Today's Top Gainer
Note:Top Gainer - Nifty 50 More
INDUSTRY STRUCTURE AND DEVELOPMENTS:
India has emerged as the fastest growing major economy in the world and is expected to be one of the three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. With the improvement in the economic scenario, there have been various investments in various sectors of the economy. In financial year 20182019, India produced 104.98 MT and 103.13 MT of finished steel and crude steel respectively. Total crude steel production in India has increased at a CAGR of 5.43 per cent during FY 2012-2018. Indias finished steel consumption is anticipated to increase to 230 MT by 2030-2031 from 96.8 MT in 2017-2018.
India will be the brightest spot for the steel sector over the next 12-18 months, according to Moodys Investor Service.
The recent upgrade of Indias rating by the US based credit rating agency Moodys (Baa2 from Baa3) in recognition of the reforms agenda pursued by the Government is a major boost to investor confidence. Moodys also noted that the outlook for the Asian steel industry is stable, reflecting the consideration that the profitability of rated producers will increase moderately over the next 12 months against the backdrop of overall steady regional demand. The industry is hopeful that going forward, Reserve Bank of India (RBI) would lower interest rates to boost broad-based investment and consumption activity which in turn would promote economic growth.
Steel manufacturing output of India is expected to increase to 128.6 MT by 2021, accelerating the countrys share of global steel production from 5.4 per cent in 2017 to 7.7 per cent by 2021.
It is forecasted over 2017-2022, the Appliances and Consumer Electronics sector will expand at a CAGR of 8.96 per cent contributing to growth of the steel industry.
The industry is witnessing consolidation of players which has led to investments by entities from other sectors. This ongoing consolidation also presents an opportunity to global players to enter the Indian market. The National Steel Policy implemented in 2017 has helped India reach global benchmarks.
Steel Scenario and Outlook:
The Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for continuous modernization and up-gradation of older plants and higher energy efficiency levels.
Steel industry and its associated mining and metallurgy sectors have seen a number of major investments and developments in the recent past. According to the data released by Department of Industrial Policy and Promotion (DIPP), the Indian metallurgical industries attracted Foreign Direct Investment (FDI) to the tune of US$ 10.84 billion in the period April 2000 to June 2018.
Government of Indias focus on infrastructure and restarting road projects is aiding the boost in demand of steel. Also further acceleration in rural economy and infrastructure is expected to lead the growth in demand for steel.
The Indian banking system has been battling a chronic case of non-performing assets. The steel industry tops the list with the highest non-performing assets in value terms. The situation is an aftermath of the oversupply from China, sustained weakness in steel prices, management indiscretions in some cases which have crippled several large steel players.
The common theme played out in the global market includes consolidation by the larger players as well as closures of inefficient facilities.
Major steel players are moving up the value chain by manufacturing specialized products in close association with their user industries to offset the weak demand in the commoditized steel markets to shore up margins.
Review of Operations:
Your Company registered a commendable revenue growth of 61% over the previous financial year despite a challenging business environment. Your Company is focused on offering solutions leveraging its superior products and technology to address the requirements of the steel industry. Initiatives started in earlier years are being developed further.
With the thrust on exports to overseas markets, it is gratifying to note that exports sales have grown by 244% year over year. The focus would be to continue this effort in the coming years.
During the financial year, your Company continued to augment manufacturing capacity to meet the increase in demand of its products. These efforts are expected to result in cost benefits and improved margins in the long term.
Impact of the availability and prices of raw materials and initiation of insolvency proceedings against a few of our major customers have had some adverse impact. Customers have shelved / postponed their expansion projects and are looking forward to the outcome of the insolvency proceedings against steel manufacturers.
Opportunities and Threats:
India is slated to surpass US to become worlds second largest steel consumer in 2019. Between April 2000 and September 2018, inflow of US$ 11.11 billion has been witnessed in the metallurgical industries as FDI. National Steel Policy 2017 aims to increase the per capita consumption of steel to 160 kgs by FY 2030-2031.
