graphite india ltd share price Management discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS </dhhead>

 

(i) Industry’s structure and developments

A. Graphite and Carbon Segment Graphite Electrodes

Graphite Electrode is used in electric arc furnace (EAF) based steel mills for conducting current to melt scrap iron and steel and is a consumable for the steel industry. The principal manufacturers are based in USA, Europe, Middle East, India, China, South East Asia and Japan.

Graphite Electrode demand is primarily linked to the global production of steel in electric arc furnaces which is one of the three basic methods for steel production i.e. – [1] Bessimer Oxygen Furnace (BOF); [2] Electric Arc Furnace (EAF); and [3] Induction Steel Furnaces (ISF). According to the World Steel Association ("WSA"), global (excluding China) EAF steel production grew at a 4% compounded annual growth rate from 2015 to 2021, the most recent year for which WSA has published such figures. This compares to a 2% compounded annual growth rate for overall global (excluding China) steel production during this same period. As a result, the EAF method of steelmaking accounted for 49% of the global

(excluding China) steel production in 2021, compared to 44% in 2015, with increasing share of growth in nearly every region.

EAF steelmaking is more energy efficient and is beneficial in terms of its low carbon footprint, compared to steel produced through the blast oxygen furnace ("BOF") steelmaking model. According to the Steel Manufacturers Association ("SMA"), EAF steelmaking produces 75% fewer carbon dioxide emissions compared to BOF steelmaking. Further, SMA notes that the EAF process is a sustainable model for recycling scrap-based raw materials into new steel, which is 100% (and infinitely) recyclable at the end of its useful life. In addition to these advantages, EAF steel producers benefit from their flexibility in sourcing iron units, being able to make steel from either scrap or alternative sources of iron, such as Direct Reduced Iron (DRI) and Hot Briquetted Iron (HBI), both made directly from iron ore. China’s share in EAF production, which was only 6% of global steel making till 2014 through EAF, had increased to 10% up to 2021 and is estimated to become higher going forward as per S&P Platts report.

Reflecting on these positives and other strategic advantages, the EAF based steel production is expected to grow at a faster rate than BOF steel production. Based on industry announcements on proposed additional EAF steel capacities, this could result in global (excluding China) EAF production capacity increasing at approximately 3% compounded annual growth rate from 2022 to 2030. This should translate into similar increase in demand for UHP graphite electrodes over this same period to support EAF capacity expansion, besides further potential graphite electrode demand from production increases at existing EAF steel plants to support overall expected growth in steel demand.

 

Calcined Petroleum Coke and Paste

Graphite India’s Coke plant in Barauni, Bihar, is engaged in the manufacturing of Calcined Petroleum Coke (CPC), Carbon Paste and Electrically Calcined Anthracite Paste and is one of the several backward integration initiatives of the Company. Two grades of CPC - aluminium and graphite – are produced. CPC is primarily used in the manufacture of anodes for use in aluminium smelters, manufacture of graphite electrodes and also used as carburiser in steel. The division also manufactures four grades of Paste, i.e. Electrode Paste based on either CPC or Electrically Calcined Anthracite Coal (ECAC) and Tamping Paste based on either CPC or ECAC. Electrode Paste is used in Ferro Alloy Smelters and Tamping Paste is used as a lining material in submerged arc furnaces.

This division’s performance has been satisfactory this year which can be attributed to improved market conditions for the product from its user industries namely steel, aluminium and graphite electrodes.

 

Impervious Graphite Equipment (IGE)

IGE Division is in the business of design, manufacture and supply of Impervious Graphite Heat and Mass Transfer Equipment and Turnkey systems. It has an integrated facility for process/product design, manufacturing, inspection and providing supervision during erection and commissioning activities.

Impregnated graphite is an ideal material of construction for corrosive applications in sectors like Chloro-Alkali, Crop protection agrochemicals, Chlorinated Organic, speciality

& fine Chemicals, Phosphoric Acid, Fertilizers, Rayon, Steel Pickling, Metal Processing, Polymers, Drug Intermediates, Batteries & Gelatine etc.

