Inducto Steel Ltd Management Discussions.

The company is now a diversified company with ship breaking, trading, investment & real estates activities.

During the financial 2015-16, witnessed frequent fluctuation in the prices of old ship in the international market and also heavy dollar exchange rate fluctuations. This has adversely affected the sales turnover of the company. However, the prices in Iron and steel industry are gradually getting stabilized, but the company has trade liabilities in foreign currency and depreciation in value of Indian Rupee vis--vis US Dollar remains a concerning area for the company even in the current year. The management is exercising caution in purchase of ships for breaking to optimize the profit margin and minimize the possibilities of losses, if so happens.

Whenever, there is no immediate payment liability against old ship purchased for breaking, the surplus funds available with the Company are given as loan on short term basis and also invested in the market for earning interest/short term capital gain. The Company is hopeful that the Company can earn reasonable return on this loans/investments

Surplus funds are also invested in new avenues of earnings in the form of partnership with other entities like in Real Estate and Redeveloping firms. At present the Company has partnership with M/s. Calvin Divine Enterprises with 20% share, and M/s. Shree Balaji Associates with 5% share. The management is hopeful that the Company can earn reasonable return on these investments

Segmental Review

During the financial year 2015-16, ship-breaking unit at Alang Ship Breaking Yard has not shown a growth, however, the ship breaking unit is expected to grow substantially in coming years. Due to fluctuating and volatile prices of old Ships, Iron and Steel products coupled with depreciation in value of Indian Rupee vis--vis US Dollar during the year, the net profit margins of this segment has been affected. The Trading Unit has performed well in terms of turnover during the year under consideration. However, the management is of the view that, in the coming years the ship breaking industry will be stable and with expected boost in the economy the requirement of iron and steel will increase which will help the company to move towards its sustained path of growth.

Ship breaking

As has been stated in the out-look, due to fluctuations in the exchange rate of US Dollar vis--vis Indian Rupee and steep decrease in prices of Iron and steel products and volatile market conditions. During the year company has achieved sales turnover of Rs. 2,740.92 Lacs as against 8,790.35 Lacs last year. During the financial year 2015-16, ship-breaking unit at Alang Ship Breaking Yard has not shown a growth, however, the ship breaking unit is expected to grow substantially in coming years. Due to fluctuating and volatile prices of old Ships, Iron and Steel products coupled with depreciation in value of Indian Rupee vis--vis US Dollar during the year, the sales turnover of this segment has been affected. Though the year under review saw fluctuation in the international market of old ships coming for breaking, the management was very cautious and purchased ships at proper time and built a good level of inventories to earn better profits in coming years. Now the market has stabilized and taking into account the inventory level of the company as at the year end, it is hoped that the turnover and the profitability will show a an increase in the coming years.

Trading (HO-Mumbai):

During the financial year 2015-16, the trading unit has performed well in terms of turnover, with the cautious approach. However, the unit has failed to maintain net profit margin for the current financial will be stable and with expected boost in the economy the requirement of iron and steel will increase which will help the company to move towards its sustained path of growth

Segment Results

(in Lacs)

Particulars Trading Unit Ship-Breaking Total Unit
a) External Revenue 13,730.20 2,473.58 16,473.77
Internal Segment Revenue (126.95) 126.95 -
Total Revenue 13,603.25 2,600.53 16,473.77
b) Segment Results Before Interest and Taxes 933.28 (25.70) 907.58
c) Segment results as a % of total

102.83%

-2.83%

100.00%

d) Segment Assets

20,886.81

278.22

21,165.03

e) Segment Liabilities 15,973.38 1,167.91 17,141.29

Financial Review and Analysis

(in Lacs)

Revenue from Operations 15648.80 20,919.27
Other income 824.98 1,762.14
Total Revenue 16473.78 22,681.41
Operating Profit (PBIDT) 921.95 1249.45
Interest 751.15 755.19
Gross Profit (PBDT) 170.81 494.25
Depreciation 14.38 15.55
Profit before tax 156.43 478.70
Provision for current Tax 52.60 154.79
Deferred tax (0.59) (0.37)
Net Profit after Tax 104.42 324.28

Cash Flow Analysis

Particulars 2015-16 2014-15
- Operating Profit before changes in Working Capital 921.96 1,233.47
- Increase/ (Decrease) in Net Working Capital (1621.24) 6,323.17
- Net Cash Flow from Operating Activities (751.88) 7,401.85
- Cash Outflow from Investing Activities- 1490.93 (6,569.41)
- Cash Outflow from Financing Activities (760.28) (818.46)
- Net Cash Inflow/(Outflow) (21.22) 13.98

Risk Management

The Company is exposed to the risk from the market fluctuations of foreign exchange as well as the fluctuation in the price of iron and steel. The Company’s raw material is old ship, which is purchased from the international market on credit ranging up to 180 days to 360 days. The Company is adopting policy of full hedging or covering the foreign exchange requirement, the Company is regularly monitoring the foreign exchange movement and suitable remedial measures are taken as and when felt necessary.

Though the Company is employing such measures, the Company is still exposed to the risk of any heavy foreign exchange fluctuation.

Likewise the Company’s finished products are mainly re-rollable scrap generated from ship breaking and the price of the same is linked to the market rate for iron and steel. Any up and down in the price of the iron and steel will affect the profitability of the Company. However taking into account, the price fluctuations already affected during the year 2015-16, further major down / up ward trend in the price of iron and steel is not expected.

In addition to the above, the Company is also exposed to the risk of fluctuation in the real estate and construction and Redeveloping market as the Company has invested some of its surplus funds in partnership firm engaged in such business. However the Directors considering their past experience, is confident that the Company will not face any major set back in this area.