MANAGEMENT DISCUSSION AND ANALYSIS
Economic Overview
Indian Economy
In the face of global turmoil following the war in Ukraine, the Indian economy
demonstrated strong resilience during the period of 2022-23, achieving a growth rate of
7.2 percent. This growth rate was the highest among major economies worldwide. The growth
momentum was driven by several factors, including a sustained recovery in discretionary
spending, particularly in contact-intensive services. Additionally, the restoration of
consumer confidence increased spending during the festival season and the governments
focus on capital expenditure (capex) all contributed to boosting the economy.
Outlook
According to the Reserve Bank of India, the projected real GDP growth for FY23-24
stands at 6.5 percent. The governments persistent focus on capital expenditure (capex),
increased capacity utilization in the manufacturing sector, double-digit credit growth,
reduced impact of high inflation on purchasing power, and growing optimism among
businesses and consumers are expected to provide a significant boost to GDP growth in the
FY23-24. In addition to increasing the allocation for capital expenditure (capex), the
Union Budget 2023-24 has introduced various measures aimed at bolstering the growth
momentum. These measures include diversification and promotion of allied sectors,
enhancing logistics infrastructure to improve last-mile connectivity and facilitate
exports.
(Source - RBI Annual Report, 2022-23)
Industry Overview
Indian Mining Industry
The mining industry plays a vital role in Indias journey towards achieving its target
of becoming a USD 5 trillion economy. The countrys exploration and utilization of the
mining and metal sectors to their fullest potential align with the Prime Ministers vision
of building a self-reliant India (Aatmanirbhar Bharat). It is widely recognized that
maximizing the contribution of the mining industry to the GDP necessitates sustainable
exploration and extraction of the nations abundant natural resources and establish itself
as a global leader in this sector.
Explosives play a crucial role in the mining sector, and as the Indian mining industry
expands, it also drives the growth of accessories for explosives and the explosive
industry in India. These accessories include detonators, blasting agents, bulk explosives,
explosive storage containers, emulsion boosters and various explosive handling tools.
These accessories are essential for various industries such as mining, construction,
quarrying, and infrastructure development, where explosives are used for excavation and
demolition purposes. The Indian explosive industry ensures the availability of reliable
and high- quality accessories to support safe and efficient explosive operations.
Outlook
The mining sector in India holds immense potential for growth and presents a
significant opportunity. The primary emphasis should be on enhancing production in a
sustainable manner. The Indian government has set a target of increasing the mining
sectors contribution to the GDP to 2.5% by FY2026-27. This goal of contributing to the
GDP should be achieved through government-led investment and industry-friendly reforms
that foster favorable conditions for the sector 1.
Coal Mining
India experienced a 12.03% rise in coal production in March FY23, reaching 107.84 MT
compared to 96.26 MT in March FY22. The Ministry of Coals provisional statistics reveal
that during March 2023, Coal India Ltd (CIL), Singareni Collieries Company Limited (SCCL),
and captive mines/others observed growth rates of 4.06%, 8.53%, and 81.35%, respectively.
Furthermore, out of the 37 coal-producing mines in the country, 29 mines exceeded 100%
of their production capacity, while six other mines operated at production levels ranging
from 80% to 100% 2.
The Ministry of Coal has developed an Action Plan for the FY23-24 with the aim of
achieving Aatmanirbhar Bharat. The plan focuses on boosting production, improving
efficiency, promoting sustainability, and incorporating new technologies in the coal
sector. In order to enhance coal production and efficiency, the Ministry has implemented
several measures, such as the appointment of Mine Developers and Operators (MDO) for the
operationalization of CIL Mines/Blocks and the revival of production in
discontinued/abandoned mines through revenue sharing arrangements.
The Ministry entered into agreements for a total of 23 coal mines in the FY22-23,
collectively possessing a Peak Rated Capacity (PRC) of 33.224Millon Tonnes Per Annum
(MTPA). It is estimated that these mines will generate an annual revenue of Rs.4,700.80
Crores, calculated based on their PRC. Furthermore, these mines are anticipated to create
employment opportunities for approximately 44,906 individuals, both directly and
indirectly. Considering the positive response received for the 6th round of commercial
auctions, it is expected that 25 coal mines will be allocated for commercial mining during
the FY23-243 .
Indian infrastructure sector
The development of infrastructure plays a crucial role in driving an economys progress
and paving the way for its future growth potential. In order to realize the vision of
India becoming a USD 40 trillion economy by 2047 and transitioning from a developing
economy to a developed one, it is imperative to prioritize infrastructure development. The
Indian government, in the Budget for FY23-24, stressed the importance of higher
expenditure in the infrastructure sector and significantly increased its infrastructure
spending to 3.3% of GDP, nearly tripling the amount compared to the spending in FY19-20.
