Hira Ferro Alloys Ltd Management Discussions

The Management Discussion and Analysis discusses performance of your Company in the year 2013-14, in terms of financial, operating and strategic objectives. The commentary below should be read together with the Directors’ Report and the audited Financial Statements that form part of the Annual Report.

Industries Scenario

Ferro Alloys

The Ferro Alloys Industry is an ancillary and vital industry producing basic alloys, which are required for the growth of the steel industry to cater to both domestic and international market. Ferro alloys are the intermediate products used in the making of steel as deoxidants and for rust proofing.

The products of the industry covered are manganese alloys (High Carbon, Medium Carbon and Low Carbon Ferro Manganese and Silicon Manganese), Ferro Silicon, Chrome Alloys(High Carbon, Medium Carbon and Low Carbon Ferro Chrome, Silico chrome),Noble Ferro Alloys(Ferro Molybdenum, Ferro Vanadium, Ferro Tungsten, Ferro Silicon Magnesium, etc. Manganese alloys for example act as oxidizing agents and lend hardness and strength to steel.All these alloys are an essential ingredient for the manufacture of steel and stainless steel. The capacity utilisation of the ferro alloy industry is only 65 percent for the manganese and chrome alloys. Domestic ferro alloy industry is not able to meet the steel industry expectation in spite of having enough capacity to manufacture ferro alloys. Ferro Alloys are additives used in the manufacture of steel, where their addition produces different grades of steel. These additives also find usage in the manufacture of cast iron. Ferro Alloys are primarily alloys of Iron mixed with other elements such as Manganese, Silicon, Chromium and Aluminium. The primary usage of Silico Manganese is the production of steel - a product whose consumption is soaring as emerging economies rush to invest in infrastructure development.

Power

The power sector in India had an installed capacity of 248.510 GW as of end May 2014. India became the world’s third largest producer of electricity in the year 2013 with 4.8% global share in electricity generation surpassing Japan and Russia. Captive power plants have an additional 39.375 GW capacity. Non Renewable Power Plants constitute 87.55% of the installed capacity, and Renewable Power Plants constitute the remaining 12.45% of total installed Capacity. India generated around 967 TWh (967,150.32 GWh) of electricity (excluding electricity generated from renewable and captive power plants) during the 2013–14 fiscal. The total annual generation of electricity from all types of sources was 1102.9 Tera Watt-hours (TWh) in 2013. In terms of fuel, coal-fired plants account for 59% of India’s installed electricity capacity, compared to South Africa’s 92%; China’s 77%; and Australia’s 76%. After coal, renewable hydropower accounts for 17%, renewable energy for 12% and natural gas for about 9%. In December 2011, over 300 million Indian citizens had no access to frequent electricity. Over one third of India’s rural population lacked electricity, as did 6% of the urban population. Of those who did have access to electricity in India, the supply was intermittent and unreliable. In 2010, blackouts and power shedding interrupted irrigation and manufacturing across the country.

The International Energy Agency estimates India will add between 600 GW to 1200 GW of additional new power generation capacity before 2050. This added new capacity is equivalent to the 740 GW of total power generation capacity of European Union (EU-27) in 2005. The technologies and fuel sources India adopts, as it adds this electricity generation capacity, may make significant impact to global resource usage and environmental issues.

India’s electricity sector is amongst the world’s most active players in renewable energy utilization, especially wind energy.

Future Industry Outlook

Ferro Alloys

The outlook for ferro alloys appears robust. As demand for steel surges globally - particularly in the emerging Asian economies - the ferro alloy sector too can be expected to benefit. There are broad expectations that this business will see some incremental volumes in the coming year. The Company’s facilities for ferro alloys are fully geared to take up this higher demand.

Power

For the next five years at least there are broad indications that the acute shortage of power will continue to bear on the economy. Although the Govt. is targeting higher generation under the public sector, there are ample investment opportunities in the private sector. The thrust thus far has been on thermal power generation in the resource rich regions of Chhattisgarh, Madhya Pradesh and Orissa. Similarly states like Himachal Pradesh and Arunachal Pradesh are showing keenness to develop their hydro-potential and have attracted a lot of private interest. Your Company remains committed to the merchant route to develop its power business.

Opportunities

Ferro Alloys

The demand for Ferro alloys is growing continuously world wide with its increasing variable uses. The infrastructure development in India and in the State added further momentum to the Industry. The Silico manganese will continue to contribute towards the growth of the company in the current year.

Power

Your Company would continue to optimize the power resources either for production of ferro alloys via captive consumption or for merchant sale of power through short term open access while complying with the captive power guidelines during the current year. The Company is also generating power through Bio-mass, which also contributes into the Growth of the Company.