Inspite of sectorial stress such as insolvency and China factor, Indian consumption story remains intact and India remains a bright spot in the global steel industry. The GDP for India is at 7.3 per cent for FY 2018 and is estimated at 7.6 per cent in FY 2020-2021.
The current capacity utilization of 68.1 per cent is estimated to improve to 76 per cent going forward but will remain significantly below 83 per cent utilization 10 years ago at the Industrys peak.
Domestic players investments in expanding and upgrading manufacturing facilities are expected to reduce reliance on imports. In addition, the entry of international players would provide benefits in terms of capital resources, technical knowhow and more competitive industry dynamics. India has been ranked fifth on the list of countries with highest NPAs. Though bank recapitalization efforts are underway, the economy needs to recover from bad loan problem quickly for favorable economic growth in the future.
As India surges ahead in building infrastructure, investments in steel pave the way ahead. The growing demand in construction industry, automotive sector and rising demand for consumer durables and capital goods due to National Steel Policy 2017 support through 100 per cent FDI, sector based R&D and reduced custom duty has resulted in rising investments from domestic and international players, increase in number of MoUs and foreign investment of nearly US$ 40 billion.
Under the 14th Finance Commission 2019-2020, the R&D scheme has been approved 26 projects with assistance of US$ 24.98 million from Ministry of Steel.
The Company has established comprehensive Risk Management System to ensure that risks to the Companys continued existence as a going concern and its development are identified and addressed on timely basis. The Company follows the globally recognized COSO framework for risk governance. Consciously dealing with identified risks and regularly monitoring risk factors increases risk awareness and ensures continuing improvements. The Company is also aware that recognizing and identifying emerging risks to mitigate them is a critical business activity.
Management identifies and evaluates - especially such risks which could jeopardize continued existence or development at an early stage and defines and implements measures to control these risks. The Risk Management System consists of multi phased process. Initially, all risks are identified by different departments and functions as bottom-up approach. These risks are then analyzed and evaluated by the Companys management team before they are reported to the Audit Committee. These include interruption of supply of quality raw materials, related challenges of escalating price increases as input costs go up and ramifications of regulations like Insolvency and Bankruptcy Code.
Risks are classified in different categories such as strategic risk, operational risk, financial risk and legal risk. These risks are then classified and quantified depending on probability of occurrence and the extent of potential damage. The Risk Management strategy as approved by the Audit Committee, through the recommendations of the Risk Management Committee is implemented by the Companys management. The management presents the risk management report along with planned mitigation measures to the Audit Committee periodically.
As the Company is a supplier in the steel industry sector, the demand for Companys products is, to a large extent, driven by macro-economic conditions. In addition, demand is subject to cyclical fluctuations. The implication of risks has steadily intensified given the volume and complexity of change of the steel industry continues to face both in India and the world over. Challenges for the Company are compounded by evolving regulations and new legislations. While regulators are committed to create an environment conducive for the companies to do business, sync between policy and its operation will be an area to watch. Compliance is the highest priority for the Company and the Company is taking cognizant steps to overcome challenges on this front.
For the procurement of raw materials, the Company relies on imports to a great extent. Prices of some of the raw materials used by the Company are linked to crude oil prices. This makes the Company vulnerable to external shocks. It partially mitigates this risk by growing its global business, which offers a natural hedge against the rising cost of imports. By making constant improvements to the processes and better inventory and logistics management, the Company tries to maintain its margins.
To improve the effectiveness of the risk assessments, the KPIs of the management team is linked with the risk assessment. The One Metal concept of the Industry Sector in the Group has helped to get orders from several countries in the other parts of the world, which was not possible earlier, resulting in addition of risks not in existence earlier. The increased export orders have also increased the foreign exchange risk and the uncertainties and fluctuations in shipping rates. The risk assessment exercise with the involvement of senior and middle management, and linking of the academic part and daily operational activities are the key elements of the risk assessment by the Company.
