<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>
Global Economy
Global real GDP is forecasted to grow by 2.2 percent in 2023, down from
3.3 percent in 2022. Most of the weakness will be concentrated in Europe, Latin America,
and the US. Asian economies are expected to drive most of the global growth in 2023, as
they benefit from ongoing reopening dynamics and less intense inflationary pressures
compared to other regions.
Despite rapid monetary tightening, inflation is proving persistent in
many key economies, particularly on the back of strength in job markets amid severe labor
shortages. Therefore, monetary policy is likely to remain restrictive throughout most of
2023, despite financial stability concerns. This will act as a break on economic activity
and will likely lead to an increase in unemployment rates in various economies,
particularly in Europe and the US.
Global real GDP growth should pick up steam in 2024 to 2.5 percent and
be more evenly distributed among regions. Tailwinds to growth in 2024 will largely come
from fading shocks related to the pandemic, elevated inflation, and monetary policy
tightening. However, growth rates in 2024 and beyond are likely to be below the
prepandemic trend, given ongoing supply-side weakness (e.g., ageing demographics worldwide
and slow productivity growth).
Inflation, while lower than experienced currently, may remain
relatively elevated for several reasons, including expected persistence in labor
shortages.
The 10-year economic outlook signals a prolonged period of disruptions
and uncertainties for businesses, but there are also opportunities. Global growth will
return to its slowing trajectory once the 2022-2023 regional recessions end, with mature
markets making smaller contributions to global GDP over the next decade. Nonetheless,
there are still opportunities for firms to invest in both given their wealth and need for
innovation to compensate for shrinking labor forces and emerging markets given their need
for both physical and digital infrastructure to support their sizable and young labor
forces. Keys to ensuring growth over the longer term include developing new lines of
business; strengthening corporate culture; embracing digital transformation and
automation; recruiting for talent with new skills not currently represented in the
company; and maximizing the hybrid work model where it makes sense.
Source: Conference-board Discussion/topics/global economic outlook
Indian Economy
India’s growth continues to be resilient despite some signs of
moderation in growth, says the World Bank. Although significant challenges remain in the
India was one of the fastest-growing economies in the world.
Amidst the backdrop of the pandemic and prevailing global economic
uncertainties, India stands out in a bright spot. India has been at the forefront of
global economic expansion thereby contributing a significant global growth. The central
government’s capital expenditure (capex) has been a key driver of India’s
economic growth in FY23, with a significant increase of 63. months of FY23. This growth
has also helped stimulate private sector capex since the beginning of FY22.
Source: The Indian Economic Survey FY23 Furthermore, with a record-high
of $ 3.75 Trillion-mark in FY23, India became the fifth largest economy in the world
beating the UK. Anchoring this economic growth momentum, India has witnessed a significant
boost in its reputation through a 14% surge in overall exports during FY23, reaching a
total value of $ 775.87 Billion, a substantial increase of approximately $ 100 Billion
compared to the previous year.
The World Bank has revised its FY23/24 GDP forecast to 6.3 percent from
6.6 percent (December 2022). Growth is expected to be constrained by slower consumption
growth and challenging external conditions. Rising borrowing costs and slower income
growth will weigh on private consumption growth, and government consumption is projected
to grow at a slower pace due to the withdrawal of pandemic-related fiscal support
measures.
Although headline inflation is elevated, it is projected to decline to
an average of 5.2 percent in FY23/24, amid easing global commodity prices and some
moderation in domestic demand. The Reserve Bank of India has withdrawn markets
accommodative measures to rein in inflation by hiking the policy interest rate.
India’s financial sector also remains strong, buoyed by improvements in asset quality
and robust private-sector credit growth.
The central government is likely to meet its fiscal deficit target of
5.9 percent of GDP in FY23/24 and combined with consolidation in state government
deficits, the general government deficit is also projected to decline. As a result, the
debt-to-GDP ratio is projected to stabilize. On the external front, the current account
deficit 2.1 percent of GDP from an estimated 3 percent in FY22/23 on the back of robust
service exports and a narrowing merchandise trade deficit.
Source: World Bank Press Release on the Indian Economy-/2023/04/04
Industry Overview
Calcined Petroleum Coke (CPC) is a crucial raw material in the
production of aluminum and steel. Approximately 85% of the global CPC supply caters to the
Aluminium Industry, while the rest fulfills the requirements of the steel and other allied
industries.
The aluminum industry is striving to adopt sustainable alternatives
such as low-carbon aluminum and innovating new technologies and alloys to establish itself
as the most eco-friendly metal in the world. Aluminum produced through renewable energy
sources is expected to gain more importance in the coming years.