Furthermore, the Budget has dedicated INR 75,000 crores to support 100 critical projects
aimed at enhancing the multimodal logistics infrastructure system as a whole.
Roads and Highways
The allocation for the Ministry of Transport and Highways in the Budget witnessed a 36%
increase compared to the previous year. This enhanced allocation aims to develop new
expressways across the country. Several new expressways, including the Delhi Mumbai
expressway (with the recent launch of the Dausa-Lalsot section), Bengaluru-Mysore
expressway, and Agra-Lucknow expressway, have been constructed under the Road Connectivity
scheme. These expressways have effectively interconnected cities, significantly reducing
travel times between them.
Indian real estate sector
India showcased remarkable resilience to global uncertainties in contrast to several
advanced economies. The country sustained a strong performance across all sectors,
primarily attributed to robust domestic demand. This positive sentiment and consumer
confidence were notably evident in the real estate sector, which emerged from a prolonged
downturn this year and experienced growth across various verticals, including residential,
commercial, retail, and warehousing.
The Housing Price Index indicated a rise in new property sales volumes in the fourth
quarter of FY23. This increase serves as evidence of the favourable consumer sentiments in
the housing market. Furthermore, credit growth in the housing sector has consistently been
in double digits since April of FY22, with a notable growth rate of 16.2% recorded in
November of FY22- 23. The property sales index experienced a substantial growth of 36
percent on a yearly basis, with a slight sequential increase of 1.2% in Q3 of FY23. This
upward trend can be attributed to a renewed confidence in residential real estate as a
secure investment avenue, driven by a strong demand from end-users seeking homeownership.
The shift in consumer sentiment towards property purchase can be understood in the context
of post-pandemic uncertainties, which prompted individuals to view property as a safe
haven rather than just an investment opportunity.
Metal cladding sector in India
The Metal Cladding business of the Company specializes in producing Explosion Clad
plates, known as EXPLOBOND, which are utilized in the fabrication of process equipment
for various industries including chemical, petrochemical, oil & gas,
electrometallurgical, power, and shipbuilding. Their products have received Type &
Class approval from esteemed organizations such as Lloyds, American Bureau and Shipping,
and the Indian Register of Shipping. While there is expected to be a consistent demand for
Flue Gas Desulfurization (FGD) projects to comply with environmental regulations in the
power sector, demand from other sectors has been affected by factors such as higher metal
prices, the ongoing pandemic, and the postponement of Capex investments.
It is further anticipated that improvements in the Indian economy indicate a potential
increase in demand for cladded metals in the coming period. In light of this, Metal
Cladding Group are actively exploring sites for larger-sized blasts to cater to
substantial projects and establish a strong presence in the niche market segment.
Opportunities and threats
India offers significant investment opportunities for the stakeholders interested in
the metal and mining industry. The mining and quarrying sectors index of mineral
production in March FY2023 shows a 6.8% increase compared to March FY2022. According to
provisional data from the Indian Bureau of Mines (IBM), there has been a cumulative growth
of 5.8% in the period from April to March FY2022-23 compared to the same period in the
previous year. The Metals and Mining sector in India is expected to undergo substantial
reforms in the coming years, driven by initiatives such as the Make in India Campaign,
Smart Cities, Rural Electrification, and increased infrastructure development4.
Technological advancements bring numerous advantages to mining operations, including
enhanced flexibility, increased productivity, improved coal recovery, heightened safety,
and reduced costs. New technologies such as block chain, artificial intelligence (AI), the
internet of things (IoT), machine learning (ML), robotics, and other emerging technologies
have transformed conventional business practices across various economic sectors. These
cutting-edge technologies have also made their way into the mining industry,
revolutionizing numerous operations from mineral exploration to final processing 5.
However as far as the challenges and threats are concerned, the Indian government
focuses on implementing strong measures to regulate the mining sector and address the
current lack of regulation and enforcement of laws. The mining industry faces a
significant challenge due to the existence of mining activities in environmentally
delicate areas such as wetlands and forests located in the Aravalli hills, the Western
Ghats, the Eastern Ghats, and the Deccan Plateau.
The explosives industry does not anticipate facing substantial threats from renewable
energy sources in the near to medium term. The explosive industrys primary customers and
applications are in sectors that rely heavily on traditional energy sources, such as coal,
oil, and gas. Mining operations, for example, still require explosives for extraction and
processing of minerals and fossil fuels. However, it is important to note that the
long-term trajectory of the explosives industry may be influenced by developments in
renewable energy and sustainable practices.
