The operating and financial review is intended to convey the Managements perspective on the financial and operating performance of the Company for the Financial Year 2020-
21, and outlook for the current financial year. This Report should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the Annual Report. This report is an integral part of the Directors Report.
• India is currently the worlds 2nd largest producer of crude steel and is the worlds largest producer of Direct Reduced Iron (DRI) or Sponge Iron .India surpassed Japan to become the worlds second largest steel producer in 2019 with crude steel production of 111.2 million tonnes (MT). In FY20, crude steel production and finished steel production in India was 108.5 MT and
101.03 MT, respectively.
Between April–February 2020-2021, Indias cumulative production of crude steel was 92.782 MT and finished steel was 85.604 MT. In the month of Jan - Feb 2021, India produced 19.39 MT of crude steel.
Export and import of finished steel stood at 9.492 MT and
4.252 MT, respectively, April – February 2020-2021.
The steel industry suffered a setback due to the COVID19 pandemic outbreak and the consequent lock downs. The industrys key customer sectors like automobiles, construction and oil & gas drillers struggled hard to survive due to prolonged shutdowns, disrupted supply chains, collapsing confidence and delayed investment and construction projects, as well as a decline in consumption activity across the globe. The domestic automotive industry production has been facing a series of challenges on account of regulatory changes (Bharat Stage Emission Standards - BSVI, Corporate Average Fuel
Efficiency - CAFE norms, Crash standards, revised axle norms etc.), Societal trends (ride sharing, traffic congestion, cost of ownership etc.), technological upheavals (electric vehicle) and liquidity crunch. The COVID-19 pandemic further exacerbated the situation as the supply chain got disrupted and there was suspension in production. Automotive, which is one of the most important end market for the steel industry, saw a severe sales plunge globally.
As a step towards supporting the economy, the Government of India unleashed policy stimulus equivalent to INR 20 trillion consisting of the following measures: a. Liquidity injection and favorable business environment for the MSMEs b. Impetus on the rural economy as measures are directly focused on increasing income and consumption c. Structural reforms in the mining and manufacturing sector The Govt. of India approved an incentive program worth 1.46 trillion rupees ($20 billion) to attract companies to set up manufacturing in the South Asian nation. The government will offer production-linked incentives to 10 sectors including automobile, solar panel and specialty-steel makers over a five-year period.
The stimulus package and incentive program with increased government spending will strengthen the demand situation in the country in the coming times.
Iron Ore & Pellets
Iron prices remained strong through out FY21 on account of supply constrains from the large miners. At over $200, global Iron Ore prices have touched a multi-year high. Among the 3 major iron ore producers globally only Vale has been projecting higher production in FY22. The demand supply is expected to remain tight for next 1-2years.
Pellet prices have been tracking higher iron ore prices and have remained strong. China is focussed on decarbonisation of the economy and this has increased demand for higher grade pellets and iron ore.
Government has taken various steps to boost the sector including the introduction of National Steel Policy 2017 and allowing 100% Foreign Direct Investment (FDI) in the steel sector under the automatic route. According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), the Indian metallurgical industries attracted Foreign Direct Investment (FDI) to the tune of US$ 14.24 billion in the period April 2000-September 2020. Some of the other government initiatives in this sector are as follows:
• In December 2020, the Minister for Petroleum & Natural Gas and Steel, Mr. Dharmendra Pradhan, has appealed to the scientific community to Innovate for India (I4I) and create competitive advantages to make India ‘Aatmanirbhar.
• In September 2020, the Ministry of Steel prepared a draft framework policy for development of steel clusters in the country.
• On October 1, 2020, Directorate General of Foreign Trade (DGFT) announced that steel manufacturers in the country can avail duty drawback benefits on steel supplied through their service centres, distributors, dealers and stock yards.
• Government introduced Steel Scrap Recycling Policy aimed to reduce import.
• An export duty of 30 per cent has been levied on iron ore (lumps and fines) to ensure supply to domestic steel industry.
• Government of Indias focus on infrastructure and restarting road projects is aiding the boost in demand for steel. Also, further likely acceleration in rural economy and infrastructure is expected to lead to growth in demand for steel.
• The Union Cabinet, Government of India has approved the National Steel Policy (NSP) 2017, as it seeks to create a globally competitive steel industry in India. NSP 2017 envisages 300 million tonnes (MT) steel-making capacity and 160 kgs per capita steel consumption by 2030-31.
• The Ministry of Steel is facilitating setting up of an industry driven Steel Research and Technology Mission of India (SRTMI) in association with the public and private sector steel companies to spearhead research and development activities in the iron and steel industry at an initial corpus of Rs 200 crore (US$ 30 million).
• The Government of India raised import duty on most steel items twice, each time by 2.5 per cent and imposed measures including anti-dumping and safeguard duties on iron and steel items.
