jayaswal neco industries ltd share price Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Economic Overview

Global Economy

Calendar Year (CY) 2022 started with a sense of optimism as pandemic-related restrictions were gradually lifted worldwide and the global economy showed signs of recovery. However, the past three years have been marked by challenging events such as the COVID-19 outbreakand Russia-Ukraine conflict, leading to increased uncertainty in the global economy.

Factors such as pent-up demand, supply disruptions and rising commodity prices have contributed to inflation reaching multi-decade highs in several economies. Consequently, central banks have taken decisive measures to tighten monetary policy to stabilize inflation and maintain inflation expectations.

Outlook

Despite several challenges faced, major developing and emerging market economies have started to exhibit signs of recovery, particularly from the third quarter of CY 2022 onwards. Taking this into account, IMFs baseline prediction suggests a moderated growth rate, transitioning from 3.4 percent in 2022 to 2.8 percent in 2023¹.

	GDP
Rank Country	(in U.S. dollars)	FY 2022-23
1 United States of America	23.3 trillion	1.6%
2 Peoples Republic of China	17.7 trillion	6.3%
3 Japan	4.9 trillion	1.3%
4 Germany	4.3 trillion	0.2%
5 India	3.7 trillion	7.2%

Global Steel Industry

In CY 2022, total global crude steel production stood at 1,885.0 Million Tons, witnessing a 3.9% dip compared to the previous year. This decline reflected the ebbs and flow of the industry as it navigated through various economic factors.

Similarly, the worlds total finished steel production also experienced a downturn, registering a 3.99% decrease year-on-year, amounting to 1,768.2 Million Tons.³ Developed economies experienced a notable decline in steel consumption in CY 2022 due to tighter financial conditions and increased energy prices. However, it is projected to see a 1.3 percent increase in CY 2023, followed by a strong rebound of 3.2 percent in CY 2024.⁴

Outlook

The steel industry is poised fora rebound as steel demand is projected to grow by 2.3% in CY 2023, reaching 1,822.3 Million Tons, and further increase by 1.7% in CY 2024, reaching 1,854.0 Million Tons. A resurgence in the manufacturing sector is expected to drive this recovery, although the industry must contend with the impact of high interest rates on steel demand.

Looking ahead, the dynamics of global steel demand are set to change, with a shift in drivers, particularly focused on Asia. Investments in decarbonization initiatives and the dynamism of emerging economies will play an increasingly crucial role in propelling global steel demand forward. Despite Chinas reduced contribution to global growth, these factors are expected to sustain the industrys positive momentum.⁵

Steel demand Forecast (in million tonnes)⁶

Regions	2022	2023(F)*	2024(F)*
World	1,781.5	1,822.3	1,854.0
Developed Economies	375.5	380.3	392.6
Emerging and Developing economies**	485.0	502.8	522.2

*F = Forecast for Calender Year : ** Excluding China

Top 5 Steel Using Countries (in million tonnes)

Countries	2022	2023(F)	2024(F)
China	920.9	939.3	939.9
India	114.9	123.3	130.9
United States	94.5	95.8	98.2
Japan	55.0	57.2	57.9
South Korea	51.2	52.7	53.8

*F = Forecast for Calender Year

Indian Economy

Amidst the trials of rising prices and supply disruptions from geopolitical crises, the Indian economy has exhibited extraordinary resilience and is on a steady path of recovery. In FY 2022-23, India achieved an impressive GDP growth of 7.2%, a testament to the robust performance of the service sector and strong consumption trends. This remarkable growth has further solidified Indias position as one of the worlds major and fastest-expanding economies. As a company, we are proud to be part of this dynamic economic landscape and remain committed to contributing our efforts towards the nations progress and prosperity.

Amidst the challenges posed by the Russia-Ukraine conflict, with its ripple effects on global supply chains and the subsequent rise in logistical costs, inflation and economic pressures in India, a silver lining emerged for Indian firms. The disruptions, while posing hurdles, have also unveiled new avenues of growth and prosperity, aligning perfectly with Indias ambitious "Atmanirbhar Bharat" or Self-Reliant India agenda. This national vision seeks to bolster the countrys resilience by reducing reliance on imports and fostering indigenous capabilities and efficiency.

We recognize the potential and promise of these new opportunities. Embracing the spirit of "Atmanirbhar Bharat," we are committed to innovation, exploration and transformation. We aim to strengthen our local supply chains, invest in homegrown research and development and enhance our manufacturing capabilities to cater to domestic demands effectively. By doing so, we not only contribute to our nations economic growth but also play an integral role in shaping a more self-sufficient and prosperous India for the future.

Outlook

In FY 2023-24, the Reserve Bank of India (RBI) has forecasted a promising picture for Indias economic growth, forecasting a robust GDP growth of 6.5% and an inflation rate of 5.1%⁷. Despite the challenges posed by global trade dynamics and inflationary pressures, Indias focus on fostering robust private consumption and driving infrastructural development positions the nation for unwavering progress, demonstrating an impressive resilience against external factors.