The Company has built the product line into a reliable brand with a reputation for prompt service, good quality and consistent performance by investing in strengthening its core competencies. This division is capable of meeting any country specific design and has obtained many certifications relevant to the product profile. Order booking both in domestic and export market has been good. Both order booking and sales in FY 2022-23 have been all time high.

 

B. Other Segments

Glass Reinforced Plastic Pipes (GRP)

GRP Division is engaged in manufacturing of large diameter Glass Fibre Reinforced Plastic Pipes suitable for municipal application, seawater, effluent, irrigation, penstock as well as Pipe-liners for rehabilitation of old pipes/ducts by trenchless technology in metro cites. Product is manufactured by the Continuously Advancing Mandrel Filament Winding Process with computerized advanced technology comparable to other plants worldwide. The plant operations are dependent upon tenders floated by government / semi-government authorities which have been virtually absent during the year.

 

Steel

Powmex Steels Division (PSD) is engaged in the business of manufacturing high speed steel and alloy steel having its plant at Titilagarh in the State of Orissa. PSD is the single largest manufacturer of High Speed Steel (HSS) in the country. HSS is used in the manufacture of cutting tools such as drills, taps, milling cutters, reamers, hobs and broaches. HSS cutting tools are essentially used in – (a) automotive; (b) machine tools; (c) aviation; and (d) retail market. The industry is characterized by a single good quality manufacturer of HSS i.e. PSD which faces competition from small domestic producers and cheap imports from overseas manufacturers.

The performance of the division has been quite satisfactory during FY 2022-23 with increased level of sales and productivity. The division has been able to restart export of HSS during this year.

 

18 MW Hydel Power

The Company has an installed capacity of 18 MW of power generation through Hydel route. The renewal of Wheeling & Banking agreement which was pending with Government authorities has now been cleared by Karnataka Electricity Regulatory Commission, permitting third party sale of unutilized banked energy. This has enabled the division to sell higher units during the current financial year.

 

Capex on Hybrid Renewable Power Plant

Work on proposed 35 MW Hybrid (Wind and Solar) renewable power plant is on. Required land has been acquired for Phase-I (wind power) of the project. Major orders for equipment and services has been placed. Foundation work is under progress and is satisfactory. Almost all major approvals have been obtained. The Company is hopeful that Phase-I of the project can commence operations during 2023-24 which is expected to result in significant savings in power cost to the Company, apart from achieving carbon emission reduction with clean energy.

 

(ii) Opportunities and threats

Opportunities in the near term include: (a) domestic steel demand is expected to remain robust despite challenging macro environment, largely driven by government’s focused initiatives on infrastructure development; (b) under the Governments National Steel Policy 2017, per capita steel consumption is expected to increase to 160 kg by 2030-31; (c) Indian government has withdrawn the duty on import of scrap, which will benefit EAF steel manufacturers; (d) China’s curb on steel production to maintain the output at levels of 2021 and further abolishing the rebate of 13% VAT on certain steel exports to reduce steel production and exports. The lower exports from China may lead to higher steel production in the other EAF steel producing nations; and (e) Countries around the world are moving towards their carbon neutrality goals and therefore corporates are becoming environment conscious and adopting environment friendly manufacturing processes. With this backdrop, steel manufacturers are steadily moving towards EAF process which is expected to create sustainable demand for graphite electrode in the medium to long term.

The steel industry in India contributes approximately 2% to the countrys GDP, positioning the country as the second largest producer of steel in the world. During FY 2022-23, India’s crude steel production increased to 124.45 MMT from 117.6 MMT in 2021-22. During the year, the domestic steel industry registered a growth of 6% despite decline by 4.2% in global steel production. Moreover, the domestic production growth has surpassed the growth levels achieved not only during the last two years but also during pre-COVID years. The steel demand and consumption were primarily propelled by the government’s push for economic growth, driven by infrastructure development. According to the Ministry of Steel, during FY 2022-23, Indias steel exports slumped to a five-year low of 6.7 MMT, a year-on-year decline of 50.2% due to slowing global demand and imposition of export duty on steel. Whereas the import of finished steel during the same period stood at 6.02 MMT marking a notable surge of 29% over FY 2021-22.