Company overview
GOCL Corporation Limited, a Hinduja Group Company established in 1961, holds the
distinction of being an early pioneer in detonator manufacturing in India. Moreover, it
was the first company globally to develop Slurry based Permitted Explosives. GOCL and its
wholly owned subsidiary are primarily engaged in the manufacturing and marketing of
packaged and bulk explosives, along with blast initiating devices. The Company, along with
its wholly owned subsidiary, has a substantial manufacturing capacity of 270,000 metric
tons per annum for explosives and 192 million for initiating devices. GOCL stands as one
of the largest exporters of explosives and initiating devices to 21 countries having CE
certifications. These countries include the Philippines, various nations in South East
Asia, North Africa, the Gulf, the Middle East, and Southern Europe, such as Greece and
Turkey.
Financial Overview and Operational Performance
Standalone
The Company recorded a net income of Rs.531 crores in FY23, showing an increase from
the previous years Rs.185 crores in FY22. The profit before tax stood at Rs.356 crores,
compared to Rs.58.31 crores in the previous year. After considering the provision for
current tax of Rs.121.81 crores and deferred tax of Rs. 1.33 crores, the profit after tax
amounted to Rs.233 crores from Rs.47.70 crores in the previous year. Consequently, the
earnings per share (EPS) for the year were Rs.46.97, as compared to Rs.9.62 in the
previous year.
Consolidated
The Company has achieved its highest-ever revenue during the year under review. One of
the contributing factors to the Companys increased revenue is the significant growth in
export sales. This implies that the Companys products or services gained traction in
international markets, leading to higher sales volumes and revenues from foreign
customers. Another positive aspect of the Companys performance is the increase in
capacity utilization. This indicates that the Company has effectively utilized its
production capabilities and resources to meet customer demands and fulfil orders.
On a consolidated basis, the Company achieved a net income of Rs.1410 crores,
reflecting growth from Rs.623 crores in the previous period. The profit after tax
increased to Rs.212 crores from Rs.176.10 crores. Consequently, the earnings per share
(EPS) witnessed an impressive surge of 19.90 % to reach Rs.42.59 per share.
Risks, concerns and risk management
The Company has an Enterprise Risk Management system to consistently identify risks and
proactively implement mitigation measures, including those for its subsidiaries. The Risk
Management Committee of the Board and the Companys management committee comprising senior
executives, periodically review and oversea the risk management processes. The risk policy
and framework serve as comprehensive guidance in evaluating different risks and devising
strategies for their mitigation.
i) Environmental risks
Internal safety audit teams conduct routine safety audits, and external teams also
perform audits at regular intervals. Operations are conducted in compliance with emission,
wastewater, and waste disposal regulations set by local authorities governing the
respective factories. To minimize risks, General Safety Directions (GSDs) are strictly
enforced in all plants within the factories. Furthermore, strict adherence to the
Explosives Act and its rules is ensured to protect neighbouring areas from any undue risks
associated with explosives and accessories factories.
ii) Operational issues Licensing
Introduction of new products along with any changes in production capacities, processes
necessitate amendments or revisions to the existing licenses. However, it should be noted
that any substantial delays in obtaining these approvals beyond the typical timeframe set
by the regulatory authorities could potentially affect the Companys growth prospects. To
mitigate this risk, the Division takes proactive measures by submitting approval
applications well in advance to avoid disruptions to product launches or exports.
Additionally, the Company maintain active follow-up to ensure timely approvals are
obtained.
Imported raw materials
The Company and its major subsidiary have established long-term relationships with
suppliers to mitigate the volatility of key raw materials sourced globally. These
relationships help ensure a steady and reliable supply of raw materials. The Company aims
to maximise the efficiency of raw materials transportation owing to the fact that
uninterrupted plant operations rely on the timely availability of raw materials, including
certain imported ones.
There has been volatility in ammonium nitrate availability and price due to
Russia-Ukraine conflict, which has affected the Companys performance. To mitigate this
risk, the Company have established multiple sources and also established alternate port
facilities in India.
iii) Market dynamics
The Company and its major subsidiary operating in a fiercely competitive market
encounter competition from both national and regional players. These markets are driven by
tenders, often accompanied by demanding and unreasonable performance clauses.
Consequently, there is a risk of cost increases not being transferred to end consumers.
Additionally, any downturn in the overall economy or unfavourable monsoon seasons could
potentially impact the demand for their products and services.
