INDUSTRY STRUCTURE, DEVELOPMENT AND OTHER RELATED MATTERS
The Indian Ferro Alloys Industry is primarily given by the growth and progress of Steel
industry. Ferro alloy has main applications in manufacturing variety of steels such as
stainless steel, alloy steel, carbon steel etc. Ferro Chrome helps in providing corrosion
resistance alongwith aesthetics. The emerging nations such as China and Indian hold
significant shares in this as the prime demand centers for steel.
Some of the major automobile manufacturers are present in these countries catering to
the increasing demand from the local customers, Expanding population alongwith improved
standard of living gives boos to construction sector as well.
Recent initiatives taken by governments in Asia Pacific region to boost manufacturing
sector will also catapult ferro alloy demand. China is the worlds largest producer of
ferro chrome and contributes to more than half of the global ferro chrome demand. It is
the hub of ferro chrome production, heavily dependent on chrome ore imports, primarily
from South Africa. Being a power intensive industry, power constitutes a major portion of
its cost of production. This is a major factor for limiting the capacity utilization of
ferro alloys industry. This problem is compounded further due to high power tariff vis a
vis the competing countries like South Africa, Kazakhstan to cite a few. Also, there are
many stringent environmental regulations, and industry standards mandated by various
regulatory bodies particularly for the iron and steel production industries. These
factors, altogether, will hinder the ferro alloy market growth in coming years.
Quality wise, chrome ore available in India edges over competition due to higher Cr2O3
and higher Cr/ Fe ratio. The higher Cr/Fe and higher composition of Cr2O3 makes Indian
ores more amenable to beneficiation and upgradation.
However, poor availability of good quality raw material, high power tariff and
uncertain policy framework renders the quality factor uncompetitive in the international
market.
RISKS AND CONCERNS /OPPORTUNITIES AND THREATS / OUTLOOK
Risk and Concerns and threat
Ferro alloys industry is mainly driven by demand from the steel industry and is a
cyclical industry. To ensure that a healthy production growth is maintained, certain
exclusive stimulus/ relief need to be provided by the government as the steady growth and
potential in business and development is subject to effective resolution of various
bottlenecks which the industry currently faces. While some of them relate to the larger
macroeconomic framework, some of them are intrinsic to the industry itself; major ones are
as follows:
• High cost of grid power has been affecting the industrys competitiveness
despite having the best quality ores and processes
• High cost of coal and shortage of required coal to captive power unit has
entailed a burden on producers
• Inadequate indigenous supply of good quality and high grade coke
• Depleting Chrome ore supply on domestic level. With OMC being the only major
producer of chrome ore in the country, there are availability issues.
• High transportation cost due to increase in price of fuels
Inadequate and crumbling infrastructure, over burdened roadways, railways and ports
With electricity cost forming a major cost element in production of ferro-alloys, high
power tariff is the biggest concern for the ferro-alloys industry. However, the Companys
100 MW Captive Power Plant enables the Company to emerge self-reliant in its power needs
and reduce dependence on the grid electricity.
Although the Company, is exposed to fluctuations in foreign exchange due to in import
of materials and exports of finished products, has a risk management policy for insulating
the Company from adverse foreign exchange exposure.
Outlook
The global ferro chrome industry is largely dependent on Chinese demand and the
stainless steel cycle. Chinas consumption is met through a combination of domestic
production and substantial imports from countries including South Africa, India and
Zimbabwe. Other leading importers of ferro chrome are the US, South Korea and the European
Union (EU) although the EU and US have witnessed a steady decline in their dependence on
imports for ferro chrome in the last decade. The Indian ferro chrome industry is on the
road to consolidation. The fragmented nature of the industry which has been an impediment
in the past is on the verge of major change. With impetus on infrastructure development,
development of industrial corridors, smart cities to cite a few, demand for ferro chrome
is will head northwards. Although India is having very low per capita consumption of
stainless steel, the same is nevertheless, showing signs of improvement which obviously
will fuel the demand for ferro chrome.
As reported previous year, the Company had executed Corporate Guarantees from time to
time, of an amount aggregating to of Rs.517.90 crores, in favour of Rural Electrification
Corporation Limited (REC) which had sanctioned a Term Loan of Rs.517.90 crores to Facor
Power Limited (FPL), the then subsidiary of the Company against the security of the assets
of FPL, the personal guarantee of two of its directors and the Corporate Guarantee of the
Company, as aforesaid. Pursuant to a default in the repayment of instalment and interest
on the loan by FPL and upon an application filed by REC, the Company was admitted for
commencement of Corporate Insolvency Resolution Process w.e.f 6th July, 2017 pursuant to
order passed by the Honble National Company Law Tribunal, Kolkta (NCLT, Kolkata) in an
application filed by REC under section 7 of the Insolvency And Bankruptcy Code, 2016 (IBC
Code, 2016). An appeal against the order dated 6th July, 2017 of the National Company Law
Tribunal, Kolkata had been filed with the National Company Law Appellate Tribunal, New
Delhi (NCLAT, New Delhi), which was dismissed vide order dated 8th January, 2019.