The Union Budget for FY 2023-24 takes a proactive approach by introducing a host of strategic initiatives, with a particular emphasis on amplified public capital expenditure. These endeavours are strategically designed to stimulate demand, nurture private investment and in turn fortify the steel sector. The positive impact is expected to ripple across various facets of the economy, from steel demand to job creation, contributing to overall economic growth in the nation. As an organization, we are buoyed by this positive outlook and are poised to align our efforts with Indias vision of progress, playing our part in the nations journey toward prosperity and self-reliance.

Industry Overview

Indian Steel Industry

India achieved impressive steel production numbers in FY 2022-23 and recorded 125.32 Million Ton of crude steel and 121.29 Million Ton of finished steel production⁹, establishing its position as the second-largest producer globally. The domestic market demonstrated strong growth with a 13.3% increase in finished steel consumption in FY 2022-23 on a y-o-y basis. Looking ahead, India aims to further elevate its steel industry by targeting a significant rise in finished steel consumption, from 119.17 Million Ton in FY 2022-23¹⁰ to 230 Million Ton by FY 2030-31. To support this ambitious goal, the Indian government plans to enhance the countrys crude steel production capacity from 154 million ton (MnT) to 300 MnT by FY 2030-31, setting a positive trajectory for the industrys future.¹¹

In May 2022, the Indian government took decisive action in response to surging steel prices by implementing export duties ranging from 15% to 50%. The primary objective was to safeguard the availability of finished steel and raw materials for domestic production. While the duty was eventually lifted in November 2022, its impact on the steel trade was evident. Finished steel exports witnessed a substantial decline of 50.2% in FY 2022-23 compared to the previous fiscal year, amounting to a total of only 6.7 Million Ton. In contrast, steel imports surged by 29% in the same period, reaching 6.02 Million Ton.

Outlook

The steel industry in India is poised for robust growth in FY 2023-24, with steel consumption projected to rise by an impressive 7.5%. This surge in demand can be attributed to the thriving sectors of domestic construction, railways, and capital goods. The estimated steel demand for the upcoming fiscal year stands at an impressive 128.9 million tons, showcasing a significant increase from the 119.17 million tons recorded in FY 2022-23. This upward trajectory reflects the promising outlook for Indias steel sector, reaffirming its pivotal role in propelling infrastructure development and overall economic progress of the nation. The anticipated growth signals a positive outlook for the industry, laying the foundation for a resilient and prosperous future for Indias steel domain.

The domestic Steel growth is also aided by substantial increase in capital expenditure outlined in the federal budget for 2023-24. The allocation of Rs.10 lakh Crores for capital projects, combined with the expansion of the basic customs tax on key raw materials like ferrous scrap, CRGO, and nickel cathodes, is expected to play a pivotal role in driving the growth of the steel sector. These measures are strategically designed to bolster the steel industry, allowing it to meet the escalating demand in the market and contribute to the nations economic development. With these progressive initiatives in place, the Indian steel industry is well-positioned to support the nations ambitious infrastructure goals.¹⁴

The recent removal of export taxes and the inclusion of steel in the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, alongside measures to improve railways, logistics and regional connectivity, are poised to provide a substantial boost to the steel manufacturing sector. These strategic initiatives not only reinforce the Make in India campaign butalso align seamlessly with the vision of a self- reliant India (Atmanirbhar Bharat). Moreover, the introduction of the Production Linked Incentive (PLI) program for specialty steel has already garnered significant interest, with 67 applications from 30 companies vying fora share of the Rs.6,322 Crores outlay, further fueling innovation and growth in the industry. These collective efforts reinforce Indias position in the global steel market and propel the nation towards a path of sustainable and dynamic economic growth.¹⁵ This program aims to stimulate the production of high-end alloys and strengthen the countrys manufacturing capabilities.

Advantage India

Indian Automotive Industry

The Indian automotive sector is set for a robust and sustained growth trajectory, with a projected CAGR of 11.3% until 2027. A confluence of factors is driving this positive outlook, including a rise in disposable income, improved access to credit and financing options and a burgeoning population. Commercial vehicles and the passenger transport segment are emerging as key drivers of demand, bolstering the industrys potential for expansion. Moreover, the Indian governments supportive policies and initiatives are expected to play a pivotal role in facilitating and maintaining this growth in the years to come, underlining the sectors crucial role in Indias economic development. The automotive industry is poised to play a central role in shaping the countrys mobility landscape and fostering a prosperous and vibrant future for India.¹⁶

In FY 2022-23, the domestic automobile sales recorded a remarkable 20% year-on-year growth, marking the first full year unaffected by the pandemic after a hiatus of two years. This impressive growth was underpinned by a confluence of factors. Robust demand in urban areas, increasing replacement needs, a surge in the popularity of utility vehicles in the passenger vehicle segmentand implementation of the vehicle scrappage policy, all contributed to the upswing in sales volume across various segments. Furthermore, higher infrastructure spending played a vital role in bolstering the automotive industrys performance during the fiscal year.