Raw Petroleum Coke (RPC) serves as the raw material for CPC and is a
by-product of oil refining. The process of“calcining” removes moisture and
volatile matter from RPC at high temperatures to produce CPC. The CPC produced by this
process is an essential raw material for manufacturing anodes required for aluminum
smelting. Without CPC, aluminum smelters cannot produce this recyclable, lightweight, and
versatile metal.
There are no commercially viable substitutes for CPC in aluminum
smelting. Without calcination, larger volumes of RPC would be burned as a highly emitting
fuel for power generation. Additionally, CPC plays a significant production of titanium
dioxide, used as the base pigment for construction and automotive paints, as well as in
plastics, coatings, cosmetics, toothpaste, and sunscreen. It is also utilized in the
production of high-strength steel for infrastructure like bridges and skyscrapers.
CPC is available in two primary qualities: anode-grade CPC, essential
for the aluminum smelting process, and industrial-grade CPC used in manufacturing titanium
dioxide and other industrial applications. Also known as Recarburizer, it is used to raise
the carbon level in the manufacturing process. Anode-grade CPC represents approximately
more than 75% of global CPC production, while industrial-grade CPC represents the
remaining. About 0.4 tonnes of CPC are and required for every tonne of primary aluminum
produced.
China and North America are the dominant producers of CPC, accounting
for over 75% ofglobalproduction.China, financial review are intended in particular,
continues to hold a significant to remain around 55-60% in the near term. Due to the
production-demand gap in the Middle East, Asian calciners are focusing more on the region
for surplus capacity.
Company Overview
GCL, Goa Carbon Limited, is the manufacturing flagship Company of the
Dempo Group. Since its establishment in 1967, GCL has been a leading player in the
processing and manufacture of Calcined Petroleum Coke (CPC) in India. The core of their
manufacturing process involves converting Green Petroleum Coke (GPC), a by-product of oil
refining, into high-value carbon-based CPC by removing moisture and volatile matter at
extremely high temperatures. This critical product serves as a vital raw material for
various industries, including aluminium, graphite, titanium dioxide, and refractories.
With three state-of-the-art plants located in strategic regions across
India – Goa, Paradeep, and Bilaspur – GCL ensures a robust manufacturing and
delivery network. All their plants are proud holders of ISO 9001 and ISO 14001
certifications by Bureau Veritas, reflecting the Company’s commitment to quality and
environmental standards. The Goa Unit has a licensed capacity to manufacture 100,000 MT of
CPC, while the Paradeep and Bilaspur Units have capacities of 168,000 MT and 40,000 MT,
respectively.
With the continuing restrictions on the import of GPC by the calciners
and the import of CPC by the aluminum smelters which is capped by the Hon’ble Supreme
Court of India at 1.40 million tonnes per annum and 0.50 million tonnes per annum
respectively, the additional requirement of both calciners and smelters will have to be
met from domestic supplies within India.
GCL has earned an excellent reputation in the domestic market,
supplying to prominent companies such as Hindalco Industries, National Aluminium Co. Ltd.,
Bharat Aluminium Co. Ltd., Vedanta Aluminium, Kerala Minerals and Metals Ltd., Steelrole
in the Authority of India Ltd., and several steel plants in the SouthWestern region and
Odisha. The Company’s commitment to quality, reliability, and timely deliveries has
also garnered the trust of international clients, including Aluminium Pechiney –
France, Aluminium of Greece (AOG), SABIC – Saudi Arabia, Dubai Aluminum (DUBAL),
Sohar Aluminium Co. – Sultanate of Oman, and ALUCAM – Cameroon.
With a clear focus on quality, sustainability, and meeting customer
demands, GCL continues to pave the way as a leading force in the Calcined Petroleum Coke
industry, both domestically and internationally. Their strategic plant locations near
ports in Goa and Paradeep further enhance efficiencyreinforce their position in their
operational the market.
Financial and Operational Review
Thefollowingoperatingand to conveyshare,expected the management’s
perspective on the operating and financial performance of the Company for the Financial
Year 2022-23. This should be read in conjunction with the Financial
Statements, the schedules and notes thereto and the other information included elsewhere
in the Annual Report. The Financial Statements have been prepared in compliance with the
requirements of the Companies Act, 2013, the guidelines issued by the Securities and
Exchange Board of India (“SEBI”), in accordance with Indian Accounting Standards
(Ind AS) and the other accounting principles generally accepted in India.
