Impex Ferro Tech Ltd Management Discussions.

Economic Overview

According to the International Monetary Fund, the global economy is expected to grow at 3.4% in 2016-17 compared to 3.1% in 2015-16. The pick- up in global activity is projected to be gradual.

The Indian GDP growth expanded to 7.5% in previous financial year due to improving economic sentiments and is expected to pick up from 2016-17. The currency movements and interest rates continue to be risks for growth.

Industry structure and developments

Ferro-alloys are critical additives in the product! on of Iron & Steel and the fortune of Ferro Alloys Industry is directly linked with the growth of Iron & Steel Industry. The product mix of Ferro Alloys consists of bulk Ferro Alloys viz., HC ferro manganese, silicon manganese, ferro silicon, HC ferro chrome, charge chrome, etc. and noble ferro alloys viz., ferromolybdenum, ferro-anadium, ferrotungsten, ferro-silicon magnesium, ferro-boron and ferro-tiRs tanium.

India accounts for around 7-8% of the worldRs s Ferro Alloys production. India emerged as a preferred supplier of ferro alloys on account of abundant availability of key resources comprising chrome ore and manganese ore, trained and cost-effective manpower and favourable location.

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 settng up their captive power units. This will reduce the input cost and ensure continuous supply of power.

Further, it is hoped that the government would recognize the challenges arising out of periodic administered price increases of power and input materials which hamper the competitiveness of this industry and take steps to address them urgently to enable the ferro alloys producers to compete in the domestic as well as international 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 CompanyRs s 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 CompanyRs s 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 CompanyRs s 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 29304.510 MT of Ferro Alloys against 43,943.560 MT of Ferro Alloys in previous year registering a de-growth of 33% over previous year. The Gross revenue from the Ferro Alloys segment was Rs.189.53 Crores. The Ferro Alloys export during the year under review has decreased by 25% to 25,428 MT.

Internal controls and systems

The Company has implemented proper and adequate system of internal controls commensurate with its size and nature of operati ons to provide reasonable assurance that all assets are safeguarded, transacti ons 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 CompanyRs s principal asset. The Company provides conti nual 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 relati onship 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 206 employees on its payroll.

Cautionary Statement

Certain statements in the Management Discussion and Analysis Report describing the CompanyRs s 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 uncertainti es include the effect of economic and political conditi ons in India, volati lity in interest rates new regulati ons and government policies that may impact the CompanyRs s business as well as its ability to implement the strategy. The Company doesnRs t undertake to update the statements.