During the fiscal year, the automotive sector faced headwinds from the inflationary pressures; however, several factors worked in favour of sales growth. Customers preponed their purchases in anticipation of the implementation of new fuel emission norms (BS-VI Phase -II), which gave a boost to sales. Additionally, the easing of semiconductor chip supply, a crucial component in the automotive industry, further supported the growth.

Furthermore, pent-up demand, which had built up during the pandemic, contributed to the surge in sales. Two-wheelers recorded a substantial 17% year-on-year growth, while passenger vehicles experienced an impressive 27% surge. Commercial vehicles (CV) also performed exceptionally well, achieving a remarkable 34% growth, and tractors witnessed a healthy 12% growth.

The three-wheeler segment stood out with an astonishing 87% year-on-year growth in domestic sales.¹⁷ The demand remains strong across all the segments. Segment-wise, medium and heavy commercial vehicles (MHCV) are expected to grow by 10-12% in FY24.¹⁸

The Indian automotive components sector is projected to clock 10-12% growth in revenue in fiscal 2024, riding on continuing domestic growth buoyed by robust demand from original equipment manufacturers (OEMs) on the back of high base of past fiscals and steady aftermarket demand. This is despite exports continuing to remain sluggish.¹⁹

Indian Infrastructure Sector

Indias pursuit of rapid growth in 2023 and beyond will be significantly propelled by major advancements in key areas, with a particular emphasis on infrastructure development. Investments in physical infrastructure play a vital role in improving efficiency and reducing costs, especially when accompanied by measures to facilitate business operations. The governments strong focus on future-oriented infrastructure development is evident through the introduction of various initiatives, including the pioneering US$ 1.3 trillion national master plan for infrastructure called Gati Shakti, which has already made remarkable progress and aims to bring about systematic and impactful changes in the industry.²¹

The governments initiatives, such as the "Smart Cities Mission" and "Housing for All" campaigns, have played a significant role in driving infrastructure development. These efforts are aligned with the governments ambitious goal of achieving a $5 trillion economy by 2025. To further stimulate the growth of the infrastructure sector, the government has implemented the National Infrastructure Pipeline (NIP) and introduced programs like "Make in India" and the production-linked incentives (PLI) plan. These measures collectively aim to create a conducive environment for infrastructure expansion and propel India towards its economic objectives.²³

In the Union Budget 2023, the government took several initiatives related to infrastructure, including²⁴:

• PM Awas Yojana expenditure increased by 66% to Rs.79,000 crores.

• The biggest allocation for the railways since FY2013-14, with capital outlay of Rs.2.4 lakh crore.

• Public agencies will construct urban infrastructure in Tier 2 and Tier 3 cities using the Urban Infrastructure Development Fund (UIDF), which will be managed by the national Housing Bank. The prioritized Sector Lending deficit will be used to create the UIDF.

• 100 essential transport infrastructure projects allocated investments totalling Rs.75,000 crores ( Rs.15,000 crores from private sources) to offer last and first mile connectivity for the coal, ports, food grain, steel and fertilizer grains industries.

Company Overview

Jayaswal Neco Industries Limited (JNIL) is NECO groups flagship company and is one of the largest manufacturers of iron and steel castings, pipes and fittings. Founded in 1972 as a small-scale iron foundry unit in Nagpur, our Company had integrated backward by setting up pig iron manufacturing unit at Siltara, Raipur, Chhattisgarh in 1996. We primarily engage in manufacturing of alloy steels - wire rods, bars, bright bars along with steel billets, pig iron/skull, sponge iron, pellets and iron & steel castings. Our products are used in industries such as automotive and auto components, engineering, power, railways, oil and gas, defence and construction sectors in the domestic market.

Through our perseverance, we have jumped 93 places within just an year and are now ranked 229 in Economic Times (ET) 500 List of Companies in India.

Completion of 50 years

This year marks a significant milestone for our Company as we celebrate 50 years of growth and progress since our inception in 1972. From our modest beginnings, we have evolved into the flagship company of the esteemed Neco Group of Industries, founded and led by visionaries Shri. Basant Lall Shaw, Shri. Arvind Jayaswal and Shri. Ramesh Jayaswal. Our journey commenced in 1976 as Nagpur Engineering Company Private Limited, specializing in construction castings. Later, in 1985, we transformed into Nagpur Engineering Company Limited (NECO) and expanded our expertise to produce castings for the Indian railways.