The National Steel Policy, 2017, has envisaged 300 million tonnes of production capacity by 2030-31. The per capita consumption of steel has increased from 57.6 kg to 74.1 kg during the last five years. The government has a fixed objective of increasing rural consumption of steel from the current 19.6 kg/per capita to 38 kg/per capita by 2030-31.
Thus, showcasing a significant growth opportunity and huge untapped potential in the steel manufacturing sector.
Huge scope for growth is offered by Indias comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors.
Sponge Iron Industry Scenario
Due to Covid 19 pandemic and as a result of country wide lockdown from 24th March, 2020 all sponge iron plants were either closed or were operating at a low capacity. From June 2020 onwards, the situation started improving. Sponge iron producers began ramping up their operation despite facing problems of labour migration, liquidity and demand slowdown and, of course, the adverse impact of the corona virus. In spite of these factors, plants capacity utilisation in the subsequent months started improving.
But acute shortage of iron ore is prevailing due to the cancellation of the iron ore mines in March, 2020 and subsequent reduction in mining activities from the 19 auctioned mines in Odisha. Sponge iron producers were expecting that the timely auction process would give a lot of relief and things would be back to the pre-cancellation scenario.
However, the 19 mines, which were successfully auctioned, are not able to mine 80% of their environment clearance (EC) capacity and are not dispatching to 80% of their EC capacity. This has seriously impacted availability and has resulted in a drastic increase in prices As per JPC data, the negative growth in the sponge iron sector and crude steel from April to September, 2020, was around 21.5%, which has come down to around 17% during April to October, 2020.
Soon after March 21, 2020, when prices were at around INR 16,750/MT, the Indian government announced a nationwide lockdown and production was stopped everywhere. As per reports, plants had either curtailed or shut down production amidst the lockdown period.
When the stringent lockdown (which was extended multiple times), was lifted, prices were reported at a low of around INR 15,600/MT on May 7, 2020. In 2019, prices were at around INR 18,800/MT during the same time.
On June 22, 2020, ex-Raipur prices touched a low of around INR 14,600/MT. In June, offers were under pressure due to low capacity utilisation in major markets, which saw prices nosedive by INR 200-1,000//MT.
In July 2020, prices started climbing up slowly and by month- end, reached INR 17,300/MT. In July, it was observed that sponge iron prices plunged owing to falling billets prices on lack of demand and curtailed capacity utilisation by ingots/ billets manufacturers (at about 60-70%).
This sector directly derives its demand from the performance of the steel sector. The fortune of the industry is linked with the growth of the secondary steel sector.
There are over 400 sponge iron units in India. Indian sponge iron industry is highly fragmented. Top 20 producers contribute about 60-65% of total production whereas rest contributes 35- 40% of the production.
The National Steel Policy 2017 lays out an ambitious growth path for the sponge iron sector. The production capacity is expected to reach 80 million tonnes by 2030-31.
The sponge iron sector is linked to the nations steel sector in such a way that a rise in demand for steel would increase the demand for sponge iron. The various sectors that are expected to contribute to the growing demand are infrastructure, roads, railways, bridges, airports, industrial plants, buildings, automobiles, etc.
Covid 19 Impact on the Company
The COVID-19 breakdown has led to unprecedented socioeconomic disruption worldwide. The nation-wide stringent lockdown got imposed from March 25, 2020 which brought the economic activities to a standstill. While Steel and mining activities were kept exempt subject to certain guidelines, the steel demand got impacted adversely as key consuming segments struggled to operate amidst weakening economic activities, major hubs in red/containment zones, working capital constraints, migrant labour issues and logistic challenges.
The lockdowns and restrictions imposed on various activities due to COVID – 19 pandemic have posed challenges to the business of the Company.
However the Companys operations were closed only for few days. There was no disruption in the operations of the company throughout the year.
As economic activities have started recovering with the removal of the lockdown and gradual relaxation in mobility restrictions, the Company is continuously leveraging the opportunities to increase penetration in the domestic and international markets.
The companys operations are linked to the nations steel sector in such a way that a rise in demand for steel would increase the demand for iron ore pellets, sponge iron and steel billets. The various sectors that are expected to contribute to the growing demand are infrastructure, roads, railways, bridges, airports, industrial plants, buildings, automobiles, etc.
The renewed importance given by Government on affordable -housing, roads, sagarmala projects and other infrastructure projects are expected to create steel demand, this will augur well for sponge iron industry also.
With the Global economies opening up gradually, India also needs to get back to its full capacity at the earliest to be the successful economy that it aims to be. The pandemic presents a unique opportunity for India and its industries to increase influence in the global supply chain. With a likely realignment of global supply chains, India has the skill, resources and expertise to emerge as a location of choice.
