Goodluck India Ltd Management Discussions.

INDUSTRY STRUCTURE & DEVELOPMENTS

India is currently the worlds 2nd largest producer of crude steel in January-December, 2019, producing 111.245 Million Tonnes (MT) (provisional) crude steel with growth rate 1.8% over the corresponding period last year .The country is also likely to become the 2nd largest consumer of finished steel in 2019, preceded by China as the largest steel consumer. The Governments vision to achieve a $5 trillion economy by 2024 entails investments in several steel intensive sectors like infrastructure, housing for all, 100% electrification, piped water for all, etc. Indias annual per capital steel consumption is 74 kg and is one-third the global average (224.5kg). A transition to steel intensive construction will also support Indias rise to a $5 trillion economy by 2024-25. Steel intensive construction is prevalent across the globe and an increase in steel use is strongly correlated with an economys GDP growth, especially during the nation building phase. National Steel Policy 2017, which has laid down the broad roadmap for encouraging long term growth for the Indian steel industry, both on demand and supply sides, by 2030-31, with a vision to create a technologically advanced and globally competitive steel industry that promotes economic growth. This policy seeks to accomplish Honble Prime Ministers vision ofMake in India with the objective of nation building and to encourage domestic manufacturing. By implementing Make In India policy, Steel imports worth more than Rs. 15,000 cr. have so far been avoided.

Economy Overview

Against the backdrop of US via raising tariff on certain china imports in early 2019, global growth is forecast at 3.2 percent in 2019, picking up to 3.5 percent in 2020. Investment and demand for consumer durables have been subdued across advanced and emerging market economies as firms and households continue to hold back on long-term spending. Accordingly, global trade, which is intensive in machinery and consumer durables, remains sluggish. The projected growth pickup in 2020 is precarious, presuming stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences. The emerging market and developing economy group is expected to grow at 4.1 percent in 2019, rising to 4.7 percent in 2020. The forecasts for 2019 and 2020 are 0.3 and 0.1 percentage point lower, respectively. Multilateral and national policy actions are vital to place global growth on a stronger footing. The pressing needs include reducing trade and technology tensions and expeditiously resolving uncertainty around trade agreements. The COVID-19 pandemic has, with alarming speed, delivered a global economic shock of enormous magnitude, leading to steep recessions in many countries. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020—the deepest global recession in eight decades, despite unprecedented policy support. Per capita incomes in the vast majority of Emerging Markets and Developing Economies (EMDEs) are expected to shrink this year. The global recession would be deeper if bringing the pandemic under control took longer than expected, or if financial stress triggered cascading defaults.

Outlook

In view of the COVID-19 pandemic, there remains considerable uncertainty around the global economic forecast for 2020. According to the International Monetary Fund (IMF), global economy is projected to contract sharply by 4.9% in 2020, surpassing the decline seen during the global financial crisis a decade ago. Stark differences will be observed between impact of the pandemic on advanced economies, and emerging markets and developing economies owing to differences in governance capacity, health care systems, strength of financial institutions, and currency strength. Growth is expected to be slower in most advanced economies. Countries in the emerging market and developing economies will also witness a slump in growth due to external demand shock, tightening in global financial conditions, and a plunge in commodity prices. In China, where recovery from the sharp contraction in the first quarter is underway, growth is projected at 1% in 2020, supported in part by policy stimulus. The IMF projects a partial recovery in 2021, however, the level of GDP growth is expected to remain below thepre-COVID-19 trend, with uncertainty about strength of the rebound.

Indias economy in the Financial Year 2020-21 is projected to grow at a slower pace following a longer period of lockdown and slower rate of recovery than anticipated. Effective policies and fiscal measures bythe Government will be essential to forestall contraction of growth. The COVID-19 pandemic has severely affected economies and industries globally and the steel industry is no exception. Therefore, outlook for the steel industry includes scenarios regarding the pandemics speed of propagation, possible recurrence, near-term impact of measures being taken to contain the outbreak, and the effectiveness of the stimulus announced by the Governments of various nations. After slower than expected growth in 2019, steel demand is estimated to contract significantly in the Financial Year 2020-21. According to the World Steel Association (WSA), it is possible that the impact on steel demand in relation to the expected contraction in GDP may turn out to be less severe than that seen during the erstwhile global financial crisis. In comparison with other sectors, the manufacturing sector is expected to rebound quicker though supply chain disruptions are likely to continue. Most of the steel producing regions are expected to witness a decline in crude steel output due to production cuts amidst ongoing lockdowns. Governments of different nations have announced sizeable stimulus packages which are expected to favour steel consumption through investment in infrastructure and other incentives for the steel industry. In India, muted demand and oversupply is likely to result in suppressed steel prices and capacity utilization in the near term. Since India depends largely on migrant labour, restarting construction and infrastructure projects will be a challenge. The demand from infrastructure, construction, and real estate sectors is likely to be subdued in the first half of the Financial Year 2020-21. Further, the demand from automobile, white goods, and capital goods sectors is likely to reduce significantly with consumers deferring discretionary spends in the near term. Effective government stimulus and return of consumer confidence is likely to be the key driver for a gradual recovery over the second half of the Financial Year 2020-21.The recovery is expected to be gradual, with growth estimated at 5.4% in CY 2021, which reflects the disruptions to economic activity, policy countermeasures and commodity prices. Going forward, the Indian economy is expected to contribute 13.7% to total world economic growth, which is higher than that of several developed countries, including the US. Continued economic reforms, along with efforts to reduce public debt, is a prerequisite for the countrys growth. Given the strong mandate, the government is likely to push through key structural reforms towards its ambition of making India a US$5 trillion economy by 2024.