In 1996, we took a significant stride towards backward integration by establishing a state- of-the-art pig iron manufacturing facility with a captive power plant in Siltara, Raipur. This strategic move paved the way for enhanced capabilities and strengthened our position in the Iron and Steel industry. Today, we take immense pride in being one of the largest Ferrous Casting groups and a leading producer of Alloy Steel (Bar & Wire Rod Products) in India. With over five decades of experience and expertise backing us, we stand as a symbol of reliability and innovation in our field.

Installed Capacity overview Manufacturing Facilities

Our Company has two business segments: Steel Plant Division & Foundry Division.

Steel Plant Division (SPD): Under this unit, we are engaged in manufacturing of alloy steel long products, pig iron, sponge iron, pellets and steel billets and also has captive iron ore mines in Chhattisgarh. The Steel Plant Division is located in Siltara, Raipur (Chhattisgarh).

Steel Plant Division (SPD) - Plants	Capacity (MnTPA)#	Month / Year of Commissioning
Blast Furnace (BF)	0.75	Nov-1996
Captive Power Plants
- 15.5 MW$(BF Gas Based)	15.5 MW	Nov-1996
- 15.0 MW (7.0 MW from 350TPDA DRI* Waste Heat Recovery Boiler (WHRB)) &	15.0 MW	Jul-2006
(8.0 MW from 350 TPD DRI Atmospheric Fluidized Bed Combustion Boiler (AFBC))
- 12.0 MW (from 500TPD DRI Waste Heat Recovery Boiler)	12.0 MW	May-2007
- 6.0 MW Coke Oven Waste Heat Recovery Boiler	6.0 MW	Feb-2012
- 6.0 MW Coke Oven Waste Heat Recovery Boiler	6.0 MW	Jul-2012
Sinter-1	0.40	May-2004
Sinter-ll	0.40	Aug-2008
Steel Melt Shop -1	0.33	Oct-2004
Steel Melt Shop - II	0.65	Dec-2014
Coke Oven-1	0.10	Apr-2006
Coke Oven-ll	0.10	May-2012
DRI-(350TPD)	0.11	Jul-2006
DRI-(500TPD)	0.15	May-2007
Bar Mill	0.13	Sep-2008
Wire Rod Mill	0.28	Sep-2009
Bar & Section Mill	0.55	Dec-2014
SMS & Rolling Mill - Flat products	0.30	Nov-2013
Pellet	1.50	Nov-2014
340 TPD Air Separation	340TPD	Dec-2014
70 TPD Air Separation	70 TPD	Jun-2023

Foundry Division (FD): Our foundry division manufactures iron & steel castings which finds applications in automotive industry, generator sets, petroleum and refineries, railways, service lines, irrigation, construction etc. Our plants are located in and around Nagpur, Butibori (Maharashtra) and Anjora (Chhattisgarh).

Foundries (FD)	Capacity (MnTPA)#	Year of Commissioning
Iron & Steel Castings:
- Centricast Division (CD)	0.020	1976
- Engineering Castings Division (ECD)	0.020	1985
- Automotive Castings Division (ACD)	0.020	ACD-l-1991
		ACD-ll-1998
- Construction Castings Division (CCD)	0.015	1991

Iron Ore Captive Raw Material Sourcing

Iron ore: We have our own operative captive iron ore mines; Dec 2022 onwards the entire requirement of iron ore / fines has been sourced from the Companys captive iron ore mines.

Name	Capacity (MnTPA)	Month / Year of Commissioning
Metabodeli Iron Ore mine	1.00	Jan-2016
Chhotedongar Iron Ore mine	2.95	Dec-2021

Segment-Wise Performance Steel Plant Division

In FY2022-23, we witnessed a notable increase in the selling prices of our Finished Steel, Sponge Iron and Pig Iron products. Additionally, our sales volume for Sponge Iron and Pellets also witnessed a significant rise. As a result, our Steel Plant Division experienced a year-on-year revenue growth of 5.46%, amounting to Rs.5,746.34 crores. With an annual production capacity of 1 million ton, we cater to diverse market demands. Our operations are supported by a dedicated workforce of around 5,800 employees and workers, both on a permanent and contractual basis.

Integrated Steel Plant at Siltara, Raipur has been meticulously designed, allowing for potential expansions to increase steel manufacturing capacity up to 2 million ton per annum (MnTPA).

To support our operations, the plant features a captive power plant that generates 54.5 MW of electricity, primarily through Waste Pleat Recovery Boilers (WPIRB) power plants. Around 8 years back our Steel Plant Division implemented a world-class SMS (Steel Melt Shop) and Rolling Mill facility, sourced from the prestigious Danieli Group, Italy. This cutting-edge facility enhances our steel production processes, ensuring efficiency and productivity throughout the manufacturing cycle.

Our Mines

• Metabodeli Mine - Located in Kanker district of Chhattisgarh, spread over 25 hectares and has a mining capacity of 1.0 MnTPA. It has adopted zero-waste mining technology. The low-grade Iron Ore fines are being beneficiated at the Gidhali washery plant and graded products are sent to the Raipur plant for Captive use. It is one of the lowest cost producer of Iron ore in that region.