The Rs.20 trillion fiscal and monetary stimulus package to make India self-reliant is a step in the right direction. The increased focus on strengthening the micro, small and medium enterprises (MSMEs), considered to be backbone of the economy, assumes paramount importance.
The Metals and Mining sector in India is expected to witness a major reform in the next few years, owing to reforms such as Atmanirbhar Bharat, Make in India Campaign, Smart
Cities, Rural Electrification and a focus on building renewable energy projects under the National Electricity Policy as well as the rise in infrastructure development.
According to the IEA report, demand for power has seen an upward trend in recent years. Moreover, it is expected that it will continue on the same trajectory due to economic development, rapid urbanization, growing appliance ownership, and thrust towards rural electrification. The
Government continues to focus on increasing the share from sustainable renewable energy sources to reduce the dependency on traditional fossil-fuel based energy sources. Indias power sector is forecasted to attract investments worth Rs. 9-9.5 trillion between FY 2019-23.
The Cabinet Committee on Economic Affairs (CCEA) has approved commercial coal mining for private sector and the methodology of allocating coal mines via auction and allotment, thereby prioritizing transparency, ease of doing business and ensuring the use of natural resources for national development.
The Company is exploring the avenues available to it. The Companys New high value iron ore pellets are widely acceptable in the Global Market.
The key threat to the steel industry continues to be the smooth availability and the price volatility of iron ore and coal, which are the key raw materials. Due to the expiry of a large number of iron ore mining licenses in March, 2020, Steel producers faced a raw material crisis this year. Iron ore lumps prices are also increasing. The non- availability of non-coking coal and the rising prices of Iron Ore might pose significant challenge in the future.
Apart from the disruptions caused/to be caused by the COVID-19 pandemic, in the near future, we do not foresee any major threat to the industry segments in which the Company operates. We have taken a number of initiatives across the organization to improve quality and reduce cost which will aid in preserving and enhancing our margins. As we march forward with the hope of stepping into a better world post COVID-19, with the available infrastructure and strong team, the Company is all set to make its contribution in the growth of the nation.
The World Steel Association (Worldsteel) recently released its Short Range Outlook (SRO) for 2021 and
2022. Worldsteel forecasts that steel demand will grow by 5.8% in 2021 to reach 1,874.0 million tonnes (Mt), after declining by 0.2% in 2020. In 2022 steel demand will see further growth of 2.7% to reach 1,924.6 Mt.
The current forecast assumes that the ongoing second or third waves of infections will stabilise in the second quarter and that steady progress on vaccinations will be made, allowing a gradual return to normality in major steel-using countries.
Commenting on the outlook, Mr Al Remeithi, Chairman of the Worldsteel Economics Committee, said, "despite the disastrous impact of the pandemic on lives and livelihoods, the global steel industry was fortunate enough to end 2020 with only a minor contraction in steel demand. This was due to a surprisingly robust recovery in China, with growth of 9.1%. In the rest of the world steel demand contracted by
10.0%. In the coming years, steel demand will recover firmly, both in the developed and developing economies, supported by pent-up demand and governments recovery programmes. However, for most developed economies a return to the pre-pandemic levels of steel demand will take a few years. While it is hoped that the worst of the pandemic is passing, there is still considerable uncertainty for the rest of 2021. The evolution of the virus and progress of vaccinations, withdrawal of supportive fiscal and monetary policies, geopolitics and trade tensions could all affect the recovery envisaged in this forecast.
For the future, structural changes in a post-pandemic world will bring about shifts in steel demand shape. The steel industry will see exciting opportunities from rapid developments through digitisation and automation, infrastructure initiatives, reorganisation of urban centres, and energy transformation. All at the same time as the industry is responding to the need to produce low-carbon steel."
Background to the forecast
Chinas economy quickly rebounded from the lockdown in late February, and almost all economic activity except retailing resumed full productivity by May. Since then, despite sporadic small localised waves of COVID-19, economic activity has not been affected by the pandemic, unlike the rest of the world. The Chinese economy benefited from the governments implementation of various measures to stimulate the economy. From several new infrastructure projects and accelerating existing projects, to relaxing control over the real estate sector and tax reduction to boost household consumption.
On top of this the economy benefitted from strong exports as the rest of the world was affected by the pandemic. As a result, after contracting by 6.8% in the first quarter of 2020,
Chinas economy recorded annual growth of 2.3% in 2020. Chinas GDP growth is expected to accelerate to 7.5% or higher in 2021, followed by moderate growth of 5.5% in 2022. The construction sector had a fast recovery from April 2020, supported by infrastructure investment. For 2021 and onwards, real estate investment growth may decrease due to the governments guidance to slow growth in the sector down.
Investment in infrastructure projects in 2020 reported a mild growth of 0.9%. However, as the Chinese government has kicked off a number of new projects to support the economy, the growth in infrastructure investment is expected to pick up in 2021 and continue to affect steel demand in 2022.
