its business including adherence to the Companys policies, safeguarding its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial disclosures. In line with the international trend, planning and conducting the business is oriented towards a review of controls in the management of risks and opportunities in the Companys activities. The annual audit programme is developed by the Internal Auditors and approved by the Audit Committee of the Board. The Internal Auditors Report is placed before the Audit Committee which met at least four times during the year to review the audit observations and to follow up implementation of corrective actions.

The Committee also consults the companys statutory auditors to ascertain their views on the adequacy of the internal control systems in the Company. The Audit Committee has majority of independent directors to maintain the objectivity.

7. FINANCIAL PERFORMANCE

The Plant has been shut since 9th August, 2013 as a result of non-supply of coal by Central Coalfields Limited. The past losses have been due to non-operation of the plant as a result of non-availability coal. During the period under review, the Company has earned profit.

8. HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The Company, at the year ended 31st March, 2021 had approximately 271 employees.

9. CAUTIONARY STATEMENT

The above Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations are forward looking statements within the meaning of applicable securities laws and regulations. The actual results could differ materially from those expressed or implied. Further various important factors that could make a difference to the Companys operations include external economic conditions affecting demand/supply influencing price conditions in the market in which the Company operates, changes in the Government regulations statutes, tax laws and other incidental factors.

For & on behalf of the Board
of Bihar Sponge Iron Limited
Sd/-
U.K. MODI
Place : New Delhi CHAIRMAN & PRESIDENT
Date : 20.07.2021 DIN:00002757