This mine got five-star rating award in FY 2021-22 from the Ministry of Mines, Government of India under a sustainable development framework.

• Chhotedongar Mine - Located in Narayanpur district of Chhattisgarh, spread over 192 hectares has a mining capacity of 2.95 MnTPA. The area comes under Abhujmand, 85 km from Gadhchiroli, Maharashtra. Similar to Metabodeli, this mine has also adopted zero-waste mining technology.

This mine has made us self-sustainable with regard to Iron ore requirements. This mine has won awards in various categories during the Mines Environment and Mineral Conservation (ML&MC) week celebration organized by the Indian Bureau of Mines in April 2023.

• Dhobitola & Manegaon Mine-These areTitaniferous Ore Mines situated in Gondia district of Maharashtra. Dhobitola Mine is a recipient of five-star rating award for four consecutive financial years 2018-19,2019-20,2020-21 and 2021-22 from the Ministry of Mines, Government of India, under a sustainable development framework.

• Manpur Mine - These are limestone mines located in the Kabirdham district of Chhattisgarh.

Locational Advantage

Our Integrated Steel Plant is located at Siltara, Raipur, Chhattisgarh while Foundry Division facilities are located at Anjora (one) in Chhattisgarh, Nagpur (two) and Butibori (one) in Maharashtra. Most of the power required by the Steel Plant is met through captive power plants and a connection with Chhattisgarh State Power Distribution Company Limited.

Our central location in India provides easy access to Auto Component Manufacturers / Original Equipment Manufacturers (OEMs) across the country and the Vishakhapatnam Sea port is conveniently located around 550 km from the Integrated Steel Plant for easy transportation of overseas raw material sourcing. Additionally, our Steel Plant has its own 13 km long railway siding for incoming raw materials, thereby reducing cost of transport.

Our facilities are in a well-developed industrial area with basic infrastructure facilities such as land, roads, power and water. Skilled personnel and labour are readily available from the nearby cities, villages and surrounding areas. The location is also near to the sources of supply of key raw materials for steelmaking such as iron ore, coal and scrap and is well-connected by way of airports, roadways and railways.

Backward and Forward Integrated Steel Facilities

Backward and forward integration are two common strategies used in the steel industry to manage the supply chain, reduce costs and increase efficiency.

We have Coke Oven Plants of 0.20 MnTPA capacity, Sinter Plants of 0.8 MnTPA capacity, a Pulverized Coal Dust Injection Plant, 54.5 MW Captive Power Plants and 1.5 MnTPA Pellet Plant which provide key raw material to our Steel Plant. Our captive Iron Ore Mines at Metabodeli and Chhotedongar ensure stable and reliable supply of raw materials and reduce dependence on external suppliers. This leads to cost savings, greater control over the supply chain and increased competitiveness.

Castings Division

The Castings Division of our Company witnessed yet another good year in FY2022-23, with our Revenue reaching Rs.596.52 crores, a significant increase from Rs.509.96 crores in FY2021-22.

This growth is attributed to the increase in demand observed in the automobile and construction sectors coupled with the upward trend in the selling prices of our finished castings during the fiscal year.

Our Iron making facilities-Blast Furnace (0.75 MnTPA) and Sponge Iron Plant (0.255 MnTPA) use iron ore from captive mines which is used in steelmaking. Having this closer to the Steel Plant reduces transportation costs and improves supply chain efficiency.

Our Steel Melt Shops of 0.983 MnTPA capacity, two Oxygen Plants (340 TPD + 70TPD), a Rolling Mill of capacity 0.954 MnTPA ensure production of quality alloy steel. By owning these facilities, we control the entire value chain, from production to distribution and capture more value from the products. This has led to improved product quality, better customer service, reduction in costs and higher profit margins.

Performance and Financial Review

We enjoyed a good year in terms of Revenue from Operations in FY 2022-23 as it increased by 6.45% from Rs.5,959 Crores to Rs.6,343 Crores. Our products across segments experienced a surge in demand which has led to a good year-on-year revenue growth. Our Sponge Iron production level under our Steel Plant Division surpassed last yearslevel. We witnessed remarkable growth across our subdivisions in our Castings segments.

However, this did not translate into higher profits due to huge impact of surge in Raw materials (Coking Coal) prices due to impact of Russia-Ukraine conflict which could not be completely passed to the end customer, as evidenced by a Profit After Tax (PAT) of Rs.224 Crores and an EBIDTA of Rs.804 Crores, both lower than the previous fiscal year (FY 2021- 22). Nevertheless, we maintain a strong sense of optimism regarding the future. We have made strategic investments in new technologies and implemented various changes within our Company to position ourselves for success. We are confident in ourability to capitalize on the overall growth of the country, which will not only boost our Companys expansion but also contribute to the growth of the industry.

