India Steel Works Ltd Management Discussions.

Economic Scenario: Global (business Line)

• In 2018, the world crude steel production reached 1789 million tonnes (mt) and showed a growth of 4.94% over 2017.

• China remained world’s largest crude steel producer in 2018 (928 mt) followed by India (106 mt), Japan (104 mt) and the USA (87 mt).

• World Steel Association has projected Indian steel demand to grow by 7.3% in 2019 while globally, steel demand has been projected to grow by 1.4% in 2019. Chinese steel use is projected to show nil growth in 2019.

• Per capita finished steel consumption in 2017 is placed at 212 kg for world and 523 kg for China by World Steel Association. The same for India was 69 kg in 2017. Per capita steel consumption for 2018 is yet to be published by WSA.

Note: World Steel Association report, Steel Statistical Yearbook, 2018.

Economic Scenario: India (as per financial Express) (Ministry of Steel)

India was the world’s 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-effective labour. Consequently, the steel sector has been a major contributor to India’s manufacturing output.

India’s finished steel consumption grew at a CAGR of 5.69 per cent during FY08-FY18 to reach 90.68 MT.

In 2017-18, the country’s 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 5.77 MT and 7.13 MT, during April 2018-February 2019

(Provisional)

Latest update: March, 2019

The Government has taken various steps to boost the sector including the introduction of National Steel Policy 2017 and allowing 100 per cent Foreign Direct Investment (FDI) in the steel sector under the automatic route. Between April 2000 and December 2018, inflow of US$ 11.18 billion has been witnessed in the metallurgical industries as Foreign Direct

Investment (FDI).

India’s per capita consumption of steel grew to 68.9 kgs, during 2017-18. National Steel Policy 2017 aims to increase the per capita steel consumption to 160 kgs by 2030-31.

Table 5.1 a: Trend of Finished Steel (alloy/stainless+non-alloy) in Last Five years

Description 2013-14 2014-15 2015-16 2016-17 2017-18 April-Nov. 2018-19*
Production for Sale 99.38 104.58 106.60 120.14 126.85 85.96
Imports 5.45 9.32 11.71 7.23 7.48 5.24
Export 5.99 5.59 4.08 8.24 9.62 4.08
Actual Consumption 74.095 76.994 81.525 84.042 90.708 88.05

Source: JPC; * Provisionals

The Steel & Stainless Steel Industry (financial Express and Ministry of steel data)

Steel industry and its associated mining and metallurgy sectors have seen a number of major investments and developments in the recent past.

According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), the Indian metallurgical industries attracted Foreign Direct Investments (FDI) to the tune of US$ 11.18 billion in the period April 2000 December 2018.

The Indian steel industry has entered into a new development stage, post de-regulation, riding high on the resurgent economy and rising demand for steel.

Key Customer Industries:

Most effective utilization of materials viz. concrete in compression and steel intension under Composite Construction, e.g. four Seasons hotel, tallest hotel in Mumbai. Any bridge, steel or concrete, designed and built as per the provision of the IRCs, the longevity is expected to be well over 120 years.

• Consumer Goods and Catering Industry

• Automotive and Transport Industry

• Mechanical & Plant Engineering

• Power Generation

• Chemical Industry

• Medical Equipment

• Architecture and Building Industry

• Heavy Industries

• Aviation Industry

• Food & Packaging

• Structural & Civil engineering

• Hydraulic elements

• Bright Bar Industry

• Fasteners Industry

• Forging Industry

• Capital Goods Industry

FINANCIAL PERFORMANCE

During the year the company generated a revenue of Rs. 55,757.06 lakhs, the same in last year was Rs. 99,682.86 Lakhs, so EBITDA has fallen to Rs. 1,880.11 Lakhs. Net worth of the Company has reduced to Rs. 17,410.60 lakhs from Rs. 18,001.26 lakhs in F.Y. 2017-18 to, due to loss suffered by the Company for the year ended 31st March, 2019. The organization has applied to various financial institutions and Banks for enhancing working capital facilities to support operations & in order to maximum capacity utilization.

