jai balaji industries ltd share price Management discussions


Global Overview

The global economy is yet again at a highly uncertain moment, with the cumulative effects of the past three years of adverse shocks—most notably, the COVID-19 pandemic and Russias invasion of Ukraine—manifesting in unforeseen ways. Spurred by pent-up demand, lingering supply disruptions, and commodity price spikes, inflation reached multidecade highs last year in many economies, leading central banks to tighten aggressively to bring it back toward their targets and keep inflation expectations anchored.

Steel has traditionally occupied a top spot among metals. Steel production and consumption are frequently seen as measures of a countrys economic development because it is both a raw material and an intermediary product. Therefore, it would not be an exaggeration to argue that the steel sector has always been at the forefront of industrial progress and that it is the foundation of any economy.

The year witnessed very high volatility in raw material, especially coking coal on account of the on-going geopolitical concerns and supply chain bottlenecks impacting steel price across geographies.

According to World Steel Association, demand for steel worldwide will witness a 2.3 per cent growth in 2023 and 1.7 per cent in 2024. It is further said that "Manufacturing is expected to lead the recovery, but high interest rates will continue to weigh on steel demand.

www.worldsteel.org.

As the steel industry continues to progress into 2023, we expect this level of volatility to be sustained across the entire value chain.

With an increasingly competitive environment, global steel companies are searching for ways to gain a competitive advantage. Steel companies have employed analytics for years, from process simulation to laboratory management systems to computerized maintenance management systems integrated with real-time production data. However, by using advance analytics, companies can sharpen their view to make better decisions in different areas of their business, including product costs and margins, customer insights and demand, risk management, capital investments, production and operations safety, suppliers, and global supply chain.

World crude steel production for the 63 countries reporting to the World Steel Association (world steel) was 165.1 million

tonnes (Mt) in March 2023, a 1.7% increase compared to March 2022.

Indian Overview

According to Finance Ministry, Indias economy has been ranked as the fifth largest in the world from the tenth largest and is now being called a ‘Bright Spot in the Global Economy.

Indias Economy to Grow by 6.4% in FY2023, Rise to 6.7% in FY2024

Strong economic growth in the first quarter of FY 2022-23 helped India overcome the UK to become the fifth-largest economy after it recovered from repeated waves of COVID-19 pandemic shock. Rising employment and substantially increasing private consumption, supported by rising consumer sentiment, will support GDP growth in the coming months.

India has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.

Steel players in India witnessed a dip in EBITDA margins for the quarter ended December 2022 as compared to the same period last year. This was primarily due to an increase in coking coal prices and muted steel prices. According to CareEdge Advisory & Research, the domestic steel demand growth is expected to be healthy at 8-10% in FY24. This will be driven by an increase of 33% y-o-y in the governments budgeted capex on infrastructure development and an uptick in the real estate and construction industry. On the other hand, exports have been increasing on a sequential basis from

Management Discussion and Analysis (contd.)

December 2022 onwards, post the withdrawal of the export duty on steel products and iron pellets. This is expected to result in higher export volumes in FY24. However, the operating profit margins of steel players are expected to remain under pressure in FY24 due to elevated input costs of iron ore and coking coal. International steel prices are also expected to remain range-bound in the near term.

The growth prospects and steel industry outlook in India is favourable. Recent changes in export taxes and import duties on steel complemented by the rising demand for affordable

housing, infrastructure development and construction projects, has led to a pan-India need for steel metal. Moreover, the governments initiative to make India self-sufficient has made room for sustainable urban development, construction of proposed logistics parks and industrial corridors – all adding to the meteoric demand for finished steel and steel as a raw material.