Key Financial Information

Abridged Balance Sheet comparison FY 2022-23 & 2021 -22

		Rs. In Crores
Particulars	2022-23	2021-22
Non-Current Assets	3,818	3,899
Current Assets	2,236	2,424
TOTAL ASSETS	6,054	6,323
Net Worth	2,058	1,834
Non-Current Liabilities	31	3,505
Current Liabilities	3,965	984
TOTAL LIABILITIES	6,054	6,323

Abridged Profit and Loss comparison

FY 2022-23 & 2021-22

		Rs. In Crores
Particulars	2022-23	2021-22
Revenue from Operations	6,343	5,959
EBIDTA	804	1,306
PAT	224	2,248

Abridged Cash Flow comparison FY 2022-23 & 2021 -22

		Rs. In Crores
Particulars	2022-23	2021-22
A) Cash Flow from Operating Activities
Profit/(Loss) before tax as per PL	34	2,311
Add / (Less): Adjustments for Non-Cash and Non-Operating Items	755	-1,006
Add / (Less): Adjustments for Working Capital Changes, Direct Taxes (Paid) / Refund and Exceptional Items	-50	-444
A] Net Cash Flow from Operating Activities	739	860
B] Net Cash Flow from Investing Activities	-57	-26
C] Net Cash Flow from Financing Activities	-792	-943
Net Increase / (Decrease) in Cash and Cash Equivalents	-110	-109
Add: Opening Cash and Cash Equivalents	182	291
Closing Cash and Cash Equivalents	72	182

Key Financial Ratios

	March 31,2023	March 31,2022	Change (in %)	Remarks
Interest Coverage Ratio	1.77	2.85	-37.67	The decrease in the ratio was driven by lower year- on-year EBIDTA margins resulting from significant increases in raw material prices, particularly coal and non-coking coal in FY 2022-23 to certain extent as compared to FY 2021-22, wherein there was unprecedented growth witnessed in Steel Sector, as well as the stabilization of the steel markets.
Current Ratio	0.56	2.46	-77.11	The ratio has significantly decreased due to increase in Current Liabilities on account of classification of entire amount of Principal Term Loan Outstanding as Current.
Operating Profit Margin (%)	12.33	21.81	-43.48	The decrease in the ratio is attributed to a decline in operating EBIDTA coupled with an increase in turnover resulting from higher sales realizations.
Net Profit/(Loss) Margin (%)	3.58	37.72	-90.52	The Ratio has significantly decreased mainly on account of
				(1) net profit in FY 2021-22 was on higher side on account of Exceptional Income, which was a result of Implementation of Debt Restructuring in the books of accounts in FY 2021-22.
				(2) decrease in Net Profit in FY 2022-23 due to heavy increase in prices of raw material with respect to coal & non-coking coal and
				(3) further, steel markets are stabilized in FY 2022- 23 to certain extent as compared to FY 2021-22 wherein there was unprecedented growth witnessed in Steel Sector.
Return on Net-Worth	11.66	954.69	-98.78	The decrease in the ratio can be attributed to the increase in exceptional income in FY 2021-22, substantial rise in raw material prices and slower growth in the steel sector in FY 2022-23.

Debt Restructuring

On 23^,d August 2021, the Company had entered into Restructuring Support Agreement (RSA) with Assets Care & Reconstruction Enterprise Limited (ACRE) acting in its capacity as trustee of various trusts (ACRE Trusts) in relation to restructuring of all its outstanding debt owed to ACRE Trusts, in accordance with the Section 9 of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 ("SARFAESI Act"), as amended and restated from time to time.

The Company had complied with all the conditions precedent including that of the subsequent Amendment Agreements to the RSA. Accordingly, as confirmed by the ACRE Trusts, the debt restructuring had become effective on 23^,d May 2022 from the cut-off date of 31^st March 2020.

Further, as per IND AS-10 "Events after the Reporting Period", this was an Adjusting event and accordingly this event had been given accounting effect in the Books of Accounts of the Company for the year ended 31^st March 2022.

The implementation of Debt Restructuring Effectiveness last year improved the cash flow position of the Company, financial leverage levels and resulted in the elimination of financial stress. It has also led to realignment of debt to sustainable level. The Company has been doing prompt servicing of debt dues as per the Debt Restructuring from the cut-off date of 31^st March 2020.

Since implementation of the Debt Restructuring, the Company has not defaulted in any of the stipulated conditions of the RSA. Over and above the scheduled debt servicing, the Company has already made prepayment as cash sweep of its term loans of Rs.608.85 Croresforthe period from 1^st April 2020 to 31^st March 2023 to reduce its debt obligations significantly.

As per the terms of the RSA, the Company has to refinance its outstanding amount of Term Loans and Interest Accrued but not due on Borrowings of ACRE Trusts on or before 15^th December 2023. The Company has the potential and is confident that it will refinance the term loans on or before the extended date of Refinancing i.e., 15^th December 2023 as per the terms of RSA.