RISK & OPPORTUNITIES

India Steel Works is exposed to risk and opportunities in equal measures. The company has a robust Enterprise Risk Management (ERM) framework that allows the organization to take certain risk in order to be competitive and to mitigate other risk to drive sustainable results. By identifying and proactively addressing risk and opportunities, stakeholder value is protected at all times. We do address the risk related to strategy, operational, financial and legal.

The main competitive strength of the company:

• Promoters have more than 50 years of experience in the same line of business.

• Company has large customers base in pan India basis.

• Company has large variety of products in various length and sizes in Billets, Angles, Wire Rods, Wire and Bright Bars.

Opportunities:

The New Industrial policy opened up the Indian iron and steel industry for private investment by (a) removing it from the list of industries reserved for public sector and (b) exempting it from compulsory licensing. Imports of foreign technology as well as foreign direct investment are now freely permitted up to certain limits under an automatic route. Ministry of Steel plays the role of a facilitator, providing broad directions and assistance to new and existing steel plants, in the liberalized scenario.

CREDIT RATING

Brickwork Ratings India Pvt Ltd has rated the Company and risk rating assigned is BWRBB+ for fund based facility.

INTERNAL CONTROLS

The Company has proper and adequate systems of internal control that provides assurance on the efficiency of operations and security of assets. An independent Internal Auditor is in place to check, audit and monitor the process as per the Internal Audit Plan approved by the Audit Committee of the Company.

Further Company is in the process of implementing Enterprise Resource Planning (ERP) at all its plants covering all its businesses, planning and accounting processes. This will help Company to increase the operational efficiency and cost effectiveness of overall operational controls.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES

In the year under review, the overall industrial relations have been cordial and conducive to work. The Company recognizes the value and contribution of its employees and earnestly endeavors to create a responsive organization with emphasis on performance with responsibility and accountability. Continuous appraisal of the competencies of the personnel in line with job requirements is carried out to facilitate higher levels of output and productivity.

RATIO ANALYSIS

Financial Ratios and margins

Ratios FY 2018-19 FY 2017-18
Debtors Turnover in days 22.13 13.25 67.04%
Inventory Turnover 2.01 3.96 -49.29%
Interest Coverage Ratio 0.59 1.30 -54.17%
Current Ratio 0.80 0.93 -13.18%
Debt Equity Ratio 0.53 0.54 -0.42%
Operating Profit Margin (%) -1.25% 0.06% -2278.97%
Net Profit Margin (%) -1.06% 0.51% -307.81%
Return on net worth (%) -3.39% 2.82% -220.18%

Significant change in Financial Ratios

Ratios FY 2018-19 FY 2017-18 Changes in % Reasons for Changes
Debtors Turnover in days 22.13 13.25 67.04% The company had to extend higher credit period during the year to address cash crunch in the market.
Inventory Turnover 2.01 3.96 -49.29% Higher inventory at year end to cater to next month sale orders due to adverse marketing conditions.
Interest Coverage Ratio 0.59 1.30 -54.17% Interest Coverage Ratio has decreased because of lower profitability as compared to the previous year.
Operating Profit Margin (%) -1.25% 0.06% -2278.97% Lower operating level resulting in lower operating profit.
Net Profit Margin (%) -1.06% 0.51% -307.81% Lower operating profit resulting in lower profitability.
Return on net worth (%) -3.39% 2.82% -220.18% Net loss.

CHANGE IN RETURN ON NETWORTH

DISCLAIMER

This discussion and analysis have been provided with a view to enable shareholders with a better understanding of the performance of the Company. In certain areas the discussion may cover strategic decision and management expectations from the same. Such forecasts should not be construed as a guarantee of performance and actual results may differ significantly depending upon the operating conditions and external environment.