Strategic alignment of the resources, with the help of the management and senior functional heads, included process improvements, machine shop alignment, resources management, etc. along with the tight and effective cash management resulting in reducing the burden of interest cost and making it as an opportunity to generate income for the Company. The Company is presently a debt-free Company, having good cash flow along with healthier bank balance. The operations of the Company are funded through customer advances and by internal accruals. The advances from customers are non-interest bearing and have direct correlation to the order book; thus the increase in order book has also led to increase in customer advances.
The healthy cash flow situation increases the confidence of the stakeholders in the Company and provides the assurance that the Company follows robust processes and control systems, ensuring safety of their financial interests.
As a result of the improved integration and substantial improvement in operating cycle during the year under review, CARE has revised the Long Term Rating of the Company to CARE A- from CARE BBB+ and the Short Term rating to CARE A1 from CARE A2+.
The key financial ratios for the year ended March 31, 2019 as compared to the last financial year are as under:
|Ratio||March 31, 2019||March 31, 2018|
|Return on Net Worth||18.38||4.26|
|Return on Investment||20.78||9.96|
|Return on Capital||17.75||6.21|
|Operating Profit Margin||5.28||-1.00|
|Net Profit Margin||7.20||2.23|
Operating profit ratio, net profit ratio, return on net worth, return on investment, return on capital employed increased during the year on account of increase in revenue from operations resulting in higher profit due to change in product mix and financial discipline.
Current ratio and liquid ratio reduced mainly on account of major increase in current liabilities.
Human Resource Management and Industrial Relations:
The mandate of the department of Human Resources is to provide internal services related to leadership development, talent management, employee compensation, labour relations and many other services essential to drive the organizations strategic objectives and priorities.
The permanent employee strength of the Company was 504 as on March 31, 2019. The HR department continues to lead enhancements and standardization of the Performance Management process. The department provides innovative and responsive training programs and this year has clocked 7527 training hours. Safety and skill up-gradation training to various categories of employees are being rendered as per the training policy of the Company.
The year 2018-2019 started with PULSE - A CMI people survey which helps to understand the emerging needs of the Companys main asset: its people. The survey was carried out in April and received 100% participation from our employees. The results of the survey were shared with all employees in the first week of July, 2018.
The result showed significant improvement as compared to the 2016 results. Three of the strongest points that came across in this survey were Leadership & Strategic Direction, Line Management and Training and Development. As compared to the High performing company norms, CMI FPE was most favorable in Sustainable Engagement, Operational Efficiency and Working Relations.
To continue ensuring maximum employee satisfaction, a team has been constituted to further identify Action Points for progressive development in the categories mentioned below:
Dialogue & Information Sharing
Training & Development
Leadership & Strategic Direction
Performance Management and Total Rewards
Social & Environmental Responsibility
These action points are aligned with the Companys KPIs.
The Company once again won the CMI Public Award for the third consecutive year. The Company through its Corporate Social Responsibility (CSR) program is working with 3 schools, 7 Anganwadis, 2 old-age homes and 10 villages near Hedavali workshop.
Some of the work done so far includes:
30 medical camps ranging from diabetes checks, dental & eye camps, gynecology checks to providing nutritional supplements and awareness campaigns has benefitted more than 4000 lives.
A fully equipped playground set-up for 1 school so as to encourage children for improved physical activities.
Provision of non-electric water filters to Anganwadis.
Sturdy garden benches provided to senior citizens to encourage them to step outside of their homes and enjoy nature while being comfortable.
Provision of Mini-portable libraries for approximately 136 children.
Assisted reading sessions of 216 Hours.
600 Mumbai Museum pamphlets introduced in easy to read styles in Hindi, Marathi and English which have been distributed to many schools.
