Gyscoal Alloys Ltd Management Discussions.

SCENARIO OF STEEL INDUSTRY:

Global Steel Industry

World crude steel production for the 64 countries reporting to the World Steel Association (worldsteel) was 155.0 million tonnes (Mt) in March 2019, a 4.9% increase compared to March 2018.

World crude steel production was 444.1 Mt in the first three months of 2019, up by 4.5% compared to the same period in 2018. Asia produced 312.9 Mt of crude steel, an increase of 7.0% over the first quarter of 2018. The EU produced 42.3 Mt of crude steel in the first quarter of 2019, down by 2.0% compared to the same quarter of 2018. North Americas crude steel production in the first three months of 2019 was 30.7 Mt, an increase of 4.0% compared to the first quarter of 2018.

Chinas crude steel production for March 2019 was 80.3 Mt, an increase of 10.0% compared to March 2018. India produced 9.4 Mt of crude steel in March 2019, down 1.0% on March 2018. Japan produced 9.1 Mt of crude steel in March 2019, unchanged from what it produced in March 2018. South Koreas crude steel production stood at 6.3 Mt, up 2.8% on March 2018.

In the EU, Italys crude steel production for March 2019 was 2.3 Mt, down by 0.3% on March 2018. France produced 1.4 Mt of crude steel in March 2019, an increase of 2.3% compared to March 2018. Spain produced 1.4 Mt of crude steel in March 2019, an increase of 5.9% on March 2018.

The US produced 7.8 Mt of crude steel in March 2019, a 5.7% increase on March 2018. Crude steel production in Ukraine stood at 2.0 Mt in March 2019, up 15.0% on March 2018. Brazils crude steel production for March 2019 was 2.8 Mt, down by 8.6% on March 2018. Turkeys crude steel production for March 2019 was 3.0 Mt, down by 11.7% on March 2018.

Steel Industry in India

India was the worlds second-largest steel producer@ with production standing at 106.5 MT in 2018. The growth in the Indian steel sector has been driven by domestic availability of raw materials such as iron ore and cost-eective labour. Consequently, the steel sector has been a major contributor to Indias manufacturing output.

The Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for continuous modernisation and up-gradation of older plants and higher energy efficiency levels.

Indian steel industries are classified into three categories such as major producers, main producers and secondary producers.

Market Size

Indias finished steel consumption grew at a CAGR of 5.69 per cent during FY08-FY18 to reach 90.68 MT. Indias crude steel and finished steel production increased to 103.13 MT and 104.98 MT in 2017-18, respectively. In 2017-18, the countrys finished steel exports increased 17 per cent year-on-year to 9.62 million tonnes (MT), as compared to 8.24 MT in 2016-17. Exports and imports of finished steel stood at 0.72 MT and 1.12 MT, respectively, in FY20P (up to May).

INDIAN ECONOMY:

In 2018, global steel demand increased by 2.1%, growing slightly slower than in 2017. Steel demand in the developedeconomiesgrew by 1.8% in 2018 following a resilient 3.1% growth in 2017. We expect demand to further decelerate to 0.3% in 2019 and 0.7% in 2020, reflecting a deteriorating trade environment.

OVERVIEW OF THE COMPANY AND ITS BUSINESS:

Gyscoal Alloys Limited 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 2nd Floor, Mrudul Tower, Near Times of India, Ashram Road, Ahmedabad.

The Company has the capacity to manufacture all grades of Stainless Steel Products from 200 series to 400 series. The products are primarily used in the construction in chemical plants, Pharmaceutical plants, building construction, railways and other sectors for structural purpose. The Companys products adhere to high quality standards and it has got ISO 9001:2008 certification for "the manufacture and supply of stainless steel and mild steel based angles, channels, fiats, round, square, bright and ingots" from TUV NORD. The Company has also been successful in producing goods according to needs and specifications of its domestic & foreign buyers.