Concentration of Customers
The Companys primary customers include large Public Sector Undertakings (PSUs) that
operate within a tendering system, which carries its own associated risks. The Company is
also looking for non-tender based customers and export sales to mitigate this risk.
iv) Financial risks
Currency value and interest rate fluctuations
Under policies approved by the Board of Directors, the Finance department oversees
financial risk management across the Companys business divisions and corporate offices.
The Company is not having any effective longterm borrowing exposure. In order to manage
the risk of currency fluctuations, the Company employs hedging strategies to mitigate its
foreign exchange exposures.
Credit risk
The Company has established a credit risk policy to mitigate the risks associated with
customer credit.
This policy ensures that product sales are made to customers after evaluating their
ability to fulfill financial commitments. Specific credit limits are allocated to
individual customers, allowing for a more comprehensive assessment of their
creditworthiness.
Liquidity risk
The Company and its major subsidiary are engaged in industries that require significant
working capital. The Company recognizes that its ability to fulfil its obligations to
suppliers and other stakeholders depends on the timely and regular collection of
receivables, as well as maintaining a strong credit rating.
The respective divisions conduct regular reviews of working capital components, such as
raw material inventory, finished goods, and receivables. These reviews are closely
monitored by the Finance department.
v) Legal and statutory issues Contractual liability
The Companys in-house Legal Department thoroughly reviews and assesses any major
contracts before executing them. Additionally, the Company seeks the assistance of
reputable independent legal counsels when necessary. However, it is important to note that
the outcome of litigation related to tax law and other statutory obligations cannot always
be accurately predicted. To mitigate such risks, the Company takes appropriate financial
provisions, obtains insurance policies, and establishes credit lines to limit its
exposure.
Litigation issues
The Company faces the risk of prolonged litigation. In addition to the tax matters
mentioned in the Financial Statements, there are other legal disputes that have the
potential to significantly impact the Company. However, the Company has made substantial
progress in resolving its pending legal disputes during the period under review.
vi) IT risks
The Company relies on an IT policy to manage its cloud network and implement measures
to mitigate IT risks. Additionally, the company maintains intra-office and interoffice
networks, along with various business software that are operated from both the corporate
office and business divisions. The company also ensures regular data backups and off-site
storage. Furthermore, suitable firewall and virus protection systems or software are
carefully chosen to enhance the overall security measures. The Company also runs critical
systems to undergo regular maintenance on secured servers. The Company has adequate
disaster recovery mechanism for critical applications and IT awareness programs are
conducted on regular basis.
vii) Risks in Realty Business
GOCLs realty business segment is characterized by a low level of involvement in major
construction activities. The Company has land bank and parcels located in various parts of
India. Despite the significant land holdings, it is noteworthy that the Company operates
with minimal exposure to certain risks commonly associated with the real estate industry.
GOCL is not significantly exposed to the risk of litigation, it faces fewer legal disputes
related to its realty business activities. Additionally, the Company operates with limited
encumbrances, indicating that there are few burdens or restrictions on its land holdings
that could impede its operations or future plans.
Furthermore, the Company is not subject to significant volatility in the valuations of
its real estate assets. The Companys land bank is relatively stable and not subject to
drastic fluctuations that could impact its financial standing or profitability. By
avoiding substantial risks associated with litigation, encumbrances, and volatile
valuations, GOCL can maintain a more secure and predictable realty business environment.
Internal control systems and their adequacy
The Company recognizes that internal control is an essential requirement for effective
governance and believes in maintaining a balance between freedom and accountability. To
ensure this, the Company has established a strong system of internal and financial
controls that are appropriate for the size, scale, and complexity of its operations. These
controls are continuously evaluated to ensure their adequacy, effectiveness, and
efficiency in managing financial and operational risks. The Companys internal and
financial control systems comprise robust procedures and processes that encompass various
aspects such as operations management, reliable financial reporting, compliance with
policies, procedures, and relevant laws and regulations, protection of assets and
stakeholders interests, and optimal utilization of resources. These systems are regularly
assessed to align with the expanding size and complexity of the Companys operations. The
Company relies on its internal and financial control system, which is backed by the
SAP-ERP system, Risk Management processes, Corporate Policies, Standard Operating
Procedures, and certifications in ISO 9001 (QMS), ISO 14001 (EMS), and ISO 18001 (OHSAS).
These elements work together to ensure that the quality and control processes are
effectively implemented.
