The objective of this report is to convey the Managements
perspective on the external environment and particularly to steel industry, as well as
strategy, operating and financial performance, material developments in human resources
and industrial relations, risks and opportunities and internal control systems and their
adequacy in the Company during the FY 2022-23. This should be read in conjunction with the
Companys financial statements, the schedules and notes thereto and other information
included elsewhere in this Annual 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, as amended and regulations issued by the
Securities and Exchange Board of India (‘SEBI) from time to time.
COMPANY OVERVIEW
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.
EXTERNAL ENVIRONMENT AND OUTLOOK
Global Economy
Overview: The global economy was estimated to have grown at a slower
3.20% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of
the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian
invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher
interest rates, global liquidity squeeze and quantitative tightening by the US Federal
Reserve.
The challenges of 2022 translated into moderated spending, disrupted
trade and increased energy costs. Global inflation was 8.80% in 2022, among the highest in
decades. US consumer prices increased about 6.50% in 2022, the highest in four decades.
The Federal Reserve raised its benchmark interest rate to its highest in 15 years. The
result is that the world ended in 2022 concerned that the following year would be slower.
Gross FDI inflows equity, reinvested earnings and other capital declined 8.4% to $55.3
billion in April- December. The decline was even sharper in the case of FDI inflows as
equity these fell 15% to $36.75 billion between April and December 2022. Global trade
expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023).
The S&P GSCI (benchmark for commodity investments and a measure of
global commodity performance) fell from a peak of 4,288 in June 2022 to 3233.4. There was
a sharp decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea
realisations. Brent crude oil dropped from a peak of around USD 120 per barrel in June
2022 to USD 80 per barrel at the end of the calendar year following the enhanced
availability of low-cost Russian oil.
Outlook
Outlook: The global economy is projected to grow a weak 2.9% in 2023,
marked by sustained Russia-Ukraine conflict and higher interest rates. Global inflation is
projected to be 6.5% in 2023 (Source: IMF). On the positive side, the reopening of
Chinas economy after the waning of the pandemic, the decline in the European energy
crisis and robust US consumption outlook (despite high inflation) remain positives.
Interestingly, even as the global economy is projected to grow less than 3% for five
years, India and China are likely to account for half the global growth in 2023 (IMF).
(Source: PWC report, EY report, IMF data, OECD data)
Indian Economy
Overview: Even as the global conflict remained geographically distant
from India, ripples comprised increased oil import bills, inflation, cautious government
and a sluggish equity market. India reported an estimated economic growth of 6.8% in FY
2022-23. India emerged as the second fastest- growing G20 economy in FY 2022-23. India had
retained its position as the fifth-largest global economy and was seen as a principal
driver of the global economy (with China).
Outlook: India is expected to grow 6.8% in FY2024, catalysed in no
small measure by 35% capital expenditure growth by the government. The growth could also
be driven by broad-based credit expansion, better capacity utilisation and improving trade
deficits. Headline and core inflation rates could trend down. Private sector investments
could revive. According to the World Bank April 2024 projections, Indias GDP is
projected to expand by 6.3 percent In FY24, supported by domestic demand and increased
public investment. Indias retail inflation rate could decline from 6.6 percent to
5.2 percent in FY24.
STEEL INDUSTRY
Global Steel Industry
Global steel demand was impacted by high inflation and consequent
aggressive monetary policy tightening by major central banks, coupled with supply chain
bottlenecks. In 2022, the developed economies experienced a significant decline in steel
demand due to factors such as monetary tightening and surging energy expenditure.