However, as on 31^st March 2023, in view of IND AS-1 (Presentation of Financial Statements), as the Company does not have an unconditional right to defer the settlement of the liability beyond twelve months from the reporting period of 31^st March 2023 and the liability is due for refinance on 15^th December 2023, hence the entire Term loans from ACRE Trusts has now been shown under the head "Current Liabilities".

If the above amount would have been continued to be classified as non-current, the Companys Non-Current Borrowings would have been higher by Rs.3,156.88 Crores and consequently the current borrowing would have been lower to that extent.

Projects and Impairment of Non-Operational Assets

The Company, with a view to set upend use projects for its captive coal mines (which were although subsequently deallocated), optimize costs and increase the extent of value addition in the long product alloy steel segment, had commenced implementation of various facilities in the State of Chhattisgarh.

All the under-implementation projects of the company had been completed in the past except the 3.0 Lakhs TPA DRI Plant (Sponge Iron Plant) & its Associated Captive Power Plant at Bilaspur district in Chhattisgarh.

The said project had been put under abeyance and was decided to be put as Non-Core Asset by the erstwhile Joint Lenders Forum (JLF) due to its commercial unviability on account of cancellation of the captive coal mines of the Company by the Flonourable Supreme Court.

In the earlier years, the Directorate of Enforcement by way of two attachments had provisionally attached the Plant and Machinery under installation at Dagori Integrated Steel Plant situated at Bilha, Bilaspur (Chhattisgarh) and certain property, plant and equipment at Steel Plant Division, Siltara, Raipur to the extent of Rs. 307.58 Crores for alleged misuse of coal raised from Gare Palma IV/4 coal block in Chhattisgarh.

The Adjudicating Authority had confirmed the above provisional attachments. Subsequently, the Appellate Authority stayed both the attachments on an appeal filed by the Company where the matter has been put up for hearing on 23^,d August 2023. The Company has a good case on merits, is likely to succeed in refuting the allegations and does not expect any material liability on the Company on this account.

As per the impairment policy, the Company had carried out an impairment test in the earlier years of its property, plant and equipment of Flat Production Division (FPD) at Raipur and Capital Work in Progress presently being suspended at its Dagori Integrated Steel Plant at Bilha- Bilaspur in accordance with the Indian Accounting Standards (Ind AS) 36 - Impairment of Assets and found that the carrying cost of these assets exceeds its recoverable value, therefore, an impairment loss was recognized in the earlieryearand had been disclosed as an Exceptional Item.

Total Productive Maintenance (TPM)

Our Company has implemented TPM as a core manufacturing strategy to enhance the efficiency and reliability of our production operations in the Integrated Steel Plant Division, Siltara, Raipur. TPM is a systematic approach to overall plant maintenance that involves the active participation of all workers and staff members, from operators, maintenance and administrative staff. Its primary objectives are to minimize or eliminate equipment downtime, reduce maintenance costs and improve the overall equipment effectiveness (OEE) of the manufacturing process and efficiency in working of the administrative process.

To achieve these goals, ourTPM program includes regular equipment inspections, preventive maintenance plans.

machine cleaning lubrication programs and office space management. We also conduct workshops and training sessions to enhance the TPM knowledge and skills of our workers and employees. The implementation of TPM has resulted in significant cost savings and reduced losses for our Company by reducing equipment downtime, lowering maintenance expenses and improving the overall equipment effectiveness (OEE) of our production processes and enhancement of efficiency in administrative processes in our office workings. This, in turn, has enhanced customers satisfaction by improving products and services quality and ensuring on-time delivery. The same also enables us to offer competitive pricing, customers loyalty and satisfaction.

We are committed to maintaining ourTPM Goal of Zero Accident, Zero Failure, Zero Defect and Zero Waste in our workplace.

The following are the targets set for every worker and employee -

• Continual improvement in Productivity, Quality & Delivery

• Significant Reduction of Cost & Losses

• Ensure Safe, Environment-Friendly & Cheerful Workplace

• Maintain 5S in own area

• Customersdelight

We are continuously working to keep our organization as"Future Ready"&"A Great Place to Work".

Our Company has implemented several important actions under each of the eight pillars of Total Productive Maintenance (TPM) in order to meet the goals of TPM:

• Pillar 1: 5S - A clean and organised workplace must be implemented, cleaning schedules must be established and work practises must be standardised.

• Pillar 2: Autonomous Maintenance (AM) -Its main tasks include inspecting and lubricating equipment, doing minor repairs and providing training to operators.

• Pillar 3: Planned Maintenance, or PM. Its primary operations include condition-based maintenance, equipment overhauls and the implementation of a maintenance schedule.

• Pillar 4: Quality Maintenance (QM) - The main tasks are performing quality inspections, putting in place quality control procedures, figuring out and resolving the underlying causes of quality problems.