In the manufacturing sector, automotive production contracted the most by 45% during the lockdown, but has been recovering strongly since May. For the whole of 2020, auto production declined by only 1.4%. Other manufacturing sectors have shown positive growth due to strong export demand.
Due to the strong activity in the construction and machinery sectors, and with some inventory accumulations, apparent steel use rose by 9.1% in 2020. In 2021, it is expected that the stimulus measures introduced in 2020 will largely remain in place to ensure continued reasonable growth in the economy. As a result, most steel-using sectors will show moderate growth and Chinas steel demand is expected to grow by
3.0% in 2021. In 2022, steel demand growth will decelerate to 1.0% as the effect of the 2020 stimulus subsides, and the government focuses on more sustainable growth. The governments reaction to the new US administrations trade policy and the intensified environmental push add uncertainty.
2) Advanced economies
After the free-fall in economic activity in the second quarter of 2020, industry generally rebounded quickly in the third quarter, largely due to the substantial fiscal stimulus measures and unleashing of pent-up demand. However, activity levels still remained below the pre-pandemic level at the end of 2020. As a result, the developed worlds steel demand recorded a double-digit decline of 12.7% in 2020.
We will see substantial recovery in 2021 and 2022, with growth of 8.2% and 4.2% respectively. However, steel demand in 2022 will still fall short of 2019 levels.
Despite high infection levels, the US economy was able to rebound strongly from the first wave due to the substantial fiscal stimulus that supported consumption. This helped durable goods manufacturing, but overall US steel demand fell by 18% in 2020. The Biden administration recently announced a large fiscal proposal containing provisions for substantial infrastructure investment over a multi-year period. The plan is expected to be considered by Congress in the second half of 2021 and, depending on its final form, may have upside potential for steel demand in the longer term. However, despite this and fast progress in vaccinations, steel demand recovery will be constrained in the short term by a weak rebound in the non-residential construction and energy sectors. The automotive sector is expected to recover strongly.
Similarly, the EU steel-using sectors suffered severely from the first lockdown measures in 2020, but experienced a stronger than expected post-lockdown rebound in manufacturing activities due to supportive government measures and pent-up demand. Accordingly, steel demand in 2020 in the EU27 and the UK ended with a better than expected 11.4% contraction. Italy and France recorded proportionately larger contractions due to the severest lockdown measures and collapsed tourism.
The recovery in 2021 and 2022 is expected to be healthy, driven by recovery in all steel-using sectors, especially the automotive sector, and public construction initiatives. So far, the EUs recovery momentum has not been derailed by the ongoing third waves, but it remains fragile.
While there were fewer COVID-19 cases relative to the US or EU, the Japanese economy was also dealt a severe blow from the pandemic due to the interruption of broad economic activity and weak confidence that added to the effect of the October 2019 consumption tax hike. With a particularly pronounced fall in auto production, steel demand declined by 16.8% in 2020. The recovery in Japans steel demand will be moderate, driven by a rebound in the automotive sector with recovering exports and industrial machinery because of a worldwide recovery in capital spending.
South Koreas economy escaped a large decline in GDP thanks to better management of the pandemic, and it saw positive momentum in facility investment and construction. Nevertheless, steel demand contracted by 8.0% in 2020 due to the contraction in the auto and shipbuilding sectors. In 2021-22, these two sectors will lead the recovery, which will be further supported by the continued strength in facility investment and government infrastructure programmes. Nevertheless, steel demand in 2022 is not expected to return to the pre-pandemic level.
3) Developing economics excluding China
Generally speaking, developing economies excluding China suffered more from the pandemic relative to the developed economies, with inadequate medical capacity, a collapse in insufficient tourism and commodity prices, and fiscal support.
Steel demand in the developing economies excluding China declined by 7.8% in 2020. However, within the emerging economies, the picture was varied. India, MENA, and most Latin American countries suffered the most.
Benefitting from the global economic recovery and with renewed government infrastructure initiatives, steel demand in the developing economies is expected to show a relatively quick rebound in 2021 and 2022, with growth of 10.2% and 5.2% respectively. Accumulation of debts, no recovery in international tourism, and slow vaccination will prevent a faster recovery.
India suffered severely from an extended period of severe lockdown, which brought most industrial and construction activities to a standstill. However, the economy has been recovering strongly since August, much sharper than expected, with the resumption of government projects and pent-up consumption demand. Indias steel demand fell by 13.7% in 2020 but is expected to rebound by 19.8% to exceed the 2019 level in 2021. The growth-oriented government agenda will drive Indias steel demand up, while private investment will take longer to recover.