Financial, Operational and Product Wise Performance

Goodluck, an engineering conglomerate, manufacturing & exporting engineering products globally as well as domestically with wide range of galvanized & cold rolled coils/sheets, galvanized &black steel tubes & hollow sections, forgings & flanges, cold drawn welded & precision tubes, engineering fabricated structures for towers, bridges, walkways, girders, boiler support structures, pipe rack structures, chimney structures and secondary support structures, and other cold rolled value added products. The clientele of the Company comprises of members from the public sector, private sector OEMs and central and state government departments and spread across 100 countries globally U.K., U.S.A, Singapore, South Africa, UAE, Germany and France are few of the export markets of the company. The company is treating Auto, Railways and solar industries as its sunrise sectors. The sales has been little lower during FY 2020 as compared to previous year due to lock down declared by Govt. of India and State administration w.e.f. 21.03.2020 to curb the spread of COVID 19 though out India. Due to sudden lock down announced by the government and consequently 11 days working has been lost, the Company could not achieve the top line as projected also the profitability would be much higher than the achieved. EBITDA percentage has been increased from 7.76% during FY 2019 to 8.05% during FY 2020. PAT has been at Rs 34 crores as against Rs. 31 crores during preceding financial year. Main reason for improved profitability was batter sales realization of the products and savings in financial expenses. The Company is preparing to keep itself ahead of the curve with respect to the new technologies that are coming up and at the same time develop new products and processes for the customers in both the auto and the industrial space. During the year, the Company has incurred Rs. 30 crores on capital expenditure in order to replace the old equipment with new improved technology. The ERW & CDW pipes contributes to 53.90% in the total turnover of the Company as compared to the last financial year to 53%.The sheetss business increased its contribution to 14.62% from 13% during the preceding financial year. The structure business contributes to 14.37% as against the 19% during the last year and forging products has increased its share in turnover from 15% to 17.11%.

MEDIUM AND LONG TERM STRATEGY

The Company has undertaken drive for capacity expansion in last couple of years. New manufacturing lines are added across the locations, new equipments based on latest technology is being commissioned and plant layouts are reworked to achieve optimum utilization of the installed capacities. The Company is preparing to keep itself ahead of the curve with respect to the new technologies that are coming up and at the same time develop new products and processes for the customers in both the auto and the industrial space. During the year, the Company has incurred roughly Rs. 30 crores on capital expenditure in order to replace the old equipment with new improved technology This expenditure interallia includes bottlenecking equipments and routine capital expenditures.

INTERNAL CONTROL SYSTEMS

The Company and the Management have adequate internal control systems in place to safeguard and shield the Company from losses and in ensuring proper use of its assets. This also ensures that the Companys assets and interests are carefully protected, and all the transactions are appropriately authorized, recorded and presented to the management. The Company always adheres to prescribed guidelines and follows all Accounting Standards prescribed for maintenance of books of accounts and reporting of financial statements. The appointed independent internal auditors monitor and report on the effectiveness of the internal control systems of the various areas of operations Key matters that are reported in the Internal Audit are brought to the notice of the Audit Committee of the Board of Directors and corrective measures are recommended and appropriate actions are taken. The Internal Control systems ensure the business operations function efficiently and the applicable laws, rules, regulations, policies of the Company are followed, in addition to safeguarding the reliability of financial reporting.