Key Financial Ratio

Particulars 2018-19 2017-18 Change In %
Return on Net Worth (%) (43.13) (26.27) (64.17)
Return on Capital Employed (%) (33.18) (30.78) (7.77)
Basic EPS (after exceptional items) (र ) (1.30) (1.11) (17.31)
Debtors Turnover 1.40 0.85 64.81
Inventory Turnover 4.64 2.27 104.49
Interest coverage ratio (1.40) (1.02) (37.58)
Current ratio 1.00 1.08 (7.86)
Debt Equity ratio 5.28 3.84 37.32
Operating profit margin (%) (5.99) (10.90) (45.09)
Net profit margin (%) (13.34) (18.44) (27.67)

Detailed explanation of Ratios

1. Return on Net Worth

Return on Net worth (RONW) is a measure of profitability of a Company expressed in percentage. It is calculated by dividing total comprehensive income for the year by average Net Worth during the year.

2. Return on Capital Employed

Return on Capital Employed (ROCE) is a financial ratio that measures a Companys profitability and the efficiency with which its capital is used. In other words, the ratio measures how well a Company is generating profits from its capital. It is calculated by dividing profit before exceptional items and tax by average capital employed during the year.

3. Basic EPS

Earnings Per Share (EPS) is the portion of a Companys profit allocated to each share. It serves as an indicator of a Companys profitability. It is calculated by dividing Profit for the year by Weighted average number of shares outstanding during the year.

4. Debtors Turnover

The above ratio is used to quantify a Companys effectiveness in collecting its receivables or money owed by customers. The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. It is calculated by dividing turnover by average trade receivable.

5. Inventory Turnover

Inventory Turnover is the number of times a Company sells and replaces its inventory during a period. It is calculated by dividing turnover by inventory.

6. Interest Coverage Ratio

The Interest Coverage Ratio measures how many times a Company can cover its current interest payment with its available earnings. It is calculated by dividing PBIT by finance cost.

7. Current Ratio

The Current Ratio is a liquidity ratio that measures a Companys ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities.

8. Debt Equity Ratio

The ratio is used to evaluate a Companys financial leverage. It is a measure of the degree to which a Company is financing its operations through debt versus wholly owned funds. It is calculated by dividing a Companys total liabilities by its shareholders equity.

9. Operating Profit Margin (%)

Operating Profit Margin is profitability or performance ratio used to calculate the percentage of profit a Company produces from its operations. It is calculated by dividing the EBIT by turnover.

10. Net Profit Margin (%)

The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing the profit for the year by turnover.

FINANCIAL PERFORMANCE OF THE COMPANY:

During FY 2018-19, the Company recorded a total income of र 15,459.35 lacs, of which income from the operations was र 14,790.30 lacs.

For the Financial Year 2018-19, Earnings Before Interest, Depreciation, Tax and Amortization (EBIDTA) was र (260.31) lacs.

For the year FY 2018-19, Depreciation was र 665.39 lacs, Interest and Finance cost were र 660.43 lacs and Profit before Tax (PBT) was र (2,152.87)lacs. And Profit After tax (PAT) was र (2,029.82) lacs.

Basic & diluted Earnings per Share (EPS) was र (1.30).

As on March 31, 2019 the Total Equity of the Company was र 3,749.47 lacs.

SWOT ANALYSIS OF THE COMPANY:

Strength:

Management depth and ability to manage client relationships.

R & D capabilities to develop efficient and cost effective process at short notice having a State of the Art dedicated R & D Center.

Multi-purpose and multi-production facilities having Quality Certifications.

Enhanced presence in the market through clientele basis.

Threats:

The Company faces stiff competition from medium and larger well-established players. The Company is smaller in size compared to the market leaders. However with capital expenditure in the project of the company it intends to make it good and face competition more confidently.

RISKS AND CONCERNS:

Your company is mainly focusing on R & D and manpower and the intelligence. Apart from the risk on account of interest rate and regulatory changes, business of the company are exposed to certain operating business risks, which is mitigated by regular monitoring and corrective actions.

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 142 employees on its role and continues to attract talent both from within and outside India to further its business interests. Industrial relations continue to be cordial.

INTERNAL CONTROL SYSTEMS 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.

CAUTIONARY STATEMENT:

Statement made in the Management Discussion & Analysis describing the companys objectives, projections, estimates, expectations may be "Forward-looking statements" within the meaning of applicable securities laws & regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand supply and price conditions in the markets in which the company operates changes in the government regulations, tax laws & other statutes & other incidental factors.