ismt ltd Management discussions

Company Performance:

Total Income	:	Rs. 2,581.70 Crore
EBIDTA	:	Rs. 241.60 Crore
Profit Before Tax	:	Rs. 157.31 Crore
Profit After Tax	:	Rs. 96.55 Crore

With Net Worth turning positive, the Company witnessed increase in domestic seamless tubes demand especially from Oil & Gas, Projects sectors resulting in higher sales volumes over previous year. Increase in seamless tube export sales to USA helped surpass export volumes of previous year. Lower demand from Automobile and Bearing sectors led to a drop in domestic steel sales.

Rs. in Crore

Particulars	2022-23	2021-22	Change
Net Sales	2534	2124	19%
Domestic
-Tube	1701	1314	29%
-Steel	556	621	(10%)
Tube Exports	276	189	46%

INDUSTRY STRUCTURE AND DEVELOPMENTS

Seamless Tubes Industry

Seamless Tube is a capital intensive industry & deploys high end technology. While the industry competes with other types of pipes & tubes in certain applications, it clearly is a preferred choice when it comes to better surface finish, machine-ability, strength to weight ratio and longer life. Seamless Tubes find applications in Oil and Gas exploration industry, Power Sector, Automotive, Construction Equipment, Bearing, Material handling equipment, Structural Components and host of other Mechanical applications. Seamless Tube consumption is largely dependent on long term economic growth and growth in Automobile sector & Capex sectors.

Steel Industry

ISMT has Steel Plant which uses the Electric arc furnace technology to produce Steel.

ISMT is predominantly engaged in the manufacturing of specialty alloy and bearing Steel. The end user segments are largely Bearing, Automotive, Engineering and Forging Customers apart from some customers requiring steel for specialized application.

The fortunes of the specialty and alloy steel products is closely linked to automotive and auto component industry.

MARKET

ISMT is a diversified value added Seamless Tube supplier catering to following major industries:

a. Oil and gas	:	As casings & Tubings during oil/ gas exploration.
b. Power	:	In Boilers & Heat Exchangers
c. Construction Equipment	:	In mining and earth moving equipment
d. Automotive & General Engi- neering	:	Applications in two wheeler to four wheeler as front forks, axel, Steeling columns, Air bag system etc.
e. Bearings	:	Inner and outer races of Bearings
f. Others	:	In greenfield projects for fluid transportation, Construction of Stadiums and airports, gas cylinders, crane booms etc.

In relative terms, the sales to OCTG and Projects sectors almost doubled over previous year and in absolute terms the same increased by more than 2.5 times. The drop in sales to other sectors was more than compensated by increase in sales to OCTG, Projects and Trade.

OPPORTUNITIES & THREATS Opportunities

Strong financials after a gap of almost a decade are likely to bring back the customer confidence in the Company. This factor coupled with the Company becoming eligible for ‘tender business after its Net Worth becoming positive, is likely to increase the top line of the Company. With good liquidity base, the Company is poised to negotiate prices with its customers as well as suppliers resulting in further improvement of the bottom line. The Company is also well positioned to take up product developments with the customers to mitigate import substitution.

Threats

Any global business disruption in the form of pandemics, wars, terrorism which adversely impacts raw material availability, logistics difficulties, raw material & fuel price volatility etc. will continue to remain a threat. The imposition of anti-dumping duties from developed countries remains a further threat to the export sales of the Company.

SEGMENT/ PRODUCT INFORMATION

Your Company is engaged in manufacturing Seamless Tubes and Engineering Steels. Seamless Tube accounted for 78% (previous year 71%) of ISMTs total external sales value while Steel accounted for the balance 22% (previous year 29%). Captive consumption of steel was 69% (previous year 62%) of total steel sales volumes. The Company procured more carbon grade steel from captive source for its Baramati Seamless Tube plant on account of increase in Baramati plant sales.

Increase in sales to Oil, Gas and Projects sectors resulted in higher Seamless Tubes sales in the financial year under review. On the other hand, lower off-take from Automobile & Bearing sectors led to drop in domestic Steel sales.

Output of Steel division of the Company is input for Tube divisions. To cater to the increased raw material requirement of Seamless Tube division, captive sales of Steel division were higher during the year as compared to previous year.

Higher sales especially to USA resulted in increase export sales volumes by 12% over previous year. In value terms the export sales increased by 46% owing to increase in input costs and depreciation of Indian Rupee against US Dollar.

OUTLOOK

Overall tensions on international scenario pose certain challenges in terms of uncertainty in demand and volatility in raw material and fuel prices. These constant fluctuations have an adverse impact on Gross profit and EBIDTA margins. At the same time, strong Balance Sheet will help create new opportunities in terms of increase in sales and reduction in manufacturing costs by incurring the required capital expenditure.

RISKS & CONCERNS

Your Company regularly evaluates and reviews potential risks on account of various factors such as government policies, natural/ man-made disasters, and political risks. Apart from above, the Company is exposed to fluctuations in foreign exchange rates and commodity prices. Any change in laws & regulations, whether domestically or internationally could affect the business and financial condition of your Company.

For long term success, the Company has adequate risk management system towards identification & evaluation of potential risks and the same are evaluated and reviewed regularly by the management so as to minimize/ eliminate the adverse impact, if any.

INTERNAL CONTROL SYSTEMS

The Company has adequate and effective internal control systems and processes in place, which are designed to provide reasonable assurance with regards to recording and providing reliable financial and operational information, safeguarding the assets, statutory compliance, executing transactions with proper requisite approvals and ensuring compliance with applicable laws and regulations. The Company, during the year, has appointed an external firm for Internal Audit who in turn submit their report to the Audit Committee on a periodic basis which reviews the effectiveness and adequacy of the internal control systems and processes and suggests improvements, if any.