The defined activities and rigorous involvement of the CSR team along with necessary opinion leaders, NGO partners, influential doctors and hospitals has reduced the migration rate of the tribal groups and today they have better access to health, nutrition and education services.
In the framework of TATA Tinplates bi-annual Excellence Journey Program, the Company this year bagged the award for "highest suggestions" in Total Productive Maintenance (TPM) of Operation & Maintenance activities for the Acid Regeneration Plant (ARP) operations.
The Company has a well-structured process to identify potential amongst employees in order to confer rewards and recognition and this year 35 employees were recognized for their efforts and rewarded.
To promote good health and high morale among employees, the Human Resources department has a well-designed annual health and wellness program and various employee engagement activities that are conducted throughout the year.
In compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, the Company this year conducted POSH (Prevention of Sexual Harassment) training for all employees. The training conducted played a major role in creating awareness among employees and in building a respectful work environment.
Efforts will continue in ensuring that the workforce is well supported and ready to meet all challenges.
Health and Safety:
The Company is committed towards creating a Safe and Healthy work environment by designing work stations and workflows based on the principles of Occupational Safety and ergonomics. The work force is well trained in preventive aspects of safety and is highly motivated to achieve the target of "ZERO" work related accidents. The Company is pursuing the goal of zero incidents, through senior leader ownership of safety, preventive actions and processes. For further enhancement in the performance, near-miss incident reporting system is launched at both the workshops.
The Company has been successful in creating positive changes in the employees behavior while shaping the future of the organization. The Company ensures that Safety, Health and Environment (SHE) related trainings are imparted to all relevant stakeholders at regular intervals. For this purpose, the Company conducts workshops to train employees with sessions targeted at shop floor employees. The Company has mandated the use of safety gadgets such as safety shoes, helmets on the shop floor, and the adherence is excellent.
Optimization of Key Business Processes:
The Company is engaged in the business of customized design, engineering and installation and manufacturing components of Cold Rolling Mill Complexes, Processing Lines, Chemical equipment, industrial furnaces and auxiliary equipment for the world-wide steel industry. Since the Company operates in a very competitive market, various initiatives are taken on a continuous basis.
Special focus on surface finish of the equipment and improvement in welding techniques enhanced the aesthetics of the product. Steps were taken for the enhancement of workshop capacity for higher throughput to meet the customer needs. The productivity at the plant increased as a result of the implementation of the lessons from Theory Of Constraints (TOC) in the assembly plant. The optimization of weights and manufacturing process for various equipments with improved technological parameters, performances and cost competitiveness reaped benefits for the Company.
The focus on assembly capacities, implementation of MSP scheduling with projects along with the skill enhancement on job training helped the Company to save time on the machine shop and increase the number of assemblies.
As reported in the last Annual Report, the Company was upgraded and certified to the ISO 9001:2015 Management System (in July 2017) by Certifying Body TUV NORD, a little over a year prior to the deadline of September 30, 2018. During the year under review, the recertification audit was carried out; after the audit the Certifying Body TUV NORD has identified and recognized 6 Good Practices, 2 Potential for Improvement aspects and no minor or major non-conformities. During the recertification audit, the Auditors confirmed that the Quality Management System was complying with the requirements of the ISO 9001:2015 in a satisfactory manner and hence the Company was recommended for the renewal of the certificate. The Company continues to be certified to the Management System with the current certificate being valid for the period from July 28, 2018 to July 27, 2021 (initial certification was obtained on February 17, 2000).
In recognition and appreciation of the commitment to secure the international supply chain, the Company has obtained the Authorized Economic Operation T1 Certificate, the benefits of which are manifold and will help the Company for quick clearance at all the ports.
Internal quality audits, internal safety audits and internal supplier process audits were carried out as per the set Annual Calendar.
The Company considers the Suppliers as its Business Partners and in view of the strategic intent of not only "managing supplier relationship" but also to "nurture supplier relationship", the Company organizes Supplier Meet which includes the participation of members of the Management Team. The meet helps the Company to know the expectations of the Suppliers going forward and feedback is shared with them on their "evaluation" as a Supplier.
