This report is aimed to highlight managements broad perspective on the external factors that may have bearing on performance of company, as well as strategy, counter measures, operating and financial performance, material developments, risk and opportunities and internal control systems and their adequacy. These discussions and analysis shall be read in the light of companys standalone and consolidated financial statements, the directors report and other information included elsewhere in the Annual Report.
INDUSTRY STRUCTURE, DEVELOPMENT AND OTHER RELATED MATTERS
Ferro chrome is an alloy of chrome and iron with 50% to 68% chrome content primarily used in manufacturing stainless steel. Ferro chrome strengthens and offers corrosion resistance to stainless steel, thereby making it a unique product with multiple applications. Most of the worlds ferro chrome is produced in China, South Africa, Kazakhstan and India. China is the worlds largest producer of ferro chrome and contributes to more than half of global ferro chrome demand. It is the hub of ferro chrome production heavily dependent on chrome ore imports, primarily from South Africa. However, Indias position as one of the largest producer and also one of the largest finished steel consumer after China highlights its remarkable presence in the global steel market. On the basis of application, ferro alloy market is segmented into carbon steel, alloys steel, stainless steel and others. Alloy steels have applications in various end use industries such as general engineering, aerospace & defence, railways etc. with increasing investment in manufacturing sector of various emerging nations, the demand for alloy steels is also expected to increase in near future.
The ferroalloys include ferrochrome, ferrosilicon, ferromanganese and ferromolybdenum, among others. Various types of ferroalloys have different purposes in the production of steel. For instance, ferrovanadium in steelmaking is used to provide strength against alkalis and acids such as sulphuric and hydrochloric acid. It provides corrosion resistance and enhances tensile strength of casting & welding electrodes.
Nearly 85 to 90% of all the ferroalloys are used in the production of steel. Therefore, production and consumption of steel and related products have a huge impact on the pricing of ferroalloys and vice versa. Cost of ferroalloy is one of the key criteria for deciding suitable ferroalloy for the production of a particular grade of steel. Specification of steel is also an important factor while calculating the costs of steelmaking. For instance, specific grade of steel with low phosphorous can be manufactured using two methods viz. either by the use of normal steelmaking process, which uses expensive ferroalloys with low phosphorous content or by increasing the refining time and basicity of slag to reduce phosphorous at low levels. The Indian Ferro Alloy industry plays a crucial role in the steelmaking process, providing essential inputs for steel production. The industry is composed of a mix of large-scale players, medium-scale units, and several small-scale players. India is among the leading producers of ferro alloys, including ferrochrome, ferromanganese, and ferrosilicon. The sector is driven by the growing demand from the domestic steel industry, which consumes nearly 80% of the ferro alloys produced.
GLOBAL OUTLOOK:
As per IMIR research, the size of the Ferro Alloys Market was estimated to be around USD 147.5 Billion in 2023, and it is projected to grow at a CAGR of 5 - 7% over the forecast period (2024–2031) to reach a value of USD 212.2 Billion by 2031. The global ferroalloys market is anticipated to develop significantly due to rising steel output throughout the forecast period. Furthermore, because ferroalloys are becoming more and more necessary for the global steel industry, the developing automotive and transportation sectors are expected to propel ferroalloy demand globally. The global ferroalloys market is being driven by advancements in technology as well as the expanding usage of ferroalloys in the automotive, transportation, and aerospace sectors.
INDIAN OUTLOOK:
The outlook for the Indian ferro alloy industry in 2025 is positive, with expected growth driven by the increasing domestic steel production and export opportunities. The industry is likely to see further consolidation, technological upgrades, and enhanced focus on sustainability. The growth in infrastructure projects, automobile production, and the manufacturing sector will be key demand drivers.
Recent developments in the industry include technological advancements, energy-efficient production processes, and increased investments in backward integration for raw material security. The governments focus on infrastructure development and the "Make in India" initiative has provided a significant boost to the steel and ferro alloy sectors.
GROWTH DRIVERS:
1. Steel Industry Expansion: Ferroalloys are essential for steel manufacturing, which consumes about 85% of the global ferroalloy output. Indias steel production is expected to grow at a CAGR of 6-8% over the next five years, driven by government initiatives, infrastructure projects, and urbanization. This growth will directly increase the demand for ferroalloys.