Following a substantial decrease of 6.2% during CY 2022, there is an anticipation of a
modest rebound with a projected 1.3% increase in steel demand for CY 2023. Chinas
steel demand contracted by 4% in 2022. In CY 2022, total crude steel production stood at
1,885 MnT, down 3.9% y-o-y, as steel producers reduced output in response to weak demand
and weak margins due to falling steel prices and elevated raw material costs. The
worlds largest steel producer China recorded production of 1,018 MnT, a 1.6% y-o-y
decline and Japans production fell 7.4% y-o-y to 89.2 MnT. This was partly offset by
a 6.0% y-o-y increase in production to 125.3 MnT in India. Source: JPC
Indian Steel Industry
India is the second-largest producer of crude steel in the world, with
an output of 126.2 MnT in FY 2022-23. Crude steel production rose 5.0% year-over-year
while finished steel consumption rose 13.3% to 119.9 MnT. Although production and
consumption increased due to robust domestic demand, margins came under pressure due to
high raw material and energy costs. The imposition of export duty on steel led to the
built-up of domestic inventories, as exports became unviable in the weak global price
environment. Further, few low-priced shipments from Russia and duty-free steel from FTA
countries made their way to domestic markets, as imports rose sharply putting more
pressure on steel prices5. Source: JPC
Industry Outlook
Against the backdrop of soft global economic outlook, India remains a
bright spot with rising demand for steel. India domestic demand grew 13.3% year on year in
FY 2022-23, recording consecutive two years of double-digit growth. According to ICRA,
domestic steel demand is estimated to grow at 7-8% in FY 2023-24, owing to strong demand
from end-user industries such as construction, infrastructure, automobile, real estate,
and consumer durables and enabling steel players to maintain high-capacity utilization
levels. In addition, the benefits of easing raw material prices are expected to flow
through Q2 FY 2023-24 onwards. Further, the rollback of export duty should support
exports, though near-term outlook remains challenging.
Opportunities and threats:
The forecast for steel demand suggests that it will continue to grow
over the next few years. By 2026, the global industry is expected to reach a production
level of 2.2 billion metric tonnes. Several factors, like increasing demand for steel
products in emerging markets, technologies that make steel production efficient, are
driving this growth in the steel industry.
Raw material costs account for a large proportion of the total cost of
steel production. The price of raw materials can fluctuate based on supply and demand,
which can significantly affect steel demand. The global steel industry uses about 2
billion metric tonnes of steel iron ore in crude steel production. So, changes in the
price of iron have a significant impact on steel production. Along with the raw material
costs, factors like the type of steel being produced and the size and scale of the
operations also influence the steel demand.
The steel industry is highly global, as steel trade between countries
is regular. Several factors affect the demand for steel production in different parts of
the world. When trade barriers are curtailed between countries, it strengthens trade
volume and typically results in lower steel prices. This development can impact the steel
industry positively by increasing demand. But in the case of a hike in prices, the effect
can be the opposite, leading to reduced demand for steel.
Government regulations have a major influence on how steel is produced
and traded. They can have a positive or negative impact on the steel industry, depending
on the specific regulations. In some cases, the regulation is favourable, which helps
promote a level playing field for domestic steel producers.
Given the above scenario, it is important on steel industry to focus on
cost reduction, better management of volatile prices, quality improvement, tapping export
opportunities, raw material security and to remain competitive in current market. The
Company is committed to create more value for all of its stakeholders. The Companys
management are taking initiatives to strengthen its profitability.
Financial performance
During the year under review, the financial performance for the company
was better as compared to last financial year:
(Rs. In lacs)
|
2022-23 |
2021-22 |
| Revenue from operations |
15054.02 |
10473.28 |
| Other income |
400.12 |
337.28 |
| EBITDA |
209.70 |
205.74 |
| Depreciation and amortization expenses |
9.56 |
5.80 |
| Interest expenses |
1.54 |
0.84 |
| Profit before tax |
198.60 |
199.10 |
| PAT |
149.23 |
147.59 |
| Other Comprehensive Income (net of taxes) |
0.91 |
(1.75) |
| Total comprehensive income for the year |
150.14 |
145.84 |
Review of Performance
During the year under review, the Company generated revenue of Rs.
15054.02 lacs as compared Rs. 10473.28 lacs in FY2021-22. It recorded an EBITDA of Rs.