In ASEAN, disruptions to construction projects hit the fast-growing steel market, and steel demand contracted by 11.9% in 2020. Malaysia and the Philippines were the most severely hit, while Vietnam and Indonesia saw only a modest decline in steel demand. Recovery will be driven by a gradual resumption of construction activities and tourism, which will accelerate in 2022.
Latin American economies in general were severely hit by the pandemic and steel demand in 2020 recorded a double-digit contraction in most countries in the region. Mexicos steel demand was hard hit by reduced auto production and investment. The fast recovery in the automotive sector and a strong US economy will support the recovery of Mexicos steel demand in 2021. In Brazil, the economy rebounded sharply following a severe decline in Q2, aided by government support. As a result, Brazils steel demand recorded a small positive growth in 2020 and will continue to recover at a healthy pace in 2021 and 2022.
Steel demand in Russia suffered less decline than other regions thanks to the government measures that supported construction activities. The National Projects initiatives are expected to support a moderate recovery of steel demand in 2021-22.
Steel demand in Turkey, which suffered a deep contraction in 2019 due to the currency crisis of 2018, maintained the recovery momentum that started in late 2019 due to construction activities. The recovery momentum will continue and steel demand is expected to return to the pre-currency crisis level in 2022.
In the MENA region, steel demand suffered from the cancellation of construction projects and a fall in oil prices, but the rebound of oil prices helped the regions steel demand to recover toward the end of 2020. Steel demand in the MENA region declined by 9.5% in 2020 and is expected to recover moderately with the resumption of infrastructure investments.
Global construction output in 2020 fell more than in 2009 after the global financial crisis, 3.9% and 1.9% respectively, as the COVID confinement measures led to an interruption of construction works and revision of investment plans in many countries. In several developing countries, fiscal resources were drawn away from infrastructure investment for the pandemic support programmes.
Across countries, the most severe decline in construction was observed in the Philippines, India and Mexico. There will be regional variation to the speed of recovery in construction. In some countries, the resumption of construction projects is still constrained by COVID restrictions, worker shortages, and weak private investment. At the same time, there are countries where construction activities could gain ground through the year as governments prioritise infrastructure investment as a recovery tool. In China, the construction sector returned to normal operation at the end of April 2020 and has been showing a fast recovery since then.
Diverging trends among the construction subsectors will emerge from the pandemic. With increased remote working, e-commerce, and reduced business travel, demand for commercial buildings and travel-related facilities will continue to see a downward trend. At the same time, demand for logistics-relatedfacilitiestosupporte-commercehasincreased and will continue to be a growth sector. Infrastructure projects have become important and are sometimes the only tool in many countries for economic recovery. They will continue to be a strong driver in emerging economies. In developed economies, green recovery programmes and infrastructure renewal will drive construction demand. Global construction is expected to reach the 2019 level again in 2022.
Globally, the automotive sectors saw the most profound decline among the steel-using sectors, with a nosedive in the second quarter of 2020. While post-lockdown recovery was somewhat more robust than expected, the decline in the automotive industry in 2020 was of a double-digit scale in most countries. However, the automotive sector is expected to recover strongly in 2021. The recovery will be driven by pent-up demand, increased use of personal transportation due to safety concerns, and increased household cash savings. The recovery is expected to be particularly strong in the US, where the production level in 2021 will exceed the 2019 level. The global automotive industry is expected to return to the 2019 level in 2022. Despite a faster than expected recovery in demand, the sector is encountering another supply chain bottleneck in early 2021 with a shortage of semiconductors and other parts, which could constrain the recovery potential. Amid the crisis, 2020 saw a substantial increase in the share of hybrid and fully electric cars sales in the EU to 11.9% and 10.5% respectively, up from 5.7% and 3.0% in 2019.
The global machinery sector was hit by the fall in investment in 2020, but the decline was much less than in 2009. Recovery is expected to take place at a faster pace as well, while a lack of confidence and uncertainty is still a constraining factor. Due to highly globalised supply chains, disruption was one of the major problems that emerged for the machinery industry during the lockdown. As a result, the sector has started reviewing its supply chains for flexibility and reliability.
Another important factor that will affect the machinery sector is an accelerating trend toward digitisation and automation. Investment in this regard will drive growth in the machinery industry. Also, green initiatives and investment in renewable energy sources will be another growth area for the machinery sector.
