Impex Ferro Tech Ltd Management Discussions.

Economic Overview

Global growth is projected to pick up modestly in 2017. Global GDP grew at 2.3% in 2016 while euro zone economy grew by 1.7%. The most significant development has been the depreciation of the pound against major currencies including the euro and the US dollar. Growth in China again decelerated in 2016 to 6.7%. The Government is seeking to transform the economy from being investment led to become more consumer driven.

Indias economic growth is estimated at 7.1% for the fiscal year ending 31st March, 2017 as compared to 7.6% in 2016. The lower growth is due to the impact of the demonetisation and other drive. The growth estimates have been reduced in all the sectors, except for agriculture due to good monsoon.

Industry structure and developments

Ferro-alloys are critical additives in the production of Iron & Steel and the fortune of Ferro Alloys Industry is directly linked with the growth of Iron & Steel Industry.

There are two families of manganese alloys called ferro-manganese (FeMn) and silico manganese (SiMn). Silico-manganese adds additional silicon which is a stronger deoxidant. Nitrogen, boron, titanium, phosphorus are elements which can be controlled depending on requested specification.

While chromium alloys are used in the production of stainless steel, manganese alloys are used in the production of steel and some specialized grades of stainless steel making. Manganese alloys are mostly used in steelmaking and foundry activities. Steels usually contain from 0.2% to 2% manganese depending on grades as manganese is the cheapest alloying element among those which enhance some key mechanical properties like strength and toughness.

The steel sector has been a major contributor to Indias manufacturing output and a key player in infrastructure development and with growth of steel sector, various infrastructure project taken by government the consequent growth of Manganese segment in future is bright.

Opportunities and Threats

The growth of Ferro-Alloys industry is directly linked with the growth of Iron and Steel Industry. India, at a per capita steel consumption of 60 kg, is much below the global average of 215 kg, thereby reflecting massive under-penetration and immense opportunities for growth, which will in turn, drive ferro-alloys demand. Further, with investments/ expansion plans in Roads, Railways, Automobile Sector and Power Sector, the demand for Ferro Alloys is expected to improve in coming years.

Electrical energy is one of the major inputs in production of ferro-alloys and high power tariff is a threat for the ferro-alloys industry. The ferro-alloys producers are now focusing on setting up their captive power units. This will reduce the input cost and ensure continuous supply of power.

Further, the government has already initiated so many steps for the betterment of Indian economy and has also undertaken two large initiatives viz. putting more money into the rural economy especially after demonetisation and putting a renewed focus on infrastructure development and this would certainly enable the Ferro alloys and Steel producers to survive grow in the markets.

Risks and concerns

The cost-effective availability of key raw material is a global challenge. The volatility in prices of raw materials as well as disruption in the supply of inputs, could adversely affect the profitability of the Company. The Company is having adequate arrangements with domestic and international Ore Suppliers to take care of such exigencies.

Electricity comprises a key cost component in the total operating cost structure and an inability to manage this might impact the Companys operations. The 30 MW Captive Power Plant enables the Company to emerge self-reliant in its power needs and reduce dependence on the expensive grid electricity.

The Companys sales may in the future be concentrated in a few markets as a consequence of continued global slow down, thereby negatively impacting its operations. Currently the Companys sales are well-spread to key consumption centers across the globe, thereby mitigating concentration risks.

The Company deals in sizeable amount of foreign exchange in import of raw materials and exports of finished products. A comprehensive and robust forex policy has been formulated for insulating the Company by hedging foreign exchange exposure.

Segment-wise reporting

The Company is mainly in the business segment of manufacturing & sales of Ferro Alloys and trading in Iron & Steel products. The key financial of the business segments including secondary segment details identified as the geographical segment based on the location of customers within India and outside India is given in Notes no. 36 to the Annual Accounts. The Company also generates power from its captive power plant, which is entirely consumed in the manufacture of Ferro Alloys without any sale to third parties.

Segment-wise performance Ferro Alloys:

During the year under review the Company has produced 20573 MT of Ferro Alloys against 29305 MT of Ferro Alloys in previous year registering a decline of 29.80% over previous year. The Gross revenue from the Ferro Alloys segment was 134.57 Crores. The Ferro Alloys export during the year under review has decreased by 56% to 11,177 MT.

Internal controls and systems

The Company has implemented proper and adequate system of internal controls commensurate with its size and nature of operations to provide reasonable assurance that all assets are safeguarded, transactions are authorised, recorded and reported properly, applicable statutes and corporate policies are duly complied with. The Company has an Audit Committee with majority of Independent Directors as members. The committee periodically reviews significant audit findings, adequacy of internal control and compliance with Accounting Standards, amongst others. The management duly considers and takes appropriate action on the recommendations made by the Statutory Auditors, Internal Auditors and the Independent Audit Committee of the Board of Directors. The Company also takes quarterly compliance certificate in respect of various applicable laws from the concerned departmental heads and places the same before the Board.

Industrial relations and human resources

Human resource is the Companys principal asset. The Company provides continual training to its staff to help them upgrade their skills and seeks to balance individual aspirations with Company goals. The Company employs contract labour in its manufacturing facilities. The Company recruits judiciously through Industry contacts, newspaper advertisements and consultants. The Company also recruits trainees from reputed ITIs, technical and professional institutes. The Company maintained harmonious relationship with all its workers and there were no strikes or lockouts during the year under review. As on the date of this Report the Company has 260 employees on its payroll.

Cautionary Statement

Certain statements in the Management Discussion and Analysis Report describing the Companys objective and predictions may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates new regulations and government policies that may impact the Companys business as well as its ability to implement the strategy. The Company doesnt undertake to update the statements.