The Indian steel industry is supported by its strong manufacturing capabilities, robust domestic consumption by steel-consuming sectors and strong global demand for its steel products. Government’s push for infrastructure development through the Gati-Shakti Master Plan, the Make-in-India initiative for the manufacturing sector, the Dedicated Freight Corridor and railway expansion plans would provide impetus for increased steel demand.

China, the largest steel producer in the world has projected a growth target of around 5% for 2023. Chinas crude steel output in 2022 fell by 2.1%, or 21.73 MMT, from 2021 to 1.013 billion MT, marking a second-successive annual decline. However, it is expected that its real estate industry will improve with the support of related policies leading to a narrowing decline in steel demand, backed by a stabilized property market and the rebound of other steel-consuming industries. Chinas steel industry will remain optimistic, driven by pent-up demand after the China’s downgraded epidemic response and efforts to stabilize supplies and curb prices. The WSA has predicted that China alone will consume about half of the global steel production of 2023 of 1.814 billion tonnes.

The near-term opportunities includes: (a) the domestic steel industry is better placed than that of other countries and should witness strengthening of fundamentals, driven by better domestic demand and government’s greater push on infrastructure development; (b) the budget for FY 2023-24 has given the much-needed impetus to the infrastructure, housing, and construction sector, backed by policy-level support from the government; (c) the launch of the National Infrastructure Pipeline (NIP) with a progressive outlook and projected infrastructure investment to the tune of Rs. 111 lakhs crores during FY 2020-25 is the key indicator of the push towards infrastructure projects across the country; (d) rebuilding of infrastructure in Turkey post earthquake and post Russia-Ukraine war.

The threats in the near term include: (a) slowdown in global economic activities, coupled with high inflation and the energy crisis; (b) fluctuations in raw material prices having a significant impact on the cost of production, margins, and profitability; (c) supply-chain disruptions affecting the availability and cost of raw materials; and (d) lower steel consumption due to stagnant demand in China resulting in higher exports of steel from China, which may impact steel production and prices in other steel producing nations.

Graphite India is one of the leading producers of graphite electrodes globally by capacity. The company has over 60 years of proven technical expertise in the industry and manufactures full range of graphite electrodes, with focus on the large-diameter, ultra-high power (UHP) electrodes preferred by the large steel manufacturers. It is therefore well positioned to meet the growing demand for electrodes from both domestic and international Electric Arc Furnace steel manufacturers.

 

(iii) Segment-wise Performance Revenue of the Company

The revenue from operations amounted to Rs. 2913 crore as against Rs. 2,799 crore in the previous year.

Aggregate Export Revenue of all divisions together was Rs. 867 crore as against Rs. 1,034 crore in the previous year.

 

Graphite and Carbon Segment

The performance of the segment was sub-optimal in FY 2022-23 as compared to FY 2021-22 with subdued demand conditions in the global and domestic market.

Production of Graphite Electrodes and Other Miscellaneous Carbon and Graphite Products during the year under review was 63,709 MT as against 91,214 MT in the previous year.

Production of Calcined Petroleum Coke during the year was 46,870 MT as against 32,184 MT in the previous year.

Production of Carbon Paste during the year was 3,571 MT against 4,358 MT in the previous year.

Production of Impervious Graphite Equipment (IGE) and spares during the year was 2,100 MT as against 1,802 MT in the previous year.

The segment revenue increased to Rs. 2,679 crore from Rs. 2,619 crore in the previous year with decrease in domestic and export sales both on volume and value terms. Segment recorded profit of Rs. 392 crore in FY 2022-23 compared to Rs. 526 crore in FY 2021-22.

 

Other Segments

GRP division produced 626 MT pipes as against 649 MT in the previous year.

Production of HSS and Alloy Steels was 2,701 MT during the year as against 2,712 MT in the previous year. Power generated from Hydel Power Plant of 18 MW capacity amounted to 56.59 million units during the year as against 63.16 million units in the previous year. 105.68 million unit was sold during the year as against 65.54 million unit in 2021-22.