Threats

Ferro Alloys

Given the buoyant demand for steel products, the outlook for ferro alloys appears positive. Realisations are expected to remain firm in the coming months the caveat here has been a matching increment in prices of ores. New ferro alloy capacities are expected to come on stream in the next few years - thereby causing pressure on prices. Being an important additive in steel making, the dynamics of the ferro alloy industry are intricately linked to those of steel. With the excess supply in the system, prices of steel remain under pressure everywhere except in the US. Raw material economics have lent momentum to steel prices in the past and are expected to do so even now. But given the weak demand for steel and given the capacity creation in raw materials, they are unlikely to push steel prices higher. India has hit an economic speed-breaker and consequently the investment cycle is at its trough, with future steel projects on hold. There are signs of revival with domestic prices on the upswing in the year 2014 in line with the pick-up in demand in the construction industry and higher cost of production for steel manufacture.

Power

In light of the continued year-on-year increase in peak power deficit, the government is aggressively targeting capacity commissioning with accent on large-scale thermal plants. There yet remain regulatory complexities (resource sharing, environmental clearances and land holdings) at the /central State level that are delaying generation of this additional power.

ANALYSIS AND DISCUSSIONS ON FINANCIAL PERFORMANCE

Review of Operations

The Company’s operations are divided into three segments i.e. Ferro alloys, Power Divisions and Trading of Goods. The Company is engaged in manufacturing ferro alloys consisting mainly of Silico Manganese. The power division of the Company is captive, except the Bio Mass Power plant, for which the Company is having long term PPA with State Electricity Board at tariff, determined by the Regulatory authority.

In fiscal 2014, the Company reported total revenue from operations (net) decreased during the Current Financial Year to Rs. 212.76 Crores from Rs. 443.91 Crores, registering a reduction of 52.07 % as compared to last fiscal. The decrease was mainly because of discontinuation of the trading of goods.

Ferro Alloys production in the year under review was 31180.250 MTs as compared to 30647.940 MTs in last year and the sale of silico manganese increased from 30260.26 MTs to 31065.925 MTs during the current year registering a growth of 2.66%. Your Company has sold 73503586 KWH of power as compared to 46074770 KWH during the previous year. The sale of Bricks decreased from 3298900 Units to nil Units due to temporarily suspension of production.

During the year under review the Company earned a Net Profit of Rs. 2.71 Crores, a reduction of 29.40 % as compared to Rs. 3.83 Crores in the previous year due to unfavorable market condition and increase in overhead expenses.

Review of Financial performance:

(a) Net sales/ Income from operations:

The Company has achieved net sales turnover of manufactured goods Rs. 19426.36 lacs, as compared to Rs. 17644.01 lacs during the previous year registering a growth of 10.10%.The statement showing average realizations of major products is given below:-

Sl No. Products	FY 2013-2014			FY 2012-2013
	Net Sales Qty	Net Sales (Value Rs. in Lacs)	Average Price Per Unit (Rs.)	Net Sales Qty	Net Sales (Value Rs. in Lacs)	Average Price Per Unit (Rs.)
1 Silico Manganese (MT)	30981.125	15796.10	50900	29633.400	15256.07	51480
2 Ferro Manganese (MT)	20.700	9.94	48019	17.000	7.82	46000
3 Ferro Silicon (MT)	64.100	36.33	56677	111.50	50.46	45260
4 Pig Iron (MT)	-	-	-	498.360	127.08	25500
5 Bricks (No.)	-	-	-	3298900	65.56	1.98
6 Power (Kwh)	73503586	3583.99	4.88	46074770	2137.02	4.64

(b) Cost of Raw Material and Components Consumed

The raw material cost which mainly consists of manganese ore, coal & coke and rice husk increased during the current financial year to Rs. 137.29 Crores as compared to Rs. 128.98 Crores during previous year. The Cost of Raw Material and Components Consumed has increased 6.44 % as compare to previous year due to increase in production volumes and prices of manganese ore and coal and coke, which could not be fully passed on to the consumer due to prevailing market conditions

(i) Operating & Other Expenses

The operating & other expenses have gone up from 5.46% of net sales to 14.15 % mainly due to significantly decrease in trading turnover.

(ii) Employees Cost

The employees cost during the year increased by 8.44 % to Rs. 8.86 Crores from Rs. 8.17 Crores due to annual increment in salaries of employee.

(iii) Operating Margins (EBIDTA)

During the year the operating margins of the Company increased from 4.75 % to 9.66 % of net sales. Operating margins of the Company have increased due to discontinuation of trading goods which is lower margins.

(iv) Interest & Financial Charges

The total finance cost during the year decreased from Rs. 10.44 Crores to Rs. 7.76 Crores.

