gyscoal alloys ltd Management discussions

Global economic growth is expected to be impacted by several key factors. Headline inflation is predicted to decline from the highs seen in CY2021 and CY2022, mainly due to falling energy and food prices. The decline in inflation is expected to lead to a reduction in the pace and intensity of interest rate hikes by major central banks, although interest rates are expected to remain elevated for a longer period due to underlying inflationary pressures. The US Federal Reserves shift towards a less aggressive monetary policy will likely set the tone for the coming year. However, the ongoing conflict between Russia and Ukraine and its impact on global geopolitical tensions remain a significant risk.

Indian Economy and Steel Industry in India:

GDP growth rate in 2023 is expected to be 5.9%, lower than the 2022 growth of 6.8% due to subdued external demand and tightening monetary policy. However, India will remain the fastest growing major economy. Brent oil prices are expected to remain rangebound in 2023, given the continuing war in Ukraine and sanctions imposed in response by the USA and European Union. India meets nearly 80% of its oil needs through imports. High oil prices will also have a trickledown effect on the prices paid by consumers for goods and services. Persistent inflation resulted in RBI to increase the repo rate by 250 basis points throughout FY2022-23. Further rate hikes are expected in the coming year, despite no rate hike in the April Monetary Policy Committee meeting. Capital investment of close to 3.3% of GDP is expected to crowd-in private investment, strengthen job creation and demand, and raise Indias overall growth potential. Focus is expected in the energy sector, with significant capital investments towards energy transition and green hydrogen mission. Overall, the key steel consuming sectors are expected to perform well in FY2023-24 supported by a rise in infrastructure spend by the Government and gradually improving semiconductor supply. High CAPEX allocation in key steel consuming sectors such as railways, national highways and housing is expected to drive steel consumption.

India remains the ‘bright spot for global steel demand. After growth of 8.2% in 2022, demand is expected to show healthy growth of 7.3% in 2023 backed by consumption led demand. Having managed inflation well, the Indian economy is on a healthy growth track, with a rising share of investment in GDP, appropriate budget allocations and expenditure by the Government in the infrastructure segment. India also faced supply disruptions due to raw material constraints and volatility of prices.

Government of India has removed the 15% "Export Duty" on Steel Exports; this sector is prised for major jump in exports to Middle East, Africa and other Markets. This will create positive impact on the "Growth" of Steel Exporting Companies and benefit their bottom line. As a result of removal of

Export duty company will start again exports to various countries, which resulting in high profitability.

Further, India is second largest producer of steel.

Meanwhile, Indias trade sector remained resilient in FY 2022-23. Imports (merchandise and services) rose 17.4% y-o-y to US$90 billion. Import demand was driven by domestic recovery. At the same time, adverse shocks in trade and demand for gold led to an expansion of the merchandise trade deficit. A strong trend in service exports and capital inflows governed by foreign direct investments (FDIs) offset the pressure on the current account balance. With little need for external funding, the reserves built up resilience for the trade sector despite global trade disturbances. Despite a unfavourable trade environment, exports rose 14% y-o-y to US$770 billion. Exports are expected to remain steady with a rise in international demand and favourable price conditions. The risks in Indias restoring trade balance persist from the slow growth of advanced economies and emerging economies, higher energy prices and supply chain changes that occurred during CY 2022, and the effects of which might continue in CY 2023.

GOVERNMENT INITIATIVES

Some of the other recent Government initiatives in this sector are as follows:

In October 2021, the government announced guidelines for the approved specialty steel production-linked incentive (PLI) scheme.

In October 2021, India and Russia signed an MoU to carry out R&D in the steel sector and produce coking coal (used in steel making).

In July 2021, the Union Cabinet approved the production-linked incentive (PLI) scheme for specialty steel. The scheme is expected to attract investment worth 400 billion (US$ 5.37 billion) and expand specialty steel capacity by 25 million tonnes (MT), to 42 MT in FY27, from 18 MT in FY21.

In June 2021, Minister of Steel & Petroleum & Natural Gas, Mr. Dharmendra Pradhan addressed the webinar on Making Eastern India a manufacturing hub with respect to metallurgical industries, organised by the Indian Institute of Metals. In 2020, Mission Purvodaya was launched to accelerate the development of the eastern states of India (Odisha, Jharkhand, Chhattisgarh, West Bengal and the northern part of Andhra Pradesh) through the establishment of an integrated steel hub in Kolkata, West Bengal. Eastern India has the potential to add >75% of the countrys incremental steel capacity. It is expected that of the 300 MT capacity by 2030-31, >200 MT can come from this region alone.

In June 2021, JSW Steel, CSIR-National Chemical Lab (NCL), Scottish Development International (SDI) and India H2 Alliance (IH2A) joined forces to commercialise hydrogen in the steel and cement sectors.

Under the Union Budget 2022-23, the government allocated 47 crore (US$ 6.2 million) to the Ministry of Steel. The budgets focus is on creating infrastructure and manufacturing to propel the economy.

In addition, enhanced outlays for key sectors such as defence services, railways, roads, transport and highways would provide impetus to steel consumption.