Detailed information on production, consumption, import and export of total Finished Steel and production of Crude Steel for the last five years (2018-2022) are shown in the table below:

(in Million Tonne)

Item

2018

2019

2020

2021

2022*

Crude Steel

Production

109.250

111.344

100.256

118.201

124.720

Finished Steel

Production

100.574

104.962

92.231

11.953

118.714

Consumption

96.737

102.622

89.331

106.226

114.894

Import

7.295

7.440

4.463

5.001

5.615

Export

6.692

8.205

10.150

12.799

7.906

Source : JPC, Provisional*, January-December, 2022

*Provisional

Opportunities, threats, risks and concern Opportunities

The Ministry of Steel signed 57 MoUs with 27 companies for specialty steel under the PLI scheme (Production Linked Incentive). Under thescheme the government has approved a sum of 6322 crore for steel sector growth. Apart from creating new jobs and contributing to making India the 3rd largest economy globally (by 2030-31), the scheme aims to create an additional capacity of 25 MT of specialty steel in the next fiveyears. (Source: India CSR)

There are several opportunities present in other industries also that would directly boost the steel industry outlook.

  • Railways: The governments initiative to redevelop 50+ existing railway stations and the plan to provide a capital of 2.4 lakh crore to Railways is likely to scale the need for steel.
  • Logistics: An investment of 75,000 crore is planned for 100+ critical transportation infrastructure projects that will connect ports, coal, steel, fertiliser, and food grain sectors across the first and last-mile delivery network.

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Management Discussion and Analysis (contd.)

This is expected to improve connectivity and transportation services across major points, in turn leading to a rise in demand for steel.

  • City development: Urban planning development projects will be undertaken to transform cities into sustainable cities. With the proposed 10,000 crore annual fund, the goal is to ramp up infrastructure development, especially in Tier II and Tier III cities. This is likely to witness a growth in steel demand, especially for steel girders in infrastructure and TMT Steel in construction among others.

Threats, risks and concern

The precise growth prediction for steel demand in 2023 may vary depending on factors, including global economic conditions, consumer behavior trends, and government interventions. However, the World Steel Association has released its Short Range Outlook this year, forecasting a moderate 1-2% increase in steel demand. This roughly totals

1.81 billion metric tons.

The World Steel Economics Committee, has highlighted that the following factors are causing a slowdown in the steel industries:

  • Declining market confidence
  • Increasing interest rates
  • Lingering effects of Russias invasion of Ukraine
  • Ongoing inflation
  • Rising energy prices
  • Tightening of the US monetary policy

Outlook

The baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to

1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about

2.5 percent in 2023 with advanced economy growth falling below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core)

inflation is likely to decline more slowly. Inflations return to target is unlikely before 2025 in most cases.

The year 2022 has been a period of major ups and downs - not only for the global equity markets but also for the global economy. With the central banks giving top priority to control inflation even at the cost of economic growth, the global economy paints a gloomy picture for the near future. Some sectors have been hit harder in the wake of impending demand slowdown.

The global steel sector is one of them. It faced a 4 percent on-year contraction in global steel production, driven by a 2 percent fall in production in China and 7 percent in the rest of the world.

India is worlds second biggest crude steel producer. Output jumped 4.2% to a record 125.3 million tonnes in 2022-23. However global demand dragged down Indias steel exports to a five-year low during the financial year that ended in March 2023.

Product wise Performance Analysis

Your Company has an integrated steel plant and manufactures different products in Steel sector. Your Companys cumulative product wise actual production details are given hereunder:

The actual production of Sponge Iron was 2,52,290 MT during the year 2022-23 as compared to 2,14,563 MT during the year 2021-22. For Pig Iron, the actual production was 4,80,856 MT and 4,38,461 MT during the year 2022-23 and 2021-22 respectively. The actual production of Steel Bars/Rods was 2,14,955 MT during the year 2022-23 as compared to 1,57,132 MT during the year 2021-22. For Billet/MS Ingot, the actual production was 1,76,038 MT and 1,01,778 MT during the year 2022-23 and 2021-22 respectively. The actual production of Ferro Alloys was 1,03,286 MT during the year 2022-23 as compared to 1,05,698 MT during the year 2021-22 (Ferro Alloy Included third party Conversion production of 13518 MT HC Ferro Chrome). In case of Ductile Iron Pipe, the actual production was 2,12,636 MT and 1,53,839 MT during the year 2022-23 and 2021-22 respectively. For Sinter, the actual production was 7,04,481 MT and 6,12,443 MT during the year 2022-23 and 2021-22 respectively. The actual production of Coke was 3,67,522 MT during the year 2022-23 as compared to 3,45,671 MT during the year 2021-22.