 

(iv) Outlook

The uptick in steel demand observed in 2021 was reversed amidst the challenges such as the pandemic shock, high inflation, increasing interest rates, the Russia–Ukraine conflict and lockdowns in China. As a result, steel using sectors’ activity went down in the last quarter of 2022. This, combined with the effect of stock adjustments, led to worse than expected contraction in steel demand. According to the WSA, global crude steel production decreased by 4.2% to 1,878.5 MMT in 2022 compared to 1,960.4 MMT in 2021. The demand is projected to rebound 2.3% to reach 1,822.3 MMT and is forecast to grow by 1.7% in 2024 to reach 1,854 MMT. The manufacturing sector is expected to lead the recovery, although high interest rates may continue to impact steel demand as growth is expected to accelerate in most regions except China, where it is likely decelerate due to reduction in consumption owing to decline in its population. Investments in decarbonization in dynamic emerging economies will increasingly drive positive momentum for global steel demand, though China’s contribution to global growth is likely to diminish.

Persistent inflation and high-interest rates in most economies will limit the recovery of steel demand in 2023, despite positive factors like China’s reopening, Europe’s resilience in the face of the energy crisis, and the easing of supply chain bottlenecks. In 2024, demand growth is likely to be driven by regions outside China but facing global deceleration due to Chinas anticipated 0% growth, overshadowing the improved environment. Sustained inflation remains a downside risk, potentially keeping interest rates high.

Chinese steel demand contracted in both 2021 and 2022 as its economy decelerated sharply due to unexpected lockdowns that extended across the country. The negative momentum in the construction sector seen in 2021 intensified further in 2022 and investment in real estate declined by 10%, the first year-on-year decline in 25 years. In 2023, the infrastructure sector may continue to benefit from the projects initiated at the end of 2022, although growth may weaken in 2024 if no large-scale projects begin in 2023. China’s manufacturing sector performance in 2022 was weak, although exports performed relatively well. The manufacturing sector is expected to show only a moderate recovery in 2023-24, with slowing exports. Steel demand in the developed economies suffered a sizable contraction in 2022 because of monetary tightening and high energy costs. After falling by 6.2% in 2022, it is expected to increase by 1.3% in 2023 and by 3.2% in 2024.

The EU economy turned out to be more resilient to the energy crisis caused by the Ukraine war than initially thought. While the EU economy grew by 3.5% in 2022, avoiding recession, industrial activities suffered significantly from high energy costs that led to a sizable contraction in steel demand in 2022. In 2023, the EU steel industry will continue to feel the impact of war, other supply chain-related issues, and continued monetary tightening. In 2024, demand is expected to see a visible rebound as the impact of the Ukraine war and supply chain disruptions are expected to dissipate. However, the outlook is subject to persisting uncertainty.

The strong post-pandemic rebound of the US economy has run its course with the Fed’s steep interest rate hikes to tackle inflation. Growth in 2023-2024 is expected to be subdued by recessionary pressure. Furthermore, the spin off effect from the recent SVB bankruptcy needs to be watched. Steel demand in Japan contracted in 2022 due to weak manufacturing and destocking. The weak global economic environment is expected to weigh on steel demand in 2023, but as Japan is a supply-constrained economy, the impact is not expected to be significant.

Meanwhile, the Indian economy has shown a strong and sustained economic expansion in 2022, with real GDP growth for FY 2022-23 estimated at 7% as per the Economic Survey 2022-23 despite the shocks of COVID-19 and the Russia–Ukraine conflict. Many reports worldwide continue to report India as the fastest-growing major economy at 6.5–7% in FY 2023. The uptick in private consumption, infrastructure development, the bid for developing more affordable housing and the Indian Railways capex are all demand drivers and have given a boost to production activity, resulting in increased capacity utilization across sectors, making India a leading global force in steel production and the second largest crude steel producer in the world. Indias finished steel production has increased by over 6% to 124.45 MMT as compared to 118 MMT in 2021. According to ICRA’s latest research note on the steel sector, domestic steel demand is expected to clock double-digit growth of around 11.3% in FY 2023, following the 11.5% hike recorded in FY 2022, supported by the government’s push for infrastructure-led economic expansion. India is expected to remain a bright star in the global steel industry; its expected growth at 7.3% in 2023 and 6.2% in 2024 are backed by affordable housing projects and urban demand. Investments in decarbonization and dynamic emerging economies will increasingly drive positive momentum for global steel demand, even as China’s contribution to global growth diminishes. The steel industry is transitioning towards EAF manufacturing. This shift, driven by its lower carbon footprint compared to traditional blast furnace steelmaking, is expected to drive long-term demand growth for graphite electrodes.