The Company is operating in a virtualized environment, with consolidation of 25 workloads on high configuration physical servers and running a highly matured SAP (ERP) system integrated with Advance Planning and Scheduling tool to have visibility - considering both material and capacity constraints simultaneously while generating production plan and reducing resource downtime by aligning the flow of material. As a part of continuous improvement, various enhancements have been carried out this year to improve the functional needs of users in these systems. Our mutual goal is always to utilise Information Technology (IT) to simplify operations and Transform IT operations and technology platforms to drive adaptability.
This year we focused on protecting our digital assets from internal and external threats to ensure our business is secure. We have protected ourselves on IT security front - both at perimeter to allow secure network traffic like internet, cleaned emails, and in-house safe browsing for internal threat using Anti- Ransomware technology which defends against new variants that may appear in the future. These security arrangements are outsourced using cloud services from world leader in the IT security space.
On physical IT infrastructure front, we have done complete tech-refresh of all our network devices to improve throughput on LAN and WAN as well.
Internal Control Systems:
The Company has a system of Internal Control over Financial reporting (IFC) ensuring the accuracy of the accounting system and the related financial reporting. The Internal Control System provides for well-documented systems, policies and procedures that are aligned with the Group standards and processes. It adheres to local statutory requirements for orderly and efficient conduct of business, safeguarding of assets, the detection and prevention of frauds and errors, adequacy and completeness of accounting records and timely preparation of reliable financial information. The efficacy of the internal checks and control systems are validated by Internal Auditors as well as Statutory Auditors.
The mechanism is sound in design and the framework is continuously evaluated for effectiveness and adequacy. The mechanism operates through well-documented policies and process guidelines and standard operating procedures.
The Controls defined in the framework are applied to all levels - Entity Level, Process Level and System Level. The management assesses the appropriateness and effectiveness of the controls in place on yearly basis. To this end, the Company uses a standardized methodology to identify the processes relevant to IFC, define the required controls and document them in accordance with uniform requirements. This is then followed up with a review of the defined controls that is performed using a risk-based approach. The process controls are self-evaluated as well as audited by the Internal Auditors and the Statutory Auditors. The measurement plans are laid out and monitored regularly to overcome deficiencies as detected during self-evaluation and confirmed by the Auditors.
The Risk Management Committee and Audit Committee review the adequacy of design and the effectiveness of the internal control systems, significant audit observations and monitor the sustainability of remedial measures. The Company Management has assessed the effectiveness of internal controls over financial reporting for the year ended March 31, 2019 and based on the assessment, believe that the same are adequate and working effectively. The Statutory Auditors have issued an audit report expressing satisfaction on the adequacy and effectiveness of the internal financial control systems over financial reporting.
To provide reasonable assurance that assets are safeguarded against loss or damage and that accounting records are reliable for preparing financial statements, the Management maintains a system of accounting and controls, including an internal audit process. Internal controls are evaluated by the Internal Auditors and supported by the Management reviews. The Internal Audit plan is finalised based on current perception of internal control risk and compliance requirement in consultation with operating divisions. All audit observations and follow up actions thereon are tracked for resolution by the Internal Auditors and reported to the Audit Committee.
The Statements made in this report are forward-looking and are made on the basis of certain assumptions and expectations of future events. The Company cannot guarantee that these forward-looking statements will be realized, though they are set out based on anticipated results and management plans. The Companys actual results, performance or achievements are subject to risk, uncertainties and even inaccurate assumptions, which could thus differ materially from those projected in any such forward looking statements. The Board of Directors of the Company assumes no responsibility in respect of the forwardlooking statements mentioned herein, which may differ in future on account of subsequent developments, events or otherwise and the Company is under no obligation to publicly update any forward-looking statements on the basis of subsequent developments, information, future events or otherwise.