In January 2021, the Ministry of Steel, Government of India, signed a Memorandum of Cooperation (MoC) with the Ministry of Economy, Trade and Industry, Government of Japan, to boost the steel sector through joint activities under the framework of India-Japan Steel Dialogue.

The Union Cabinet, Government of India approved the National Steel Policy (NSP) 2017, as it intends to create a globally competitive steel industry in India. NSP 2017 envisage 300 million tonnes (MT) steel-making capacity and 160 kgs per capita steel consumption by 2030-31.

The Ministry of Steel is facilitating the 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 200 crore (US$ 30 million).

The Government of India raised import duty on most steel items twice, each time by 2.5% and imposed measures including anti-dumping and safeguard duties on iron and steel items.

(Source: https://www.ibef.org/download/1661494261_Steel-Sector-July-2022.pdf )

Outlook:

Being one of the worlds largest economy, India has played an important role in global economic growth, adding about $1.3 trillion to global demand over the last decade3. Rising inflation, fiscal deficit, and environmental concerns are the main difficulties confronting the Indian economy. Yet, the Indian economy has emerged stronger and fared better than other global economies, which can be attributed to the countrys well-considered policy reforms and effective regulatory measures. Indian economy benefits from a strong industrial policy via the Production Linked Incentive (PLI), a de-leveraged private sector, increased spending on infrastructure, and various other Government initiatives.

Governments Push to Make India the Steel ‘Hub of the World. The government has set a target to raise crude steel production capacity from 154 MTPA to 300 MTPA by 2030, making India an export hub for steel production in addition to making the country self sufficient in almost all grades of steel.

As per WSA Indias domestic steel demand is estimated to grow at 7.3% YoY in FY 2023-24. This growth is anticipated to be driven by a robust GDP expansion, government Capex, and strong domestic consumption. In terms of government Capex, in Union Budget 2023-24, the government announced:

Increase of 35.4% to reach effective Capex of 10.68 lakh crore

Highest-ever outlay for railways at 2.4 lakh crore

An outlay of 79,000 crore set aside for PM Awas Yojna Urban.

Indias steel sector is currently responsible for 12% of the countrys CO2 emissions. Given this significant environmental impact, it is anticipated that the government will undertake various initiatives such as the Steel Scrapping policy to promote and facilitate sustainable steel production, to achieve its net zero target by 2070. This attempt by the government to bridge the infrastructure gap is a positive development for the steel industry and aligns with the vision set out by the government in National Steel Policy (NSP] 2017. Additionally, Indias capital goods sector is poised to reap the benefits of the ongoing momentum in infrastructure development and investments in renewable energy. The automotive and consumer durables sectors are also anticipated to sustain healthy growth, driven by a continued rise in private consumption.

The PLI Scheme is poised to bolster the domestic production of specialty steel, marking a significant milestone in Indias industrial landscape. With approvals granted to 7 applications from 30 companies, amounting to an impressive outlay of 6,322 crore, the government has also committed to investing 42,500 crore to expand downstream capacity by 26 MT and create employment opportunities for 70,000 individuals. This initiative holds great significance as it aligns with the Governments vision of an ‘AtmaNirbhar Bharat (self-reliant India].

Demand outlook for consumption sectors:

Construction:

The global construction industry is expected to experience moderation in real growth in CY 2023 across the majority of markets. The overall real construction industry value in most regions will likely return to pre-pandemic levels. The growth is driven by the rising government spending on planned infrastructure projects. India, the US, and China are expected to account for a 50% share of the projected construction spending. An enhanced focus on energy security will emerge as an increasingly important driver of infrastructure investment globally in CY 2023.

OVERVIEW OF THE COMPANY AND ITS BUSINESS:

Your company is engaged in the business of manufacturing of Stainless Steel and Mild Steel Long Products from scrap since 1999. The plant for the production activities & registered office of the Company is located at Ubkhal, Kukarwada, Vijapur - Taluka, Mehasana - District. The corporate office of the company is situated at 2^nd Floor, Mrudul Tower, Near Timers of India, Ashram Road, Ahmedabad.

The Company has the capacity of manufacture all grades of Stainless Steel Products from 200 series to 400 series. The products are primary used in the construction in chemical plants, Pharmaceutical plants, building construction, railways, and other sector for structural purpose. The company products adhere to high quality standards and it has got ISO 9001:2015 certification for the manufacture and supply of stainless steel and mild steel based angles, flats round, bright and ingots from TUV SUD. The company has also been successful in producing goods according to needs and specification of its domestic and foreign buyers.

Your company has got ISO 9001:2000 certification from BSI Management System and got ISO 9001:2008 certification for the manufacture and supply of stainless steel and mild steel based angles,

flats, round, bright, twisted bars, billets and ingots adhering to IS 2062 & IS 1786 from BSI Management Systems.