REVIEW OF OPERATING & FINANCIAL PERFORMANCE – STANDALONE
At the outset we are happy to report that despite covid led disruption and the performance of the Company has been excellent and the Company has post highest ever sales turnover and profitability during FY21. The operating & financial performance of the Company during the year under review is discussed below in detail:
Production and sales i. Production
During the year under review, production volumes across various divisions were as follows:
|Products/ Division||Installed Capacity||Production in FY2020 (In MT)||Production in FY2021 (In MT)||Year on year growth|
|Iron ore mining||2100000||1657734||1699920||2.54%|
|Iron ore pellets||2400000||1999150||2256550||12.88%|
|MS Rounds/Wire Rod||400000||183187||261690||42.85%|
|Power (Units in crore)||43.77||44.42||1.49%|
|Galvanized Fabricated Products||110000||30477||29092||-4.54%|
Iron Ore Mining:
The iron ore mining activity during the year has been increased by 2.55%. The production from captive iron ore mines resulted into better operating margins, as compared to market price of iron and is the biggest strength of the Company. The Company is continuously making efforts to improve the production volume from the mines and expect to grow the volumes further during the year to meet its entire iron ore requirement.
Iron Ore Pelletisation:
Your Company has achieved ever highest production with a capacity utilization of 94% in FY 2020-21.The production of iron ore pellets increased during the year by 12.88%. The higher production of iron ore pellets coupled with better realizations contributed to higher sales & profitability.
The Company operated the sponge iron plant at full capacity and achieved the production volumes of 494991MT, mainly on account of operational efficiency. During year the plant operated at 100% capacity utilization.
Finished Steel & Rolled Products
The production of Steel Billets increased by 1.82% on YoY basis, led by availability of additional power from Jagdamba Power and Alloys Limited (JPAL) during the year. Similarly, the production of MS Rounds/Wire Rods increased by 42.85% due to commencement of commercial production in the hot-rolling mill. However the production of HB Wires was strategically reduced by 25.31% in view of prevailing demand conditions in domestic market.
The Company is making silico manganese, used in steel making. The production of silico manganese increased by 34.81% with increase in demand of silico manganese, the capacity utilsation in ferro alloys divisions improved to 86%.
The Company is operating 73 MW of captive power generation capacity out of which 42MW is waste heat recovery, 11 MW thermal coal based and 20 MW bio mass power. The overall production volumes increased marginally by 1.49% as compared to previous year. In addition to same the Company has long term contract for supply of power with Jagdmaba Power & Alloys Ltd (under merger with the Company) to meet long term power requirement of the Company. ii. Net sales/income from operations:
|Product||FY 2020||FY 2021|
|Sales (MTs) Quantity||Net sales (Rs in crore)||Sales Realisation (Per Ton)||Sales quantity (MTs)||Net sales (Rs in crore)||Sales Realisation (Per Ton)|
|Iron ore pellets||1362296||965.95||7091||1607881||1615.20||10046|
|MS rounds/ Wire Rods||80297||267.61||33327||165433||617.64||37335|
In fiscal 2020-21, the Company achieved standalone net sales of Rs.3641 Crores as compared to net sales of Rs 2774 crores achieved during previous Financial Year registering a growth of 31.25%. The increase in turnover is mainly on account favourable market conditions coupled with increase in the production and sale of high grade Iron ore pellets and MS Rounds/Wire Rods. With improvement in demand for the Companys products the price realizations were higher across the products manufactured by the Company. iii) Raw Material & Input Cost:
The raw material and input cost of Company was lower during the year was 47.33% of net sales as compared to 54.58% during the previous year on account marginal increase in the selling prices of Companys products. The cost of iron ore from market purchases, coal and manganese ore increased during the year as compared to previous year, however, overall cost reduced due to sourcing majority of its iron ore from captive mines. iv) Operating and other expenses
The Companys operating and other expenses increased to Rs.749.53 crore as against Rs.607.50 crore mainly due to increase in freight cost for export of iron ore pellet, which increased the outward freight cost on account of higher volumes of sales in export market. v) Employee cost
The employee cost during the year increased by 14.43% to Rs.123.95 crore as compared to Rs.108.32 crore in the previous year due to increase in salaries of employees & workers. The employees cost stood at 3.40% of net sales during the year under review as compared to 3.90% during the previous year. vi) Operating margins (EBIDTA)
The EBIDTA increased to Rs.1049.22 crores as compared to Rs.442.90 crores of previous year which was 28.81% of net sales during the year under review compared to 15.97% of net sales in the previous year mainly due to increase in price of finished products, change in product mix and optimum utilisation of production capacities and production of higher grade iron ore pellets and wires rods, which sale at premium in international markets. vii) Interest and financial charges
Total expenses towards interest and bank charges has been reduced to Rs.109.99 crore in 2020-21 as compared to Rs.153.66 crore in 2019-20 due to repayment of debt. The Company has repaid the debt of Rs.548 crore during the year, which resulted into saving in interest cost. viii) Depreciation
The depreciation during the year has been provided as per Revised Schedule – II under the Companies Act, 2013. During the year under review the depreciation increased to Rs. 96.48 crores as compared to Rs.91.60 crores. ix) Profit/Loss before Tax (PBT)
The Company has registered a profit before tax and exceptional items of Rs. 842.73 crore, as against Rs.197.64 crore during the previous year. The company has booked a profit of Rs.63 crores on sale of investments.
x) Provision for taxation
The provision for taxation has been made as per provisions of Income Tax Act. xi) Profit/Loss After Tax (PAT)
The Company registered net profit after tax and extraordinary items of Rs.625.76 crores as against net profit after tax and extraordinary items of Rs.121.40 crores during previous year.