(v) Depreciation and Amortization Expenses

The depreciation and amortization expense has gone up by Rs. 0.08 Crores. The Company has applied depreciation on straight line method as per rates prescribed under the Companies Act, 1956.

(c) Profit Before Tax

The Company has achieved net profit before tax and extra-ordinary items of Rs. 4.28 crores which is 2.01 % of net sales as against Rs. 2.10 crores, which was 0.47 % of net sales during the previous year.

(d) Provision for taxation

The provision for income tax is made as per provisions of the Income Tax Act. The profit of the power division is exempt u/s 80IA of the Income Tax Act.

(e) Appropriation

The Company has transferred Rs. 1.50 Crores (Previous year Rs. 1.50 Cr.) to the General Reserve during the year.

(f) Provision for Dividend & Dividend Tax

The Board of Directors of the Company has recommended a final dividend @ 6 % (Rs. 0.60 paisa per share) for the year ended 31st March 2014, subject to approval of the shareholders. Further provision of dividend distribution tax of Rs. 0.19 Crores has been made. The total outgo of funds on account of dividend payment including corporate tax on dividend for the year is Rs. 1.37 Crores.

(g) Fixed Assets

The net block of fixed tangible assets and intangible assets stood as on 31st March, 2014 and 31st March, 2013 at Rs. 116.26 Crores & 1.04 Crores respectively as compared to previous year of Rs. 123.08 Crores and 1.48 Crores.

(h) Inventories

The overall value of inventory of raw materials increased to Rs. 55.83 Crores as on 31st March 2014 as compared Rs. 32.59 Crores as on 31st March 2013.

(i) Loans & Advances

The non current loans and advances as on 31st March 14 stood at Rs. 3.03 Crores as compared to Rs. 2.67 crores as on 31st March 13. The current loans and advances stood at Rs. 37.95 Crores as on 31st March 14 as compared to Rs. 35.82 crores as on 31st March 13.

(j) Current Liabilities

The overall current liabilities stood at Rs. 80.85 Crores as on 31st March 14 as against Rs. 96.43 Crores as on 31st March, 2013.

(k) Secured and Unsecured Loans

At the end of year, the secured long term loans stood at Rs. 31.38 Crores in FY14 as against Rs. 28.72 Crores in FY13 and the secured short term loans stood at Rs. 31.88 Crores in FY14 as against Rs. 38.93 Crores in FY13. The Company has Short Term unsecured loans of Rs. 0.17 Crores in FY14 as compared to Rs. 0.53 Crores in FY 13. During the year Company has repaid long term loan of Rs. 11.69 Crores.

(l) Key Financial Indicators

The key financial ratios of the Company for the year under review as compared to previous year as given below:

Particulars	FY14	FY13
EBDITA to Net Sales (%)	9.66	4.75
Profit after Tax to Net Sales (%)	1.27	0.86
Earning Per Share (Rs.)	1.38	1.96
Net Worth Per Share (Rs.)	67.01	66.33
Current Ratio	1.42	1.22
Debt Equity Ratio	0.24:1	0.22:1

SEGMENT-WISE PERFORMANCE

The Company operates in Ferro alloys, Power and Trading of Goods Segment. The key financial of the segments reporting are given in notes no. 30 "Notes to Financial Statement" to the Notes on Accounts.

INTERNAL CONTROL

The Company has an adequate system of internal controls aimed at achieving efficiency in operations, optimum utilisation of resources and compliance with all applicable laws and regulations. The internal controls and checks safeguard and protect the Company from loss or unauthorised use of its assets. All transactions are properly authorised, recorded and reported. An independent firm of Chartered Accountants has been appointed as internal auditor for conduct of the internal audit function. The observations and recommendations following such audit for improvement of the business operations and their implementation are periodically reviewed by the Management and the Audit Committee of the Board.

HUMAN RESOURCES

Your Company has a team of qualified and dedicated personnel who have contributed to the growth of the Company. The Company continues to retain and attract the quality and talented manpower. They have played significant role in growth of the Company and enabled Company to deliver superior performance during the year.

CAUTIONARY STATEMENT

Certain statement in the Management Discussion and Analysis might be considered forward looking. These statements are based on certain assumption and expectation of future events. All statements, that address expectations or projections about the future, including, but not limited to, statements about the Company’s strategy for growth, market position and financial results are forward looking statements. For those statements, the Company cautions that numerous important factors could affect the Company’s actual results and could cause its results to differ materially from those expressed in any such forward looking statements. The actual result may vary materially from those considered here as important factors could influence the operation of the Company such as Tax regimes, Government policies, demand-supply position, and industrial relation, Economic development.

	For and on behalf of the Board
Raipur	Biswajit Choudhuri
09.08.2014	Chairman