Some of the Key Financial ratios are given below in percentage, except
for earning per share:
| Particulars |
As at 31st March 2023 |
As at 31st March 2022 |
| PAT / Sales |
6% |
5% |
| Return on Net Worth |
58% |
36% |
| Earnings per share () |
88.24 |
41.28 |
| The net cash flow of the Company during the year ended
31.03.2023 is as follows: |
|
|
|
|
Rs in Lakh |
| Particulars |
As at 31st March 2023 |
As at 31st March 2022 |
| Cash used in operations |
(11,562.48) |
(3,989.97) |
| Cash used in investing activities |
(1,971.37) |
(13,999.01) |
| Cash generated from financial activities |
12,665.36 |
19,112.17 |
| Cash and cash equivalents at the end of the year |
255.17 |
1,123.19 |
| Details of Key Financial Ratios are given below: |
|
|
| Particulars |
As at 31st March 2023 |
As at 31st March 2022 |
| Debtors Turnover Ratio |
14.89 |
16.53 |
| Inventory Turnover Ratio |
4.77 |
4.99 |
| Interest Coverage Ratio |
3.39 |
3.65 |
| Current Ratio |
1.26 |
1.26 |
| Debt Equity Ratio |
2.27 |
2.09 |
| Operating Profit Margin % |
16.93 |
17.91 |
| Net Profit Margin % |
7.93 |
5.34 |
The Company’s operational performance and financial results are
subject to fluctuations from period to period due to several factors (please refer below
para on ‘Business Challenges). One significant factor is the delivery schedule of
varies over time and impacts the Company’s revenue streams. Additionally, the Company
faces challenges in consistently raising selling prices in line with the changing costs of
imported raw materials. The FOB price of these materials also experiences substantial
variations, adding further complexity to the Company’s pricing strategy.
Outlook
The outlook is uncertain again amid financial sector turmoil, high
inflation,ongoing effects of Russia’s invasion of Ukraine, and three years of COVID.
The baseline forecast is for growth to fall from 3.4 percent in 2022 to
2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are
expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3
percent in 2023. In a plausible alternative scenario with further financial sector stress,
global growth declines to about 2.5 percent in 2023 with advanced economy growth falling
below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent
in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core)
inflation is likely to decline more slowly. target is unlikely before 2025 in most cases.
Source: IMF Publications/WEO/Issues/2023/04/11
Business Challenges
At Goa Carbon, we ensure to work towards addressing the potential
threats and challenges and thereby minimizing the losses. In addition to the points
discussed above, the Company has identified some of the critical business challenges and
its mitigation plans that include:
Aluminium Industry
The demand for Calcined Petroleum Coke (CPC) is directly linked to the
demand of the aluminium and steel industries.
Approximately 85% of the global CPC supply is dedicated to the
aluminium sector, while the remaining caters to steel and other allied industries. As the
aluminium industry shifts towards sustainable alternatives like low carbon aluminium and
invests in innovative technologies and alloys, the importance of aluminium produced
through renewable energy sources is expected to grow significantly in the near future.
Aluminium, the second most utilized metal globally after steel, has
experienced remarkable growth, expanding significantly as compared to other returnto
metals.
Its unique properties, such as lightweight, recyclability,
conductivity, non-corrosiveness, and durability, make it the preferred metal for various
applications across multiple manufacturing sectors. Often referred to as ‘the metal
of the future,’ aluminium’s lightweight nature contributes to fuel efficiency,
making it an efficient choice for automotive, defense, and aviation industries. In the
construction sector, various aluminium alloys are widely used due to their durability and
non-corrosive characteristics, making them suitable for exterior siding and structural
components.
The demand for CPC may experience fluctuations based on variations in
the demand and supply of aluminium and steel. As the cost of aluminium production rises in
the western regions, there is a notable shift in aluminium production towards the East.
This shift is anticipated to augment the demand for CPC manufacturing, thereby increasing
business opportunities for the Company.
Overall, the Company’s prospects remain promising, given the
steady growth of the aluminium industry and its increasing focus on sustainability. As a
critical supplier of CPC to the aluminium and steel sectors, the Company is
well-positioned to capitalize on the evolving market dynamics and drive its business
forward.
Foreign Exchange and Interest Rate
The Company faces potential risks related to foreign exchange and
interest rates. A sharp tightening of global financing conditions or a rapid appreciation
of the U.S. Dollar against the Indian Rupee could exert significant pressure on the
Company, particularly considering India’s large current account deficits funded by
portfolio and bank flows. To mitigate these risks, the Company has implemented currency
hedging strategies to safeguard against adverse exchange rate movements. Regular scenario
planning and building reserves can also contribute to enhancing the Company’s
financial resilience in the face of these challenges.