FINANCIAL PERFORMANCE Finance Cost

The Company has been sanctioned total working capital limits of Rs. 530 Crore from Banks out of which Rs. 145 Crore is fund based and balance Rs. 385 Crore is non fund based. As on 31st March 2023, Company has availed Buyers and Supplier Credit of Rs. 68.90 Crore.

The Companys forex exposure is managed both through a natural hedge and by taking forward cover under the board approved risk management policy framework. The forex risk is reviewed periodically and managed in line with the objectives laid in the policy.

Working Capital

The inventory holding period was marginally higher as compared to previous year. Average credit period to customers was reduced from 51 days to 45 days. All the above factors enabled the Company to achieve higher sales without availing any fund based limits sanctioned by the Bank.

Rs. in Crore

Particulars	2022-23	2021-22
Average Inventory	447	388
Stock Turnover(times)	3.07	3.19
Average Debtors	316	294
Debtors Turnover(times)	8.03	7.22
Average Creditors	210	172
Creditors Turnover(times)	7.84	8.75

Energy Cost

Energy Cost accounted for 16% of the Companys net revenues at Rs. 414 Crore.

Particulars	2022-23	2021-22	Change
Power consumption
(KWH/Ton of Production)
-Steel Division	814	798	(2%)
-Tube Division	563	637	12%
Avg. Electricity Rate per
Unit
From MSEDCL (Rs./KWH)	9.67	8.50	(14%)

Increase in capacity utilisation & measures taken by the tube plants resulted in drop in power consumption per unit of production by 12%. Power consumption per unit of production of steel plant was higher by 2% as a result of lower production. MSEDCL imposed a charge of Rs 1.20 per KWH w.e.f. 1st June 2022 to 31st January 2023 towards Fuel Adjustment Charges (FAC) and has now merged this component with the tariff.

Particulars	2022-23	2021-22	Change
Fuel Consumption
(KLtrs/Ton of Production)
- Steel Division	32	33	3%
- Tube Division	88	94	6%
Avg. Fuel rate
	54.00	46.54	(16%)
Rs. Per Litre

In spite of drop in production, fuel consumption per unit at steel plant was lower by 3% than previous year. Better fuel consumption per unit by 6% of tube plants was a result of increase in capacity utilisation and various measures taken for saving of fuel. Fuel rates are mostly guided by international oil prices. On an average during the year the international oil prices were higher than previous year resulting into 16% increase in average fuel prices.

KEY FINANCIAL RATIOS

Some of the key financial ratios for current year as compared to previous year are as under:

Particulars	2022-23	2021-22	Change
Debtors Turnover	8.0	7.2	11.2%
Inventory Turnover	3.07	3.2	(3.7%)
Interest Coverage Ratio	8.8	1.5	497.2%
Current Ratio	2.2	1.6	39.2%
Debt Equity Ratio	0.05	0.15	66.7%
Operating Profit Margin	9.5%	3.7%	157.7%
Net Profit Margin	3.8%	111.00%	(96.6%)
Return on Net Worth	11.3%	1.1%	912.1%

Notes:

1) The amounts of assets, liabilities and net profits for the current year as well as previous year are inclusive of components of exceptional nature and hence, these analytical ratios are not truly reflecting the operations and financials of the Company. These exceptional components include unpaid overdue debts in previous year and impairment of assets and investments in subsidiaries in current year.

2) The Company is continuously making efforts to bring down the inventory and debtors. While there is improvement in Debtors Turnover, Inventory Turnover has marginally dropped.

3) Higher profit and lower debt resulted in better Interest Coverage Ratio.

4) Improvement in Current Ratio and Debt Equity Ratio is due to reduction in Bank Borrowings.

5) Better price realisation and reduction in costs resulted in higher Operating Profit Margin.

6) Net Profit Margin and Return on Net Worth is not comparable with previous year considering impact of one time settlement of loans in previous year earnings.

HUMAN RESOURCES DEVELOPMENT AND INDUSTRIAL RELATIONS

The Company believes that Human Resource is a crucial and most valuable asset for the Organisation. Therefore the employees having high level of niche-competence are considered as most valuable asset and it strives to attract & retain the best talents. It will support the Company to meet their future business needs and succeed & grow in the competitive market.

During the Financial year 2022-23, the Company has taken following steps; a. Leadership development in collaboration with Thomas Assessment for the First & Second line Leaders. b. Performance Management System is adopted for clarity about individuals objectives and the compensation aligned to it. c. Based on business requirements 25 training programs were organised engaging internal & external faculties and having participation of 385 employees. d. Enhancing Safety & Security Systems: Safety Audits at all plants was conducted and actions were taken to improve working conditions. Occupational Health Centre (OHC) were started and manned to take care of Health of employees at work. e. Security system was enhanced by onboarding Senior Ex-Servicemen and team below (Junior Commissioned Officers) to have control over gate movements & safety of Companys property.

Industrial relations continued to remain peaceful throughout the year. The Company signed Bonus-Ex-gratia agreements with blue collar employees at all three manufacturing locations.

EMPLOYEE RELATED INFORMATION

As on March 31, 2023

Particulars	Total
Managers	272
Officers & Staff	646
Workmen	960
Total	1878

CAUTIONARY STATEMENT

Statements in Management Discussion & Analysis describing the Companys objectives, projections, estimates & expectations/ predictions may be forward looking statements within the meaning of applicable securities laws & regulations. Actual results could differ materially from those expressed/ implied. Important factors that could make difference to the Companys operations include economic conditions affecting demand/supply & price conditions, in domestic & overseas markets in which the Company operates changes in government regulations, tax laws & other statutes & other incidental factors.