Thereafter, the matter has been heard by National Company Law Tribunal which had granted
exclusion of time pursuant to which the revised date of completion of Corporate Insolvency
of the Company was fixed to 19th April, 2019. Thereafter, upon applications filed by REC
Limited for change of Resolution Professional and grant of further exclusion which was
followed by another application seeking further exclusion of time, the Honble National
Company Law Tribunal, Cuttack, vide order dated 8th August, 2019, granted further
exclusion of time of 98 days from 7th August, 2019. Accordingly, the revised date for
completing Corporate Insolvency Resolution Process of the Company is 14th November, 2019.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company systems and procedures of internal control and checks in operation
commensurate with the size and the nature of its business for optimum utilization of
available precious resources. The mechanism of internal control and checks are reviewed by
the management, internal and statutory auditors and suitable changes/ modifications, if
required, are implemented so as to ensure that an effective scheme of checks and balances
exists at all times. The management is reasonably satisfied with the existing internal
control systems. Further, in view of the ongoing Corporate Insolvency Resolution Process,
all payments are pre-certified by the Concurrent Auditor appointed by the Resolution
Professional and payments are thereafter released.
FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
|
|
(Rs. in lacs) |
| Particulars |
For the year ended 31st March, 2019 |
For the year ended 31st March, 2018 |
| Income from Operations |
57538.21 |
53908.25 |
| EBITDA (Before exceptional items) |
5788.86 |
5561.31 |
| Profit/(Loss) after tax |
2805.81 |
5548.17 |
| Cash Profit |
3945.27 |
5662.46 |
During the year under review, revenue from operations increased by 6.73% to
Rs.57,538.21 lacs (previous year Rs.53,908.25lacs). However, EBIDTA increased by 4.09% to
Rs.5,788.86 lacs (previous year Rs.5561.31 lacs) and profit before exceptional items and
tax increased by 7.08% to Rs.4283.03 lacs (previous year Rs.3999.78 lacs). Production of
Ferro Chrome for FY 2018-19 at 73356 tons vis a vis 71755 tons for FY 2017-18 was up by
2.23%. Further, production of Chrome ore at Companys mines for FY 2018-19 was 129518 tons
vis a vis 136849 tons for FY 2017-18 reflecting an decrease by 5.36%. Exports are at
Rs.420.31 crores as against 302.01 crores in the previous year.
DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE
IMMEDIATELY PRECEDING FINANCIAL YEAR) IN KEY FINANCIAL RATIOS ALONGWITH DETAILED
EXPLANATIONS THEREFOR:
| Particulars |
Standalone |
Consolidated |
Variation |
Reasons for changes |
|
FY |
FY |
FY |
FV |
Standalone |
Consolidated |
|
|
2018-19 |
2017-18 |
2018-19 |
2017-18 |
|
|
|
| Debtors Turnover ratio |
50.31 |
16.55 |
50.31 |
16.55 |
204% |
204% |
High Debtors Turnover ratio for standalone as well as consolidation is mainly due to
increase in Turnover and increase in debtors level in current year as compared to previous
year. |
| Inventory Turnover ratio |
8.32 |
7.03 |
8.32 |
7.03 |
18% |
18% |
-- |
| Interest coverage ratio |
6.24 |
5.64 |
6.24 |
5.63 |
11% |
11% |
-- |
| Current ratio |
1.60 |
1.20 |
1.60 |
1.20 |
33% |
33% |
Change in current ratio is due to increase in current investments in current year as
compared to previous year. |
| Debt equity ratio |
0.07 |
0.08 |
0.07 |
0.08 |
-8% |
-8% |
-- |
| Operating profit margin (%)(before exceptional items) |
9.21 |
9.36 |
9.21 |
9.34 |
-2% |
-2% |
-- |
| Net profit margin (%)(after exceptional items) |
4.96 |
10.42 |
4.96 |
10.40 |
-52% |
-52% |
Change in net profit margin us mainly due to reduction in exceptional items as
compared to the previous year. |
| Return on Net worth (%)(after exceptional items) |
13.07 |
31.99 |
13.08 |
31.94 |
-59% |
-59% |
Change in RONW in current year with reference to previous year is due to decrease in
exceptional items as compared to the previous year. |
MATERIAL DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT INCLUDING PEOPLE
EMPLOYED
The Company values its employees and treats them judiciously. The overall industrial
relations were cordial. The Company recruits judiciously through Industry contacts,
newspaper advertisements and consultants. The manpower employed is around 603 excluding
indirect employment.
CAUTIONARY STATEMENT
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.
The Company doesnt undertake to update the statements. Further, the Resolution
Professional has relied on the information and details furnished by the Companys
officials and the Directors which may be subject to review.
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