Supply of Raw materials
It is essential for our Company to source the appropriate raw material
at the right price and at the right time, without which the production and quality of the
material could be impacted. Off late, the customers have been very particular about the
quality parameters of the CPC due to changes in their product portfolio. This put extra
pressure on the procurement side since, at times, refineries do not extend any
back-to-back quality assurances for all the parameters as it entirely depends on the type
of crude oil or other inputs being used in the refining process. Further, a slight change
in the material parameters has a huge impact on the pricing of the RPC. At the same time,
the availability of high-quality raw materials continues to be a challenge –
especially low sulphur anode-grade RPC for our calcination business. The RPC quality in
the domestic refineries has been deteriorating which has resulted in heavy dependence on
the imported RPC. This also gives an edge to the import based calciners like us to cater
to the specific needs of the aluminium smelters
The Company has put forward a team of professionals to evaluate the
procurement strategies, monitor production planning and inventory control systems, which
improves control over raw materials planning. GCL continues working closely with its
suppliers and the aluminium smelters as well to find long-term and sustainable solutions
to the above-mentioned issues. Since the Company has been in the industry for more than
five decades and has long-term relationships with refineries/suppliers and major smelters,
all efforts are being made to procure the quality raw materials from different sources at
competitive prices.
Environment & Regulations
Aluminium is the second most used metal in the world after steel, and
approximately 0.4 tonnes of CPC is required in the production of every tonne of aluminium
produced. Any regulations that impact either import or production of CPC will directly
impact the aluminium industry in India. Thus, it is a critical and strategic part of the
economic growth of India and occupies a due position in the global economy.
The Environmental Protection Agency (EPA) does not classify RPC as
hazardous. EPA has surveyed the potential human health and environmental impacts of RPC
through its High Production Volume (HPV) challenge program and found the material to be
highly stable and non-reactive at ambient environmental conditions. Most toxicity analysis
of coke finds that it has a low potential to cause adverse effects on aquatic or
terrestrial environments as well as a low healthdownward hazard potential in human, with
no observed carcinogenic, reproductive, or developmental effects.
However, aluminium, and steel production create immense emission and
can have an adverse impact on the environment. To curb the extensive production of
aluminium and steel, the Honble Supreme Court of India had banned the import of RPC
during July 2018 but eventually lifted it, permitting the import of RPC by Indian
calciners to be within 14 lakh MT/year which is used as feedstock and not as a fuel.
With the Honble Supreme Court of India imposing restrictions on the
import of Raw Petroleum Coke (RPC) by calciners and Calcined Petroleum Coke (CPC) by
aluminium smelters, the annual caps have been set at 1.40 million tonnes and 0.50 million
tonnes, respectively. As a result, both calciners and smelters will need to rely on
domestic supplies within India to fulfill their additional requirements.
While the Supreme Court has ruled that Flue Gas Desulphurization (FGD)
units are not mandatory for operating a CPC plant, it has directed the Ministry of
Environment, Forest and Climate Change (MOEF&CC) to conduct a comprehensive study of
calcination plants in India and establish emission standards for calciners. Subsequently,
on 5th June 2023, the MOEF issued the final emission norms and granted a
two-year period for implementation.
In response to the regulatory changes, the Company has proactively
initiated necessary measures to ensure full compliance with the newly established emission
standards within the stipulated two-year timeframe. By doing so, the Company aims to meet
the environmental requirements and uphold its commitment to sustainable practices in the
production of Calcined Petroleum Coke.
Trade Wars
Escalating trade tensions present a significant downside risk to the
global economic outlook. If all proposed tariffs are enacted, a sizable amount of global
trade flows could be affected, potentially hampering economic growth in the involved
economies and causing negative ripple effects worldwide.
While certain countries may experience short-term benefits from trade
diversion, an increase in trade protectionism could have detrimental long-term
consequences.
Rising trade barriers would discourage international investments and
lead to disruptions in global value chains, resulting in higher prices and reduced
productivity across industries. The interdependent nature of the global economy amplifies
the adverse impact of trade wars, jeopardizing the stability and prosperity of nations
across the globe.
To mitigate these risks, cooperation and dialogue among nations are
essential. Pursuing more open and inclusive trade policies, fostering multilateral
agreements, and resolving disputes through diplomatic means are critical steps to preserve
the efficiency and sustainability of global trade, promoting economic growth and stability
for all.