Segment wise or Product wise performance

The company is operating in only one segment i.e. S.S. Products. The company mainly manufacture SS Angles, SS Flats & SS Rounds and the % wise breakup of the products of the total turnover of the company is as under:-

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

Internal Financial Control that encompass the policies, processes and monitoring systems for assessing and mitigating operational, financial and compliance risks and control over related party transactions, substantially exist. Your Company has appropriate internal control system for business processes, with regards to efficiency of operations, financial reporting, compliance with applicable laws and regulations. In the Company, the Board of Directors is responsible for ensuring the adequacy and effective monitoring of internal financial controls. The Internal Audit Program is designed in consultation with the Statutory Auditors to ensure accuracy and reliability of accounting data and is monitored by the Audit Committee. Audit observations and recommendations are reported to the Audit Committee, which monitors the implementation of the said recommendations. The Companys internal audit team also carries out extensive audits throughout the year, across all functional areas.

INDUSTRIAL RELATIONS & HUMAN RESOURCE MANAGEMENT:

The Company believes that human resource is the most important assets of the organization. It is not shown in the corporate balance sheet, but influences appreciably the growth, progress, profits and the shareholders values. During the year your company continued its efforts aimed at improving the HR policies and processes to enhance its performance. The vision and mission of the company is to create culture and value system and behavioral skills to insure achievement of its short and long term objectives.

The Company as at year end has 89 employees on its role and continues to attract talent from within India to further its business interests. Industrial relations continue to be cordial. Company take safety measure for people working on plant.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Details of significant changes in key financial ratios:

Improvement in current ratio is due to right issue money. Improvement in Debt Equity Ratio due to issue of right shares and enhancement of profit as well. The significant variance in ROE is due to profitability of the company and correspondence decrease in negative balance of reserves and surplus. As the company has increased the operations, the cost of material consumed is almost twice as compared to last year leading to increase in the ratio. The revenue from operations has increased approx. 200% resulting in improvement in the Trade receivable Turnover Ratio. Improvement in Trade Payable Turnover Ratio is due to increase in purchase as well as repayment of trade payable as compared to last year. Improvement in working capital as compared to previous year and increase in operations of the company leads to lower net capital turnover Ratio. Optimum utilization of manufacturing capacity has lead to improvement in the returns of the company. The decrease in the ratio is due to realisation of investments. Our return on net worth improves as compared to last year as company had re-paid credit facilities taken from banks and ARC and increase in sales during the FY 2022-23. The Return on capital employed have been improved as compare to last year 2021-22 due to reduction in loss as well as reduction in cost compare to previous year and increase in turnover. As our losses decreases significantly i.e. company become profit making during the year and also our sales increase and resulting in to better EPS. As compare to previous year loss have been decreased, due to such the Operating profit ratio is improved.

FINANCIAL PERFORMANCE OF THE COMPANY:

Total Revenue:

Your company has recorded a total income of Rs. 4687.92 lakhs, out of which income from the operations was Rs. 3987.63 lakh during the current year as compared to the previous year total income of Rs. 2003.99 lakhs. Company has recorded positive revenue as compared to previous financial year.

Expenditure:

During the year, total expenditure of your company has been increased by 39.60% to Rs. 4716.70 Lakhs in FY 2022-23 as against Rs. 3378.59 Lakhs in during the previous FY 2021-22. During the current financial year your company has incurred operational expenses is of INR 4392.20 Lakhs. Expenditure in current year as Loan of SBI has been paid off.

Employee benefit expenses:

During the year under review, the Employee benefit expenses decreased by 60.39% from 103.95 Lakhs in FY 2021-22 as compared to INR 262.48 Lakhs in the current financial year. The employee benefit expenses have been decreased as employees resigned the organization.

Finance Cost:

The finance cost is significantly decreased from INR 54.03 Lakhs in FY 2022-23 to INR 32.61 Lakhs in FY 2021-22 due to repayment of outstanding Loan.

Net Profit/ (Loss):

During the year your Company profit decreased by 129.36% to Rs. 165.38 Lakhs in F.Y. 2022-23 against previous year loss of Rs. 563.21 Lakhs. Net losses decreased due to increase in revenue from operation and reduction of expenses.

Non-Current Assets:

The non-current assets have increased by 13.05% from INR 4354.48 Lakhs in FY 2021-22 to 4923.02 in FY 2022-23.

Current Assets:

The current assets have been increased by 63.78% from INR 4349.21 Lakhs in FY 2021-22 to INR 7123.55 in FY 2022-23.

Non-Current Liabilities:

The non-current liabilities have been decreased by 17.47% from INR 7590.16 Lakhs in FY 2021-22 to INR 6263.90 Lakhs in FY 2022-23.

Current Liability:

The current liabilities have been decreased by 5.72% from INR 4259.27 Lakhs in FY 2021-22 to INR 4015.40 Lakhs in FY 2022-23.

CAUTIONARY STATEMENT:

Certain statements made in this Report relating to the Companys outlook, estimates, predictions etc. may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ from such estimates, whether express or implied. Several factors that could make a difference to Companys operations include climatic conditions and economic conditions affecting demand and supply, changes in Government regulation tax regimes, natural calamities, etc. over which the Company does not have any direct control.