Opportunities and Threats

In 2020 worldsteel forecasts that steel demand will contract by 6.4%, dropping to 1,654 Mt due to the COVID-19 crisis. In 2021 steel demand is expected to recover to 1,717 Mt, an increase of 3.8 % over 2020.The Indian steel industry has entered into new development stage and with the aid of Govt. by putting conditions on import of steel has given erroneous opportunities to the Indian steel industry. Your companys one of the major customer is automobiles industry (fourth in the world), It contributes to around 9% of steel demand in India. India is the largest manufacturer of two-wheelers, three wheelers and tractors, the fourth largest producer of passenger vehicles, and the seventh largest in commercial vehicles in the world. Two-wheelers occupy a dominant position with an 81% market share and overall passenger vehicles compose 13% of the market. Indias automobile sector is domestic market oriented, with domestic sales accounting for over 80% of sales. The Government of India announced the Automotive Mission Plan 201626 (AMP 2026) in 2015. The plan outlines the vision for all sub-segments in terms of size, global footprint and technological maturity, etc. It aims at sustained automotive growth and bringing India at par with the global auto giants. Therefore, steel demand from the automotive sector is expected to be sustained, despite the temporary blip in growth this year. However, the Indian government is putting a significant thrust on electric vehicles, which will require less steel as these vehicles have fewer auto components. The Company targets "Make in India" program, which is likely to present multiple opportunities for indigestion and offsets in defence and aerospace. These segments will drive business growth and reduce cyclicality. The company is working towards becoming a full supplier indigenously developed systems. However, factors such as labor laws, environmental costs and permanent loss of the optionally value of the plants are curbing steel manufacturers from shutting down steelcapacity permanently. Additionally, government intervention in the steel industry provides an additional political incentiv to keep employing workers regardless of profitability. Further, COVID-19 has created the issue for companies to get the labour due to migration.

Risks and Concern

The COVID-19 has disrupted operations globally is wellknown. Moreover, the new normal that will emerge is likely to witness a realignment of power centres in different domains. The coronavirus crisis has impacted almost all supply chains dependent on China, which includes the steel sector. Given the closure of operations in most industries, the nations steel demand in FY2020-21 is slated to fall by about 15%. This will lead to oversupply, suppressed prices and rising inventories once the lockdown is properly lifted, as per an India Ratings report. Even after the lockdown is lifted, most likely in phases, the steel sector will continue confronting sustained challenges on account of the labour shortage and hampered logistics movement. The nationwide lockdown is an unprecedented test for every sector, including steel. Under such circumstances, it is up to the government to boost infrastructure investments across the country. This can become a key driver for Indias eventual economic recovery. Such infrastructure projects need to be fast-tracked for the steel sector to stabilise operations after the demand slump. Since many steel producers are MSMEs, the current moratorium on term loans can be extended by another three months without penal interest. Such measures will help the sector survive todays harsh conditions. In sync with this, the Centre could consider offering relief on some levies imposed on steel-making raw materials. Demand from infrastructure, construction and real estate sectors is likely to be subdued in 1HFY21 (first half of FY21) with the lockdown in 1QFY21 (April-June FY21) and the monsoon season over 2QFY21 (July-September FY21). Furthermore, the demand from automobile, white goods and capital goods sectors are likely to reduce with consumers deferring discretionary spends in the near term.

Human Resources

The Company strives to maintain a cordial relationship and healthy atmosphere with its employees at all levels. Human resources are considered the most important and valuable asset of the Company. Continuous commitment to upgrading skills is an integral part of the human resource development policy of the Company. The focus has always been towards creating a rewarding and nurturing environment for employees. The Company is an equal opportunity employer and promotes diversity in its workforce. Equal opportunities are given to optimize their potential and improve their standard of living. Employee Count as on March 31, 2020, Goodluck India Limited has 2223 employees.

Cautionary Statement

Certain Statements made in the Management Discussion and Analysis Report relating to the companys objectives, projections, outlook, expectations, estimates and others may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections and so on whether express or implied. Several factors could make a significant difference to the Companys operations. These include climatic conditions and macroeconomic conditions affecting demand and supply, government regulations and taxation, natural calamities and so on, over which the company does not have any direct control.

Changes in Key Financial Ratio

The details of changes in the key financial ratios as compared to previous year are stated below;

Balance sheet Ratios FY 2020 FY 2019 1
1. Debtors Turnover Ratio 6.84 6.70
2. Inventory Turnover Ratio 5.19 5.45
3. Interest Coverage Ratio 2.39 2.35
4. Current Ratio 1.20 1.28
5. Total Outside Debt/Equity 1.36 1.67
6. Long-term Debt/Equity 0.22 0.45
7. Operating Profit Ratio 8.05 7.76
8. Net Profit Margin 2.07 1.85

The net worth of the company for the year 2019-20 stood at Rs. 34,608lacs in comparison of Rs. 28,439 lacs in the previous financial year 2018-19. The increase of Rs. 6169 lacs in net worth is due to profit earned by the Company during the F.Y 201920 and pursuant to the scheme of amalgamation.