 

(v) Risks and Concerns

Exports to specific regions may be severely impacted by protective trade barriers in the form of crippling import duties, anti-dumping duties, countervailing duties or sanctions as the case may be and our export volumes to specific markets could get majorly affected by such restrictive impositions. The ongoing crisis between Russia and Ukraine and other regional geo-political conflicts may also have crippling effect. COVID-19 dealt the biggest blow to the Global Freight trade, which was almost flat for the last 10 years. A demand supply imbalance, shortage of containers and vessel schedules, congestion in major hubs / trading ports, has led to delay in transit times of inbound and outbound freight and pushed up ocean freight to an all-time high. The current geo-political tension caused by the Russia-Ukraine crisis has further aggravated the situation. Going forward, international trade may remain largely regional in a bid to contain freight costs. No miraculous recovery in freight cost is expected in 2023, at least in the first half of the FY 2023-24. Easing of the demand-supply gap by introduction of new containers, new vessels with higher TEU (Twenty feet Equivalent Units) handling capacity, diverting traffic to mid-size ports in the vicinity of the major (already congested) ports are expected to happen in the latter half of the year.

While the outbreak of COVID-19 is beginning to subside in most parts of the world, the infection intensity in some areas have shown resurgence. As a result, we are unable to predict the resultant impact of the present COVID-19 pandemic. The pandemic has adversely affected, and may further adversely affect, business, results of operations, financial position and cash flows. Such effects may be material and the potential impacts may include, but not limited to: 1) adverse impacts on countries of customers, and resultant impacts on demand for our products; 2) disruptions at production facilities, including reduction in operating hours, labour shortages and changes in operating procedures, including additional cleaning and disinfecting procedures; 3) disruptions in supply chain due to transportation delays, travel restrictions, raw material cost increases and shortages, and closures of businesses or facilities; and 4) reductions in operating effectiveness due to workforce disruptions from COVID-19 restrictions and social distancing resulting from, among other things, the unavailability of key personnel necessary to conduct business activities. The situation continues to change rapidly and additional unforeseen challenges may arise that cannot be realistically predicted.

The repercussions of reduced investment and bankruptcies may run more extensively through the economies. Depending on the duration, global business confidence could be severely affected, leading to weaker investment and growth than projected in the baseline. Related to the uncertainty around COVID-19, an extended risk-off episode in financial markets and tightening of financial conditions could cause deeper and longer-lasting downturns in a number of countries.

The Graphite business is majorly dependent on the global EAF steel industry, which is cyclical and is affected significantly by global economic conditions. The EAF steel industry majorly depends on demand from automotive, construction, machinery, equipment and transportation industries which can be significantly affected by macroeconomic reversals. Any instability or downturn in these industries could potentially impact the demand for graphite electrodes. Historically, the pricing of graphite electrode has been cyclical in nature, reflecting the demand trends of the global EAF steel making industry and the supply of graphite electrodes. The graphite electrode industry has experienced negative impacts on pricing due to overcapacity in the past. An increase in global graphite electrode production capacity that outpaces an increase in demand for graphite electrodes could adversely affect the price of graphite electrodes. Excess production capacity may lead manufacturers to produce and export electrodes at prices that are lower than prevailing domestic prices and at or below their cost of production. This could result in downward pressure on graphite electrode prices, negatively affecting sales, margins and profitability.

Petroleum needle coke is a key raw material used in the production of graphite electrodes. Therefore, the performance of the company is heavily dependent on the price and timely availability of superior grade petroleum needle coke. Any disruption in the supply could have a material adverse effect on the business. In addition, as petroleum needle coke reflects a significant percentage of the raw material cost of graphite electrodes, graphite electrodes have historically been priced at a spread / linked to the cost of petroleum needle coke, which in the past has increased in tight demand markets. Major steel producers, have in the past experienced and may again experience downturns or financial distress that could adversely impact our ability to collect our accounts receivable on a timely basis or at all.

