Emergent Industrial Solutions Ltd Management Discussions.

COMPANY OVERVIEW

The following operating and financial review is intended to convey the Managements perspective on the financial and operating performance of the Company at the end of the Financial Year 2019-20. This Report should be read in conjunction with the Companys financial statements, the schedules and notes thereto and the other information included elsewhere in the Integrated Report. The Companys financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) complying with the requirements of the Companies Act, 2013 (Act), as amended and regulations issued by the Securities and Exchange Board of India (SEBI) from time to time.

The Company is primarily into international trading of Steel, Low ash Metallurgical Coke, carbon, iron- ore, Coal, Coke and Petroleum Coke products, Manganese ore, ferro alloys and other allied products etc, for supply to various steel and ferro alloys industries.

INDUSTRY STRUCTURE DEVELOPMENT AND FUTURE OUTLOOK

The entire global population and the economy are in shambles due to the outbreak of COVID-19 pandemic. The speed at which the mankind has been impacted is unimaginable and whatever achievements and progress were made in FY 2019-20 until the outbreak of pandemic (in December 19 in China, February 20 in Europe & United States and March 20 in India), have got overshadowed by the impact of the pandemic on the economy. Most of the economies around the world may contract in FY 2020-21 and it may take at least 18-24 months for them to recover from this devastation - some economies like India with younger population may take less time compared to others in the West.

While our main business is primarily supply of raw materials to crude steel producers which has GDP growth at the macro-level, global and domestic iron & steel production has an impact on trading business.

Global crude steel production stood at 1,870 million tonnes (Mt) for the year 2019, up by 3.4% compared to 2018. Crude steel production contracted in all regions in 2019 except in Asia and the Middle East. Asia produced 1,341 Mt of crude steel in 2019, an increase of 5.7% compared to 2018. Indias crude steel production for 2019 was 111 Mt, up by 1.8% since 2018. Indias share of global crude steel production decreased marginally from 6% in 2018 to 5.9% in 2019. China remained worlds largest crude steel producer in 2019 at 996 Mt followed by India (111 Mt), Japan (99 Mt) and the USA (88 Mt).

According to the International Monetary Fund (IMF), global economic growth is likely to witness a steep de-growth of -4.9% in 2020, amidst The Lockdown led by COVID-19. The contraction in growth seeps down to over 170 nations and for several of them and they were already struggling to downtrend of respective economies.

Indias economic growth moderated in FY 2019-20 to 4.2% from 6.1% a year earlier due to weak domestic consumption and subdued investments. The IMF estimates Indian GDP to contract by 4.5% in

FY 2020-21 given the severe impact of pandemic on the domestic economic activities but bounce back to 6% in the subsequent year.

Despite the imminent risks to the economy, Indias growth is expected to gain pace gradually in the coming months, expectedly driven by targeted measures to protect jobs, income support to the vulnerable sections of households and businesses, and encourage investments. The Government of India has already announced a 20 trillion package (or ~10% of Indias GDP) to assist the nation and its people in mitigating the economic impacts of this pandemic.

INDIAN STEEL INDUSTRY OVERVIEW AND DEVELOPMENTS

India is the worlds second largest producer of crude steel and is estimated to become the second-largest consumer of finished steel products over the medium term, with the sector contributing ~2% of the countrys GDP. The growth in Indias steel consumption is driven primarily by infrastructure, construction and automobile sectors that account for ~75% of the domestic demand. The growth in Indias production and consumption of steel is a direct result of its economic development and consistent government efforts to strengthen the industry.

As our company is supplying raw materials to major steel business houses which are major suppliers to infrastructure, construction and automobile sectors, the chances of growth in sales volumes are very high in coming years.

IMPACT OF COVID-19 ON THE INDUSTRY

The nation-wide lockdown across India has impacted all economic activities. As a result, several steel user industry segments such as construction, infrastructure projects and automobiles had abruptly halted. However, with a subsequent lifting of lockdown measures, the economic activities across these segments are gradually moving back towards normalcy. With a substantial decline in demand, most steel production units across India are running at low capacity utilisation levels. The Indian steel industry responded to the situation by shifting focus on to exports, which meant a decent utilization level across the sector in May and June, with inventory levels not being elevated. With strong government incentives and policies, and the economys inherent strengths, India is likely to gradually recover the lost ground in economic development in the coming year, leading to a significant momentum and strong recovery in the countrys steel demand in coming years.

Looking at the business profile of the Company the impact of pandemic on business operations was not severe. In the year under review the company has done well as compared to previous year. During the year the Company has booked sales volumes in two of its major products of Manganese ore and Iron ore at 0.83 lac Mts and 1.32 lacs Mts respectively. As the unlock process is on and industries are resuming their operations but the demand is still low, it is expected that the demand will get pace in third and fourth quarter of the year. All this will definitely lead the company to do better in future as comparison to the year under review.

FINANCIAL REVIEW

In the year under review the company was in 2nd year of its changed line business of trading in steels, coal, coke and related raw materials etc. Due to growth in infrastructure and domestic consumption the company performed well in the current year.