209.70 lacs in FY2022-23, while in FY2021-22 EBITDA stood at Rs 205.74 lacs. Whereas
EBITDA margin is increased to 1.92 % in FY2022-23 from 1.90% of FY2021-22. Net Profit
after Tax of the company is Rs.149.23 lacs in the year under review as against profit of
Rs.147.59 lacs in the previous year. The cash flows of the Company in FY 2022-23 are Rs.
929.74 lacs as compared to negative cash flows of Rs 63.17 lacs in 2021-22. The
Shareholders funds increased from Rs. 2226.34 lacs as on 31st March, 2022
to Rs.2376.48 lacs as on 31st March, 2023.
Key financial ratios
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 |
2022-23 |
2021-22 |
Change |
Change (%) |
| Current Ratio - Note 1 |
4.44 |
2.39 |
2.05 |
85.82% |
| Inventory turnover - Note 2 |
25.10 |
10.04 |
15.06 |
149.99% |
| Net capital turnover Note 3 |
6.89 |
5.14 |
1.75 |
34.12% |
| Net Profit Margin Note 4 |
0.99 |
1.41 |
(0.42) |
(29.66%) |
| Return on Net Worth |
6.26 |
6.50 |
(0.24) |
(3.65%) |
Notes:
1. Current ratio improved from previous year is mainly due to better
management of cash flows and timely payments of Current liabilities which results in low
payables as on 31/03/2022.
2. Few contracts undertaken during the year were having longer periods
than the normal period therefore the movement of Inventory were also slow.
3. During the year net working capital has been improved and Sales
increased compared to previous year therefore increase in Net working capital ratio in
line with both the factors.
4. Due to decrease in gross margins in the year under review, the Net
Profit Margin decreased to 0.99 % in FY2023 from 1.41% in FY2022.
5. Return on Net Worth marginally lower due to lower gross margins in
FY2023 as compare to FY2022.
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.
The key risks are global steel demand scenario, domestic steel demand,
economic slowdown, increase in financial charges, non-availability (or undue increase in
cost) materials and services, coupled with market fluctuations.
Mitigation of Risk /Risk Management
The Board identifies and categorizes risks in the areas of operations,
finance, marketing, regulatory compliances and corporate matters. The Company reviews the
Risk Area periodically to identify potential business threats and takes suitable
corrective actions. The Internal Auditor expresses his opinion on the level of risks
during the audit of a particular area and reports to the Audit Committee if any corrective
actions / steps are being taken as and when necessary, in a continuous manner by the
company.
Human Resources and Industrial Relations
Human Resources Department ("HRD") works continuously for
maintaining healthy working relationship amongst the staff members. The underlying
principle is that staff at all levels are equally instrumental in attaining the
Companys goals. Training programmes are conducted to update their
skills. Senior management is easily accessible for counselling and redressal of
grievances. The HR department continuously strives to maintain and promote harmony and
coordination among staff and members of the senior management. The total number of
employees of the Company as on 31st March, 2023 is 13. The Company has maintained healthy
and cordial industrial relations during the year.
Internal Control Systems and their adequacy
The Company has strong internal control procedures commensurate with
its size and operations. The Board of Directors, responsible for the internal control
system, sets the guidelines and verifies its adequacy, effectiveness and application. The
Companys internal control system is designed to ensure management efficiency,
measurability and verifiability, reliability of accounting and management information,
compliance with all applicable laws and regulations and the protection of the
Companys assets. This will help identify and manage the Companys risks
(operational, compliance-related, economic and financial).
Cautionary Statements
Certain statements in the Management Discussion and Analysis Report
describing the Companys objective and predictions may be "forward-looking
statements" within the meaning of applicable laws and regulations. Actual results may
vary significantly from the forward-looking statements contained in this document due to
various risks and uncertainties. These risks and uncertainties include the effect of
economic and political conditions in India, volatility in interest rates new regulations
and government policies that may impact the Companys business as well as its ability
to implement the strategy.
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