2. Urbanization and Infrastructure Development: The Indian governments focus on urban infrastructure, including smart cities, housing projects, and transportation networks, is likely to boost steel consumption, thereby driving ferroalloy demand.
3. Automotive Industry Growth: The Indian automotive industry, another major consumer of steel, is poised for significant growth. This sectors expansion will further support the demand for ferroalloys.
4. Export Opportunities: India is a net exporter of ferroalloys, with substantial markets in Europe, the Middle East, and Southeast Asia. The ongoing recovery in global steel production, coupled with Indias cost competitiveness, is expected to enhance export opportunities.
RISKS AND CONCERNS /OPPORTUNITIES AND THREATS / OUTLOOK
Opportunities:
1. Manganese and Chrome Ore Reserves: India has abundant reserves of manganese ore, a key raw material for ferroalloy production, particularly in states like Odisha and Karnataka. The availability of these resources ensures a stable supply chain for ferroalloy producers.
2. Growing Steel Demand: The demand for ferro alloys is directly linked to the growth of the steel industry. With Indias steel production projected to grow at a steady pace, the demand for ferro alloys is expected to rise significantly.
3. Export Potential: India has a competitive advantage in producing ferro alloys due to the availability of raw materials and cost-effective labor. This provides opportunities to increase exports to Europe, Japan, South Korea, and other regions.
4. Government Initiatives: Supportive government policies like PLI schemes, infrastructure investments, and efforts to reduce import dependence present growth opportunities.
5. Energy Efficiency and Cost Management: Ferroalloy production is energy-intensive. Indian producers are increasingly adopting energy-efficient technologies to reduce costs and carbon emissions. This shift is crucial as energy costs constitute a significant portion of the total production cost.
6. R&D and Product Innovation: Indian ferroalloy manufacturers are investing in research and development to improve product quality and develop high-value ferroalloys, such as low-carbon ferrochrome and ferrovanadium. These innovations are expected to cater to niche markets and offer higher profit margins.
Threats:
The manufacturing facilities at the Plant of the Company situated at SHREERAMNAGAR-535 101, Dist. Vizianagaram, (A.P.) has been under temporary shutdown w.e.f. 31.10.2023 till further notice.
• Raw Material Supply Constraints: The industry is highly dependent on the availability of key raw materials like manganese ore, chrome ore, and electricity. Any disruption in the supply of these inputs can affect production.
• Volatility in Prices: The ferro alloy industry is exposed to fluctuations in global commodity prices, which can impact margins.
• Environmental Regulations: Stricter environmental regulations may increase operational costs and necessitate further investments in cleaner technologies.
Risks and Concerns
• Economic Slowdown: A global or domestic economic slowdown could reduce demand for steel,
• Currency Fluctuations: Volatility in foreign exchange rates can affect the profitability of exports and imports of raw materials.
• Compliance with Environmental Norms:
Increasingly stringent environmental regulations pose a risk to smaller players who may not have the resources to invest in necessary upgrades.
• Global Competition: Indian ferroalloy producers face competition from countries like China, South Africa, and Brazil. Chinas dominance in the global ferroalloy market, particularly in terms of production and exports, poses a significant challenge for Indian exporters. However, Indias lower production costs and strategic geographic location provide a competitive edge.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The ferro alloy industry is characterized by a complex production process, requiring robust internal control systems to ensure quality, efficiency, and cost-effectiveness.
Company is continuously endeavoring to maintain highest standards of internal control designed to provide adequate assurance on the efficiency of operations and security of its assets. The adequacy and effectiveness of the internal control across various activities, as well as compliance with laid-down systems and policies are comprehensively and frequently monitored by management at all levels of the organization, internal and statutory auditors and based on the experience gained and suggestions received, if any, these are updated, modified and accordingly implemented. These systems are adequate to address the current needs and are regularly updated to align with industry best practices.
The Audit Committee of the Board of Directors also reviews these matters from time to time during their meetings.
FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
Plant operation is temporarily shut down w.e.f. 31-10-2023, which has caused lower revenue during the year. Top management had recently undergone reshuffle and new management has taken charge w.e.f. 9th April, 2024. New management is rigorously exploring all options including dialogues with corporate houses and lenders to get assistance to resume operations but due to prevailing stringent market conditions, lower steel demand coupled with stressed margins, management is not getting immediate respite, however, despite all odds, management is looking forward to revive the operations by utilizing manufacturing facilities for silico manganese as well as ferro chrome to explore market demand. Promotor entity is also infusing funds to meet running fund requirement. Company has state-of-art manufacturing facility and enjoying debt free status i.e. no financial obligation towards any financial institutions. Management is very keen and hopeful to overcome all odds and resume operation at the earliest.
During the year under consideration, Company achieved the production of 30,753 M.T. as against 70,062 M.T. in the previous year recording an decrease by 56% approx due to temporary shutdown of manufacturing facilities.
Exports (Deemed) are at Rs. 27.29 crores as against Rs. 69.61 crores in the previous year and during the year under review foreign currency earnings in rupee terms was NIL. The Company derived 17.89% of its total sales from deemed exports as against 21.78% in the previous year.
On account of above and other factors including higher sales realization, the loss before tax is at Rs. 43.31 crores as compared to profit of Rs. 15.95 crore in the previous year.
DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS, ALONG WITH DETAILED EXPLANATIONS THEREFORE
a) Key ratios and margins
| Particulars | FY 2023-24 | FY 2022-23 |
| Debtors turnover ratio | 3.19 | 8.45 |
| Inventory turnover ratio | 18.76 | 27.49 |
| Interest coverage ratio | (14.65) | 21.31 |
| Current ratio | 1.38 | 1.69 |
| Debt equity ratio | 0.04 | 0.03 |
| Operating profit margin (%) (before exceptional items) | (13.82%) | 1.09% |
| Net profit ratio (%) (after tax) | (22.79%) | 7.13% |
b) Significant change in Financial Ratios
| Particulars | FY 2023- 24 | FY 2022- 23 | Changes in % | Reasons for Changes |
| Debtors turnover ratio | 3.19 | 8.45 | (62.25%) | Debts from TSL and RTVNPL could not be realized as Ref. in Note No 33(d) and Note no.48, respectively, consequently debtors increased causing reduction in ratio. |
| Inventory turnover ratio | 18.76 | 27.49 | (31.76%) | Manufacturing operation was temporarily shut down, consequently, turnover has reduced causing reduction in ratio. |
| Particulars | FY 2023- 24 | FY 2022- 23 | Changes in % | Reasons for Changes |
| Interest coverage ratio | (14.65) | 21.31 | (168.75%) | The reduction in ratio is due to reduction in EBITDA after exceptional items. |
| Operating profit margin (%) (before exceptional items) | (13.82%) | 1.09% | (1367.89%) | Company incurred operating losses due to temporary shutdown of operation which caused reduction of ratio. (Refer note no.43) |
| Net profit ratio (%) (after tax) | (22.79%) | 7.13% | (419.64%) |
DETAILS OF CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH DETAILED EXPLANATIONS THEREFORE
| Particulars | FY 2023- 24 | FY 2022- 23 | Changes in % | Reasons for Changes |
| Return on net worth (%) (after Exceptional items) | (20.53%) | 12.96% | (258.41%) | Company has incurred losses during the year, which has caused negative return on net worth. |
MATERIAL DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT INCLUDING PEOPLE EMPLOYED
Employees participation schemes such as Central Safety Committee, Quality Circles, Intra department level reviews have been adopted to ensure transparency and open communication at all levels. In house training to employees was imparted focusing on safety, productivity and skills improvement inputs. Multi-skills improvement program has been implemented encouraging the trade workmen to learn additional skills. Executives were nominated to various seminars and programs for exposure to the best business practices. Adequate cost consciousness in the minds of all employees has been inculcated to attain the ultimate goal of cost reduction. The overall manpower consisting of workmen, supervisors and managers etc. worked out to 353 excluding indirect employment.
CAUTIONARY STATEMENT
Statements in this Management Discussion and Analysis Report may be "forward-looking statements and are based upon data available with the Company and on certain assumptions having regard to the economic conditions, government policies, political developments within and outside the country. The management is not in a position to guarantee the accuracy of the assumptions and the projected performance of the Company in future. Actual results could differ materially from those expressed or implied due to various risks and uncertainties.
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