Additionally, the Companys Internal Audit Department plays a crucial role in
supporting management by conducting objective reviews of various operational areas,
including subsidiaries. Their independent assurance provides valuable insights to the
Audit Committee and the Board of Directors regarding the adequacy, efficiency, and
effectiveness of the Organizations risk management, internal financial and operational
controls, and corporate governance processes. The Internal Audit function operates under
the authority and scope outlined in the Internal Audit Charter/Manual and reports directly
to the Chairman of the Audit Committee. The Audit Committee plays a critical role in
overseeing the Companys internal control systems. They review key findings and offer
strategic guidance. Regular meetings are held between the Audit Committee and the
Companys Statutory Auditors to gain insights into the adequacy and efficiency of the
internal control systems. Each year, an approved Internal Audit Plan is developed, taking
into consideration the risk profile of the business activities and operations. This plan
serves as a guideline for the Internal Audit function. To ensure timely and effective
actions are taken to strengthen business processes, regulatory compliance, and controls,
Action Taken Reports are prepared by process owners in response to internal audit
findings. These reports, along with the recommendations from the Statutory Auditors, are
periodically submitted to the Audit Committee. This collaborative approach facilitates the
implementation of necessary actions. Throughout the year, the Audit Committee held eight
meetings to review and discuss internal audit reports, including follow-up action reports
on significant observations.
They also reviewed the closure of agreed actions and addressed matters relating to
Internal Financial Control (IFC), Internal Audit, Financial and Statutory Audit, and other
relevant reports. These meetings were instrumental in ensuring the timely and effective
implementation of identified actions.
Human Resources
The Company has a defined set of principles and policies that are expected to be
adhered to by all employees. These beliefs, philosophies, and practices shape the
organizational culture and provide employees with a sense of purpose. As of 31st
March,2023, the Company operates with a workforce of 380 employees (including subsidiary).
Diversity, equity, and inclusion are the foundational values that shape any initiative
undertaken by the Company concerning its employees. The Company upholds essential policies
such as the Equal Employment Opportunity Policy and the Prevention of Sexual Harassment
(POSH) policy to guarantee inclusivity and diversity throughout the entire organization.
The Company also adheres to a rigorous code of conduct aimed at preventing insider trading
and maintaining integrity. Prior to Board Meetings, all insiders are provided with
standardized communications that specifies the restricted time period during which they
are prohibited from trading in the Companys securities.
The Company also has a whistleblower policy which is a crucial aspect of maintaining
professional integrity. This policy addresses any occurrences of fraud or mismanagement
within the Company. Periodically, the Audit Committee conducts reviews to assess the
effectiveness and operation of the whistleblower mechanism. The Company is committed to
nurturing a positive work environment and maintain strong relationships with its
employees. The Company considers its systems, policies, procedures, and core values, such
as integrity and ethics, as essential elements in creating a collaborative and uplifting
work culture.
Details of significant changes in key financial ratios
The following table provides details on significant changes in key financial ratios
(consolidated), with a change of 25% or more compared to the immediately previous
financial year. Accompanying these details are comprehensive explanations for better
understanding:
| Sr. No. |
Key Financial Ratios |
FY22-23 |
FY21-22 |
Variance (%) |
| 1 |
Debtor turnover |
13.79 |
9.95 |
38.60 |
| 2 |
Inventory Turnover ratio |
3.88 |
2.93 |
32.47 |
| 3 |
Interest coverage ratio |
3.77 |
4.34 |
(13.06) |
| 4 |
Current Ratio |
2.32 |
3.99 |
(41.88) |
| 5 |
Debt equity ratio |
1.25 |
1.38 |
10.44 |
| 6 |
Net profit margin % [variance in bps] |
14.98 |
28.29 |
(13.31) |
| 7 |
Operating profit margin % [variance in bps] |
(3.4) |
(0.89) |
(2.51) |
| 8 |
Return on Net worth % [variance in bps] |
16.49 |
15.20 |
1.29 |
The reason for change in ratios by more than 25% is mainly due to higher revenue,
inventory (AN) and debtors in comparison with the previous year; and classification of
loan repayable in the next one year as current liability.
Disclaimer
The Management Discussion and Analysis section contains statements regarding the
Companys objectives, projections, estimates, and expectations, which may be considered as
"forward-looking statements" in accordance with relevant securities laws and
regulations. It is important to note that actual results may differ significantly from
those expressed or implied in these statements. Various factors can influence the
outcomes, including economic conditions that impact demand and supply, price conditions in
domestic and international markets where the Company operates, competitive pressures,
changes in government regulations, tax laws, and other statutory requirements, as well as
other incidental factors.
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