Working Capital Requirements
The Company primarily relies on non-fund-based facilities such as
Letters of Credit for procurement of its raw material from overseas markets. Once the
shipment is completed the Letter of Credit gets converted into Buyers’ Credit
Facility from overseas banks at a competitive interest rate based on the Trade Credit Bank
Guarantee (TCBG) or SBLC issued by Indian Banks. Due to the increase in raw material
prices, the requirement of working capital limits has also gone up substantially requiring
the Company to avail of short-term loans (including overdraft limits) for meeting this
requirement.
The Company actively explores alternative financing channels to meet
its working capital requirements. Efforts have been made to negotiate commercial contracts
in a way that mitigates the impact of finance costs. Additionally, the Company also
imported raw materials based on the clean credits provided by its suppliers.
By seeking newer financing avenues and optimizing contractual terms,
the Company strives to reduce its financing cost and improve overall working capital
management. This proactive approach demonstrates the Companys commitment to financial
prudence and securing the best possible funding arrangements to support its operations
effectively.
Human Resources
At the core of our long term journey towards a responsible and
sustainable future lies our valued workforce, whose well-being and development are central
to our success. Our people policies are thoughtfully designed to foster a safe,
harmonious, and supportive work environment, enabling the all-round growth of our
employees. With an unwavering commitment to becoming greener, stronger, and smarter, our
efficient and secure operations are a result of the collective efforts of our dedicated
workforce, including contract workers.
Our HR Management Framework is strategically aligned with our business
objectives, focusing on key pillars such as organization design, productivity, capability
building, talent management, and career growth. We emphasize the importance of culture,
communication, and engagement in driving these pillars forward. Empowered by our Values,
Code of Conduct, and Human Rights policies, our employees are encouraged to raise concerns
without fear of retaliation.
At GCL, we recognize our employees as our most valuable assets. To
foster continuous growth in their competencies and ensure they stay abreast of new
technical developments, we regularly conduct skill development training programs. This
investment in their development leads to optimum capacity utilization and
cost-effectiveness. Additionally, we prioritize providing a safe and healthy work
environment to boost employee morale and drive exceptional performance.
As of 31st March 2023, our workforce comprised 191 permanent
employees, encompassing 19 managerial personnel and 172 other employees, including skilled
workmen. This blend of experienced professionals and talented technical managers forms the
backbone of our company’s success.
With a relentless focus on our people’s well-being and continuous
development, we are confident in our ability to steer the company towards greater heights
of achievement and sustainability, guided by our shared vision of a brighter future for
all.
Internal Control System
The Company maintains a robust internal control system that is tailored
to the scale of its business operations and the specific demands of the industry it
operates in. Internal auditors play a vital role in ensuring compliance, efficiency, and
accuracy within the company’s operations through regular assessments and adherence to
applicable laws and policies.
Regular internal audits are conducted to thoroughly assess the
Company’s operations, and detailed reports are promptly submitted to the Audit
Committee during their quarterly meetings. The Company’s dedication to meticulous
internal controls and audits reflects its unwavering commitment to fostering transparency,
optimizing operational efficiency, and upholding compliance standards across its entire
organization.
Statutory Compliance
During the quarterly Board Meeting, the Executive Director presents a
comprehensive declaration to the Board regarding the Company’s compliance with all
relevant statutes, enactments, and guidelines. This declaration is made after obtaining
confirmation from all the operating plants and the respective Heads of Departments. The
aim is to ensure that the Company’s operations align with the necessary legal and
regulatory requirements.
Furthermore, the Company Secretary, who also serves as the Compliance
Officer, reports to the Board on the Company’s compliance with the provisions of the
Companies Act, 2013, and the SEBI (Securities and Exchange Board of India) Regulations.
The Company Secretary plays a crucial role in overseeing and reporting the Company’s
adherence to these specific legal frameworks.
The declarations provided during the Board Meeting serve as an
assurance that the Company takes compliance seriously and strives to operate with
integrity, in line with the applicable laws and regulations. By emphasizing these efforts
in each quarterly meeting, the Company reaffirms its dedication to upholding ethical
business practices and responsible corporate conduct.
Cautionary Statement
Some of the statements given in the above management discussion and
analysis about the Company’s projections, objectives, estimates, expectations and
predictions may be ‘forward looking statements’ within the meaning of applicable
securities laws and regulations. The actual results may differ materially from those
expressed or implied statements. Important factors that could make a difference to the
company’s operations include inter alia domestic and global economic conditions
affecting demand and supply and price conditions in the industry, changes in Government
laws, tax regime and other statutory changes, environmental laws and labour relations. The
Company undertakes no obligation to periodically revise any such forward looking statement
to reflect future events or
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