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 pre- reduced 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 to reduce the cost of production to sustain its margins. The principal cost components of sponge iron consist of coal, iron ore and capital service charges. In addition to the above, the Company is also carrying activities of trading of plastic packaging materials.

As reported last year, with a view to earning some revenue, the Company had entered into a Facility User Agreement dated 30.12.2020 with Vanraj Steels Private Limited, Mr. Manoj Kumar Agarwal and Parasnath Advisory Private Limited.

After complete overhauling and renovation work of the plant as well as the railway siding, the possession of the same had been handed over to M/s. Vanraj Steels Private Limited on 12th January, 2022. With the handing over of the plant, the Company has started receiving the operating income.

Now the plant is in operation, and with the restart of the plant, Company has started earning revenue and there is net profit before tax amounting to Rs. 744 Lacs during the Financial Year 2023-24. Management is hopeful of earning good profit in future and losses suffered in past will get wiped out in due course.

The financial statements, as such, have been prepared on a going concern basis on the strength of managements plan of revival including restructuring of liabilities, operation of the plant through a third-party ensuring generation of revenue.

2 Opportunities and Threats

Coal and iron ore are the two majors raw materials for producing sponge iron. The price of both iron ore and coal are quite volatile and 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 mainly engaged only in the segment of manufacturing and selling of sponge iron; in addition to the above, the Company is also carrying out activities of trading of plastic packaging materials:

(Rs. in Lacs)

4 Outlook

The Government is going ahead with the economic reforms process albeit at a 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 a 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 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 Companies (Special Provisions) Act, 1985 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.

The High Court of Jharkhand at Ranchi, in Civil Writ Petition No. 2212 of 2010 has passed an order dated 9th June, 2022, for payment of rehabilitation loan of Rs. 32.50 Crores (principal amount) through monthly instalment of Rs. 1.25 Crores to Adityapur Industrial Area Development Authority (AIADA) from July, 2022 till its completion. As per the Honble High Court Order, the Company has paid its last monthly instalment of principal amount as on 5th August, 2024. As far as the payment of interest on the said loan is concerned, the same shall be mutually settled between the Company and Government of Jharkhand.

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 meets at least four times during a 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 a majority of independent directors to maintain the objectivity.

7 Financial Performance

The Plant had 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 the non-operation of the plant as a result of non-availability of coal. During the period under review as reported above, the Company has earned a profit of Rs. 744 Lacs (last year Rs. 1,213.55 Lacs).

Details of Significant Changes

Details of significant changes as required under SEBI (LODR) Regulations, 2015 are as under:

8 Human Resources and Industrial Relations

The Company, in the year ended 31st March, 2024 had 23 employees on roll. In addition, there are 196 (Approximately) ex-workmen who were working with the Company, whose full and final dues could not be paid as they did not come forward to collect their terminal dues.

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.