Your Company has not transferred any amount to the General Reserves Account during the Financial Year 2020-21. xiii) Provision for dividend
Your company has paid an interim dividend of Rs.5 per share and the Board of Directors recommended a final dividend of
Rs.13.50 per share subject to approval of the shareholders of the company in the ensuing Annual General Meeting.
|xiv) Fixed assets|
|(Rs. in crores)|
|Particulars||FY20||FY21||Change||% of Change|
|Capital WIP and pre-op expenses||52.90||60.98||8.08||15.27|
|Net fixed assets||1421.79||1374.44||(47.35)||(3.33)|
The gross block and depreciation has increased due to addition of plant and machinery by capitalisation of capital work in progress. xv) Inventories
The overall value of inventory of raw materials including stock in transit increased to Rs. 498.09 crore as on 31st March, 2021 as compared to Rs.445.86 crore as on 31st March, 2020. The average level of holding of raw material stood at 59 days of consumption as compared to a level of 50 days during the previous year. xvi) Sundry debtors
The debtors outstanding as on 31st March, 2021 were 27 days of sales as compared to 20 days in FY 31st March, 2020, which was in normal range.
xvii) Short-term loans and advances
Loans and advances as on 31st March 2021 stood at Rs.169.29 crores as against Rs.125.65 crores on 31st March 2020. xviii) Secured and unsecured loans
At the end of the year, secured term loans (including non-convertible debentures) totaled Rs.455.18 crores as against Rs. 1057.66 crore in FY 2019-20. The decrease is owing to repayment of term loan. xix) Deferred tax liabilities
The deferred tax liability as on 31st March, 2021 was Rs. 161.15 crores as compared to Rs. 40.24 crores during the previous year.
FINANCIAL PERFORMANCE VIS A VIS OPERATIONAL PERFORMANCE
|Debtors turnover (no. of days)||27||20||35||Due to increase in export volume.|
|Inventory turnover (no. of days)||50||59||18||Due to higher production|
|Interest coverage ratio||9.50||2.88||230||Due to debt and reduction and improved profitability|
|Current ratio||2.42||1.99||22||Due to lower utilization of working capital finance. Due to debt and reduction and improved profitability|
|Debt equity ratio||0.30||1.01||70|
|Operating profit margin (%)||28.81%||15.97%||80||Improved market realization coupled optimum capacity utilization.|
|Net profit margin (%)||17.19%||4.38%||292|
|Return on networth (%)||52.27%||11.27%||364|
MATERIAL DEVELOPMENTS IN HUMAN RESOURCE/INDUSTRIAL RELATIONS
Your Companys HR Vision is to build a high performing organization, where everyone is motivated to perform to the fullest capacity to contribute to developing and achieving individual excellence with organizational objectives. Your Company continues to maintain positive work environment and constructive relationship with all its employees with a continuing focus on productivity and efficiency.
We believe that our success is driven by the success of our people, who are at the core of everything we do believe in nurturing and creating a workforce for tomorrow while being responsible towards society.
Health & Safety is our first & foremost priority for the employees. The Safety wing of the company is continued to make the employees & contractual workers aware about organizational safety. During the year, your Company has: Organized program on Safety at Hot & Height Work Organized program on working at Hot area & Industrial Hygiene.
Organized program on Excavation Safety Organized program on Electrical Safety Organized program on Behaviour based Safety Organized program on Gas and Cylinder Safety
Organized program on Importance of House Keeping & Work Permit System
RISKS AND CONCERNS
Risk is an integral factor in virtually all businesses. At GPIL, risks are adequately measured, estimated and controlled. Irrespective of the type of risk or the activity that creates it, the Companys fundamental approach to risk management remains the same: identify and measure risks, leverage an in-depth knowledge of the business and competitors and respond flexibly in the understanding and management of risks.
Domestic challenges like inflation, liquidity crunch, slower industrial growth, depreciating rupee, political instability and increasing commodity prices might affect performance.
GPIL correctly anticipated that the challenge of the future would revolve around the timely availability and affordability of resources and raw materials, which translated into timely backward integration initiatives. As a part of this backward integration, the Company manufactures products that are consumed within and also sold to customers; the ability to provide a large and growing customer base from within has helped reduce marketing and costs of inventory, enhancing overall viability. Besides, the savings from captive supply has helped make the product more competitive for external sale, creating a unique win-win proposition. The Company generates significant per cent of its overall resource, raw material or power requirements by value from within, strengthening its overall competitiveness. As a result, integration is not incidental to the Companys existence; it represents its very core.