The Company has optimum exposure to exports and imports. Volatility in foreign currency markets may directly impact the Company’s prospects. Inherent natural hedge of various balancing exposures may mitigate the risk to an extent. Competition in the graphite industry is based primarily on price, product differentiation by performance/quality, delivery reliability and customer service. Graphite electrodes, in particular, are subject to cut throat price competition.

 

(vi) Internal control systems and their adequacy

The Company has proper and adequate systems of internal controls. Internal audit is conducted by outside auditing firms. The Internal audit reports are reviewed by the top management and the Audit Committee and timely remedial measures are enabled. IT Security Policy is in place to ensure that the risks associated with non-compliance of information gathering, processing, security (against cyber crimes) and preservation are assessed and adequately and ably managed. The purpose and objective of the policy is to address the risks by defining, developing and implementing adequate controls through proper categorization. An internal committee reviews the adherence and suggests if any changes are required. Independent systems audit is performed by TUV Nord, India. Third party product inspections are performed by agencies like SGS, BV India.

 

(vii) Discussion on financial performance with respect to operational performance

Revenue from Operations recorded Rs. 2,913 crore as against Rs. 2,799 crore in the previous year. Profit after tax was Rs. 350 crore as against Rs. 574 crore in the previous year. Profit before tax was lower at Rs. 476 crore as compared to Rs. 753 crore in the previous year. Borrowing at Rs. 335 crore was lower than Rs. 344 crore as compared to previous year and the Finance Cost increased to Rs. 9 crore from Rs. 4 crore in the previous year. Capital expenditure during the year amounted to Rs. 156 crore as against Rs. 78 crore in the previous year.

ICRA has reaffirmed the long term rating at [ICRA] ‘AA+’ (pronounced ICRA double A plus) with negative outlook. The short-term debt programme rating has been reaffirmed at [ICRA] A1+ (pronounced ICRA A one plus). This rating indicates highest-credit-quality. The retention of these ratings reflects comfortable financial risk profile characterized by low gearing, strong coverage indicators and the financial flexibility emanating from large liquid investment portfolio. Details of contingent liabilities are given in Note 34 to the Financial Statements.

 

(viii) Material developments in Human Resources / Industrial Relations front, including number of people employed

The Company’s HR policies and practices continue to focus on contemporary as well as pragmatic people centric initiatives. While designing these policies, special attention is given to Company’s vision as well as changing needs. Optimal utilisation of people and periodic review of the organogram is addressed continuously. The HR function has actively participated in formulation of ESG policy of the Company. Training and development programs are specifically targeted to address Company’s progressive needs with focus on behavioral aspects of training. Formulation of unit-wise training calendar, identifying training needs by in-house resources and imparting training on all functional aspects across the Company.

Safety plays a major role for the success of an organization and the Company recognizes the same. Hence, emphasis has been given for adopting and maintaining best safety practices across the units along with regular periodic audit of the same. Multiskilling and multitasking of employees is achieved through suitably designed training modules as well as rotation through different job profiles.

This ensures a laudable mix of learning, innovation and excellence leading to continual employee skills and enhancement of growth and progress of the employees. Company values its employees as an intelligent and responsible resource for effectively and optimally managing other material resources like money, machines and materials. Hence, productive and effective engagement of all resources at various levels is critical to achieve Company’s objectives of cost optimisation, profitability as well as business growth. This is critical in ensuring the interests of all stakeholders. Specific initiatives are being taken to develop successors to key/critical roles. Emphasis is given to improve the foundational understanding of the fundamentals of leadership competencies of Team Building, Lateral Thinking, Influencing Outcomes and Problem Solving. The total number of permanent employees in the Company is 1,695 as on 31st March, 2023. The employee relations continue to be cordial and harmonious at all the locations of the Company.