Financial Performance

The Revenue from operations of the Company for the financial year under review is Rs. 6,12,507.47 lacs as compared to Rs. 4,69,250.39 lacs during the previous financial year.

The Company has made net profit of Rs. 5,783.59 lacs during the F.Y. 2022-23 as compared to a profit of Rs. 4,806.55 lacs during the F.Y. 2021-22.

Your company is committed to its vision to emerge as an efficient producer of iron and steel products. It is focused on

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Management Discussion and Analysis (contd.)

increasing capacity utilisation of all units, reducing cost and improving operational efficiency.

Key Financial Ratio

The details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations thereof along with details of change in Return on Net Worth are given in note no. 52 of the notes to Financial Statement provided in this Annual report.

Internal Control Systems and their Adequacy

The Company maintains adequate internal control systems, which provide, among other things, reasonable assurance of recording the transactions of its operations in all material respects and of providing protection against significant misuse or loss of Company assets. Internal Control is a part of day to day management and administration of your Company. The Company has a proper and adequate system of Internal Control, commensurate with the size, scale and complexity of its operations to ensure orderly and efficient conduct of its business including adherence to corporate policies, prevention of frauds and errors, accuracy and completeness of accounting records and preparation of reliable financial information.

The Companys internal audit process covers all significant operational areas and reviews the in-system checks regularly.The internal audit report, submitted by the internal auditors, is placed before the Audit Committee of the Companys Board of Directors on a quarterly basis for review. Emphasis is placed on adequacy, reliability and accuracy of dissemination of financial data and information. Compliance issues are given utmost importance and reported regularly to the Board. The management of the Company duly considers and takes appropriate action on the recommendations made by the Internal Auditors. The Audit Committee continuously monitor the adequacy and effectiveness of the internal control environment across the company. The Audit Committee of the Company comprises of eminent professionals who are well versed with the financial management.

The Company has a defined organizational structure with proper delegation of responsibility, authority and functions,

Human Resources

The Human Resources (HR) function of an organization is vital to the creation and development of good quality and dedicated human capital, essential to the Companys business and operations. JBIL always focuses in grooming and training its workforce via imparting specialized and technical training at regular intervals, which helps improve their knowledge, skills and competency to execute their assignments, effectively and efficiently. Employee incentivisation, professional growth, participation and recognition are always part of the Companys HR management, with focus on upgrading their quality of life and job satisfaction. The Companys HR policy empowers it to attract, integrate and retain the best talent, requisite to its line of business and necessary for powering its growth. The company acknowledges the employeess contribution towards leading, thinking, working, creating, processing and dealing to enhanced growth. As on March 31, 2023, the number of permanent employees on the rolls of Company, was 3675 which comprises professionals from diverse backgrounds like finance, taxation, law, management, engineering etc. The industrial relations remains healthy and cordial.

Cautionary Statement

Statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates and/or expectations may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, domestic and international economic conditions affecting demand/supply and price conditions, changes in the government regulations, tax laws and other statutes and other incidental factor.

On behalf of the Board of Directors

Sd/- Aditya Jajodia

which ensures proper compliances with internal policies and

applicable laws, while enforcing proper checks and balances.

Total Non-Current Assets 158,847.98 163,031.05

2. Current Assets

(a) Inventories 82,136.78 75,802.74

(b) Financial Assets