The Company may be affected by impact on demand due to the competitive action within the steel sector, import from Asian countries and industry down turn.
The Company has significantly reduced the risks arising from erratic demand through integration of operations and captive production of iron ore and pellets. Besides, the Companys plants are located in a large steel manufacturing belt, making it possible to provide products with speed, periodic delivery and relatively high logistic efficiency, lower working capital cycle within the region. It is estimated that the 90% of the Companys output of pellets, sponge iron and its billets are sold within 200 kms of its plant. The Companys power sales are secured through merchant power sales agreement; the Company is engaged in long-term power sales agreement (25 years) with the government for units generated from its solar thermal power plant.
Technology obsolescence could warrant an increase in investments, affect cash flow and impact profitability.
The Company invested in the latest technologies, which enables it to manufacture quality products. After completion of a project, the Company adapts the technology and builds in-house capabilities for further expansion. It also has a facility for the critical components for the existing units to lower plant downtime and control its operations better. It has also introduced the latest technology in the solar thermal power plant, which will lower the operating expenditure for the Company.
In the business of steel manufacture, a number of diverse inputs are required to be progressively taken into the next stage. The challenge lies in an ability to procure these intermediate raw materials at the right cost and in the right time.
The Companys integrated business model which makes it possible for the end product of one business to be positioned as the raw material of another, creating a self-feeding ecosystem within minimal inventory, costing and logistic issues. The Company has also secured captive iron ore mines, in order to protect the input cost for its main raw material i.e. iron ore.
The extent of this integration has strengthened the Companys insulation from external pricing and supply shocks, enhancing input security. Besides, the Company is selectively enhancing production capacities, strengthening input security further.
Project management risk
Delay in project completion could lead to cost overrun.
Over the years, the Company recognised that the principal viability risk was not derived as much from the marketplace as it was from within. Among the factors from within the organisation that affected viability, one of the most critical was the ability of the Company to commission its proposed plants on schedule. It is the Companys experience that timely commissioning creates a foundation of moderate capital cost and triggers revenue inflow to start contributing towards project payback. Over the years, the Company invested in project management with the objective to strengthen overall competitiveness: as a result, the focus graduated from timely commissioning to pre-scheduled commissioning, translating into a probable cost-underrun, accelerated revenue inflow and quicker payback.
Locational disadvantage could affect logistic and time schedules, affecting viability.
The Companys manufacturing facility is located at the heart of industrial Chhattisgarh at Raipur. The Companys mines are located 150 km from the plant and adjacent to a highway, making logistics management convenient. The Companys location makes it easy to access JNPT port in the West (1,200 kms), Vishakhapatnam port in the South (500 kms) and Haldia and Paradeep ports in the East (800 and 600 kms respectively) for the export for ferro alloys and coal import. The Company markets 50 per cent of its pellet output within 200 km from its manufacturing units.
The Companys pellet plant in Orissa is also located at rich belt of Iron Ore in Keonjhor district, near to is principal raw material i.e. iron ore fines. The railways siding is located at about 3 KM away from plant for transport of pellet, making it an attractive location for such project.
Similarly the Companys 50 MW Solar Thermal Power Plant is located in Jaisalmer dist in Rajasthan having highest DNI
(Solar Resource) in India, which an ideal location for a solar power plant.
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
Your Company has in place an adequate system of internal control commensurate with its size and nature of business. The system provides a reasonable assurance in respect of providing financial and operational information, complying with applicable statutes, safeguarding of assets of the Company and ensuring compliance with corporate policies. Your Company has a business planning system to set targets and parameters for operations which are reviewed with actual performance to ensure timely initiation of corrective action, if required.
Your Company has availed the services of independent professional firm for Internal Audit, which checks the effectiveness of the internal controls with an objective to provide an independent, objective and reasonable assurance of the adequacy and effectiveness of your Companys risk management, control and governance processes. The scope and authority of the Internal Audit activity are approved by the Audit Committee. Internal Auditor reports directly to the Audit Committee of Board. Audit Committee periodically reviews the Internal Audit Reports and issues guidance and advice. The Audit Committee also seeks the views/opinions of statutory auditors on the adequacy of the internal control systems in your Company. Minutes of the Audit Committee are put up to the Board of Directors.
The Companys Audit Committee reviews adherence to internal control systems, internal audit reports and legal compliances. This committee reviews all quarterly and yearly results of your Company and recommends the same to Board for its approval. The Committee also reviews the performance of the subsidiaries/controlled entities.
The above Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include external economic conditions affecting demand/supply influencing price conditions in the market in which the Company operates, changes in Government regulations, tax laws, and other incidental factors.