 

(ix) Occupational Health and Safety

Internal Safety Audits are conducted at regular intervals at plants. Audit observations relating to unsafe acts, practices, conditions are discussed in "Corrective and Preventive Action" meetings. Protection and safety of our personnel and assets are our top priority. We believe in in-depth investigation of unfortunate accidents, if any, so that root causes are identified and corrective and preventive measures are undertaken. Consultation and participation of workers and statutory bodies are encouraged.

Health, Safety, Environment and Quality policies are in place and are audited by external agencies. Safety Audit once in two years, as specified, is carried out by External Safety Auditors. Every year health check-up of all employees is being carried out by competent medical professionals.

Health, Safety, Environment and Quality policies are in place and are audited by external agencies. Safety Audit once in two years, as specified, is carried out by External Safety Auditors. Every year health check-up of all employees is being carried out by competent medical professionals.

 

Environmental, Social and Governance (ESG)

ESG performance of a business is its corner stone in creating long term value. It can represent risks and opportunities that will impact Company’s ability to create value. This includes environmental issues like climate change and scarcity of natural resources. It covers social issues like human capital practices, diversity, health and safety, community relationship and value chain engagement. It involves governance matters that includes performance of the board, ethical practices, disclosures and transparency. While the Company has been informally practicing the principles of ESG since several years, it has now embarked on a structured journey of ESG to emerge as a company that is committed to growth through ESG.

The Company has carried out an assessment to find out current maturity level on the ESG aspects and identified some material aspects to be addressed on priority. ESG report for the year 2021-22 has been disclosed on Company’s website (https://graphiteindia.com/investors/ documents/63b4ff705aaeaESG%20Report%20FY%202021-22%20Final.pdf). The year 2021-22 has been considered as a base year in this journey of ESG and significant progress has been made in working on some of the select priority aspects during the year 2022-23. Major focus areas during the year are:

(a) Greenhouse Gas (GHG) emission (scope 1 and 2) accounting and developing a low carbon pathway. Company has planned a 12% reduction in GHG intensity of main product, Graphite Electrodes in two years with respect to base year 2021-22;

(b) Water accounting and developing a water security plan;

(c) Waste accounting and developing initiatives to reduce wastage;

(d) CDP had sought response from the Company on the impact of its business on climate change and have responded to CDP during July, 2022. This is an annual disclosure and we plan to continue to respond to CDP every year going forward.

Plan for the year 2023-24 includes the following, among others:

(a) Development of report based on recommendations of TCFD (Task Force for Climate Related Financial Disclosure). This will entail identification of climate change related risks and opportunities for our business, developing metrices and targets to manage the risks and exploit opportunities, developing a strategy around this and setting up a governance structure;

(b) Greenhouse Gas (GHG) emission (scope 3) accounting for our main product, Graphite Electrodes. This will help us influence and reduce the GHG emissions of our supply chain;

(c) Conducting energy audit through globally recognised agencies to identify energy cost reduction as well as GHG emission reduction opportunities;

(d) Continue with low carbon pathway;

(e) Continue water conservation initiatives;

(f) Continue waste management initiatives;

(g) Getting health and safety management certificate ISO 45001 for all of our factories;

(h) Improve our policies, procedures and processes around human capital;

(i) Initiate development of sustainable supply chain.

 

(x) COVID-19 : Measures Undertaken

In view of the current improved situation, most of the protocols relating to COVID-19 have been withdrawn/reduced.

 

(xi) Significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with explanations are as under:

Sl. No. Particulars	2022-23	2021-22	Improvement / (deterioration)
1 Interest Coverage Ratio - (PBIDT / Finance cost)%	46.47	183.90	(75%)
2 Operating Profit	17.41	26.11	(33%)
Margin - (PBDIT / Total Revenue)%
3 Net Profit Margin - (PAT / Total Revenue)%	12.01	20.52	(41%)
4 Return on Net worth - (PAT / Net worth)%	7.54	12.86	(41%)

 

Explanations :-

The Company’s performance deteriorated during FY 2022-23 principally due to lower volume owing to subdued demand for Graphite Electrodes and increased cost. This has led to fall in margin and return indicators, as above. Increased working capital requirements have also led to a higher debts resulting in higher interest costs.

 

Transaction of the Company with any person or entity belonging to the promoter/promoter group which hold(s) 10% or more shareholding in the listed entity is given below :-

Emerald Company Private Limited (ECPL) (An entity of the promoter Group holding 61.33% of the share capital).