HIGHLIGHTS OF FY 2019-20

Rs. in lacs

2019-20 2018-19
Revenue from operations 16578.90 9264.23
Other income 135.06 426.52
EBITDA 78.58 300.63
Depreciation and amortization expenses 1.12 0.06
Interest expenses 8.49 158.17
Profit before tax 68.97 142.40
PAT 51.38 105.51
Other Comprehensive Income (net of taxes) (1.27) (0.17)
Total comprehensive income for the year 50.11 105.34

FINANCIAL PERFORMANCE

During the year under review, the Company generated revenue of Rs.16,578.90 lacs as compared Rs.9264.23 lacs in FY2018-19. It recorded an EBITDA of Rs.78.58 lacs in FY 2019-20, while in FY2018-19 EBITDA stood at Rs.136.26 lacs. Net profit of the company is Rs.51.38 lacs in the year under review as against Rs.105.51 lacs in the previous year. The cash flows of the Company in FY2019-20 is (-) Rs.1414.29 lacs as compared to Rs. 2065.07 lacs in 2019-20. The Shareholders funds increased from Rs.1598.47 lacs as on 31st March, 2019 to Rs. 1648.58 lacs as on 31st March, 2020.

Details of significant changes (i.e. change of 25% or more compared to the immediately previous financial year) in key financial ratios, alongwith detailed explanations

Particulars 2019-20 2018-19 Change Change (%)
Current Ratio - Note 1 1.0 1.7 -0.7 -41.17%
Operating Profit Margin - Note 2 0.64% -0.28% 0.92% 328.57%
Net Profit Margin - Note 3 0.31% 1.09% -0.78% -71.56%
Return on Networth- Note 3 3.12% 6.60% -3.48% -52.72%

Note 1- The Current ratio has been reduced from 1.7 to 1.0 mainly due to advances received from customers in the year under review. Thus reduction is short term in nature.

Note 2- The Operating Profit Margin has been improved to 0.64% in FY2020 from -0.28% in FY2019 mainly due to better realization of sales in terms of price.

Note 3- The Net Profit Margin has been reduced to 0.31% in FY2020 from 1.09% in FY2019 mainly due to increase in overheads in the year under review. Dip in Return on networth is in line with net profit margin.

OPPORTUNITIES AND THREATS Opportunities:

• An export duty of 30 per cent has been levied on iron ore (lumps and fines) to ensure supply to domestic steel industry. Government of Indias focus on infrastructure and restarting road projects is aiding the demand for steel. Also, further likely acceleration in rural economy and infrastructure is expected to lead to growth in demand for steel.

• Steel industry and its associated mining and metallurgy sectors have seen major investments and developments in the recent past.

• According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), the Indian metallurgical industries attracted Foreign Direct Investment (FDI) to the tune of US$ 13.40 billion in the period April 2000-March 2020

Threats:

• The economic demand slow down presents a real challenge to growing volumes. The inflation figures and recent emerging development across the world, like corona virus has potential to destabilize existing performance of business.

• The demand-supply imbalance could also aggravate if the virus outbreak in other large steel producing countries such as Japan, South Korea, India, and the US worsens.

• Constrained development due to slowdown in economy.

• COVID-19 disruptions in national and international markets.

• Severe competition in the pellet Industry from both domestic and international markets.

• Divergent global market environment.

RISKS AND CONCERNS

The identification and evaluation of risks play a crucial part in the sustainability of any organization. The

Company adopted a robust risk management framework for identifying and evaluating risks and

opportunities.

Key Risks and concerns

Adverse global and domestic demand-supply dynamics: Global demand and supply dynamics impact the Companys ability to reach beyond the domestic markets and cater to a diverse customer base. The company is growing its presence in various domestic markets and widening its customers base to manage this risk.

Cyclical nature of the steel industry: To overcome the cyclical nature of the steel industry, it is essential to have a foothold in various markets that have different cyclical patterns, as this helps the Company to leverage market opportunities. The company is serving the domestic markets of western and eastern India and is also exploring to cater to international markets.

Disruption of business activities: A proactive risk management approach enables the Company to eliminate disruption of business activities.

HUMAN RESOURCES DEVELOPMENT

Human resources are the backbone of any organization and the company appreciates the determination, drive and dedication of its people, recognizing them as a key differentiator for the business. Human resource management involves developing and administering programs that are designed to increase the effectiveness of an organization or business. The employees are encouraged to put in their best. Efforts are made to follow excellent Human Resource Practices. The objective of your Company is to create a workplace where every person can achieve his or her full potential.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The internal control systems include documented policies, checks and balances, guidelines and procedures, that are supplemented by robust internal audit processes and monitored continuously by periodical reviews by the management to provide reasonable assurance that all assets are safeguarded; transactions are authorised, recorded and reported properly. The Management is always in the process of further strengthening the internal controls framework with an objective to have a best-in-class internal control framework commensurate with the size, scale and nature of business.

CAUTIONARY STATEMENTS

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Companys operations include economic developments within the country, demand and supply conditions in the industry, input prices, changes in Government regulations, tax laws and other factors such as litigation and industrial relations.