	2022-23	2021-22
	(Rs. Cr.)	(Rs. Cr.)
Dividend Paid	119.82	59.91

 

Research and Development

The Company’s R&D efforts are primarily focussed towards developing import substitutes for Aeronautical, Aerospace, Railway and other industrial applications.

Continual process development activities are ongoing for producing superior version of carbon brake pads for aircrafts and helicopters.

Space application components processed at state-of-art facilities were successfully tested by Space Research agencies.

 

Subsidiary Companies

Carbon Finance Limited is a wholly owned Indian subsidiary. Graphite International B.V. (GIBV) in The Netherlands is a wholly owned overseas subsidiary Company which is the holding company of four step down subsidiaries in Germany (viz) Graphite Cova GmbH, Bavaria Electrodes GmbH-in-liquidation, Bavaria Carbon Specialities GmbH, Bavaria Carbon Holdings GmbH and the General Graphene Corporation, USA, is an American subsidiary of GIBV, Netherlands. Due to weak European economy fueled by the Russia Ukraine conflict has led to an unprecedented increase in energy and gas costs rendering German electrode operations unviable. The Group has decided to shut down its German graphite electrode production as of now while restructuring speciality and coating operations as they are not so energy intensive and initiated liquidation of one step down subsidiary, Bavaria Electrodes GmbH- in liquidation, with effect from 1st October, 2022.

The overseas subsidiaries recorded a turnover of Euro 37.95 million (Mn) as compared to Euro 43.28 Mn in the previous year. The subsidiaries have continued their dismal performance. However, during the current year, loss of Euro 18.11 Mn was higher against loss of Euro 10.08 Mn in the previous year.

The Company, by way of Royalty, earned Rs. 3.21 crore during the year, as against Rs. 4.01 crore in the previous year, from overseas subsidiary.

GIBV has made further investment of USD 2.5 Mn in General Graphene Corporation (GGC) and total investments stood at USD 18.60 Mn as on 31.03.2023 which constitute 55.315% of capital. The investments in GGC is accounted for using the equity method as per IndAS 28 till 31st January, 2022 and as a subsidiary as per IndAS 110 for the remaining two months, for FY 2021-22 and for FY 2022-23.

No Company has ceased to be a subsidiary of the Company during the year.

Statement containing salient features of the financial statements of subsidiaries is enclosed - Annexure 1.

The Consolidated Financial Statements of the Company along with those of its subsidiaries prepared as per IndAS 110 forms a part of this Annual Report.

 

Information pursuant to Section 134 of the Companies Act, 2013

a. Pursuant to Section 92(3) read with Section 134(3) (a) of the Act, the Annual Return as on 31st March 2023 is available on the Company’s website on http:// ir.graphiteindia.com/

b. Four meetings of the Board of Directors of the Company were held during the year on 23rd May 2022, 5th August 2022, 11th November 2022, 8th February 2023.

c. All the Independent Directors of the company have furnished declarations that they satisfy the requirement of Section 149 (6) of the Companies Act, 2013.

d. Relevant extracts of the Company’s policy on directors appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided in section 178(3) of Companies Act, 2013 is enclosed - Annexure 2

e. There is no qualification, reservation or adverse remark or disclaimer made by the statutory auditor in his audit report and by Company Secretary in practice in the secretarial audit report and hence no explanations or comments by the Board are required. No fraud has been reported by Statutory Auditors.

f. Particulars of loans, guarantees or investments under Section 186 of Companies Act, 2013 is enclosed - Annexure 3

g. Particulars of contracts or arrangements with related parties referred to in Section 188(1) of Companies Act, 2013 is enclosed - Annexure 4

h. Details of conservation of energy, technology absorption, foreign exchange earnings and outgo as prescribed vide Rule 8(3) of Companies (Accounts) Rules 2014 is enclosed – Annexure 5

i. Risk management policy has been developed and implemented. The Board is kept informed of the risk mitigation measures being taken through half yearly risk mitigation reports / Operations Report. There are no current risks which threaten the existence of the Company.