• Pillar 5: Training and Education- Conducting training programmes on TPM, problem-solving, continuous improvement for operators, supervisors and managers.

• Pillar 6: Early Equipment Management (EEM) - The key tasks are choosing and identifying the right equipment, creating upkeep schedules and putting the Total Productive Asset Management (TPAM) system in place.

• Pillar 7: Safety, Health and Environment (SHE) - Implementing safety regulations, performing safety audits and taking care of environmental issues are among the main activities.

• Pillar 8: Office TPM - Applying TPM concepts to office operations, organising offices better and running training programmes for office personnel.

The Rolling Mills and Bright Bar Departments of our Steel Plant Division have passed the first stage assessment of TPM Excellence Award Category A-2023, which is one of the most prestigious International Manufacturing Excellence Award given by the Japan Institute of Plant Maintenance.

Strengths

• Costand quality control - We have a competitive advantage in the industry thanks to its integrated operations, robust distribution network, ideal plant locations, cost advantage, strong brand, varied business portfolio, knowledgeable experienced and professional management team.

• Cost savings with locational advantage:-

The advantageous location of our manufacturing facilities in central India is due to its close proximity to sources of raw materials like iron ore, coal and scrap. Additionally, it is conveniently located near the market and has a continuous supply of power and water. We benefit from having own operational captive iron ore mines. The location of our Company is well-suited for supplying its final products to customers who are also located nearby in the market. It also has a 13km long railway siding for its raw material.

• Experienced, knowledgeable and professional leadership:-

The Neco Group of Industries is a prominent conglomerate based in India with a diverse portfolio of business interests spanning automotive with machining, and construction castings, iron & steel and ferrous metal valves, among others. Our founders and executives are enriched with around 4 to 5 decades of experience in the casting and steel sectors.

• Diversified product portfolio - We offer customised casting products and serve variety of grades and kinds of alloy steels.

• Long standing customer base - Our businesses have played a key role in attracting new customers and building a loyal base throughout the years.

Challenges

Cyclicality of the steel industry-We work in a sector that experiences cyclical changes in both demand and pricing of our finished products and price volatility in procurement of coal. Any severe downturn in the industry has the potential to impact our Companys earnings.

The steel industry faces challenges in responding to changes in demand and the challenges due to capital- intensive nature of the industry.

This can result in several projects becoming operational simultaneously, leading to a mismatch in supply and demand. Additionally, steel product manufacturers are price-takers in the market, which makes them vulnerable to fluctuations in the industry and can impact their profitability.

Regulatory risk related to mining activities - Our Company is bound by several environmental, labour and safety standards since it operates in a heavily regulated sector of the economy. The time and money required to comply with these rules and regulations may negatively impact the profitability of the business. The Indian mining industry is subject to strict government regulations, which may lead to a ban on mining activities due to policy changes or due to flouting of Regulations. However, we are less exposed to this risk compared to companies involved in merchant mining because of our captive mining operations and superb compliance track record with all the extant regulations.

Highly competitive industry - We confront fierce competition from the peers in the alloy steel business.

Our Companys market share and pricing power may be restricted by this competition.

Raw material sourcing costs:-

We are significantly dependent on offshore raw material like internationally procured low ash, low moisture coking coal and high quality non-coking coal which are susceptible to vagaries of supply and price fluctuations and any significant increase in the cost of raw materials has the potential to hurt our Companys profitability.

Infrastructure bottlenecks - We work in rural regions which at times has poor infrastructure. This has an impact on the organizations logistics and supply chain.

Opportunities

• Growing steel demand: The Auto Sector (Principal end use sector for Finished Steel) has witnessed strong revival in the last couple of years and is expected to continue its momentum in the near future. Further due to quickening pace of urbanisation, industrialisation and infrastructure development, the demand for Automotive and consequently Alloy Steel is anticipated to increase in the coming years.

• Increasing the focus on innovation: We have the potential to develop new products and enter new markets as a result of innovations in manufacturing techniques.

product design and technology. We produce high value added customized grade of Alloy Steel.

• Expansion into international markets: We can broaden our business activities internationally, especially in emerging nations where the demand for steel is rising.

• New business segment: Opportunities to tap new business in the sectors of Oil &Gas, Marine Engineering, Transmission line towers. Ball Bearing Steel Market and Defence.

Threats

• Economic uncertainty/unforeseen force majeure events like covid, war etc. - Any economic uncertainty, such as a recession or inflation, force majeure events might have an influence on the demand for steel products, which would therefore have an effect on our sales and profitability.

• Cheap imports - Dumping of steel from other countries can affect demand for steel in the Country.

• Technological advancements: We must keep up with the technological developments to be competitive as the steel sector witnesses tremendous technological improvements. Failure to do so might result in the business losing market share to rivals with more sophisticated technology.

• Aggressive goals transitioning to ESG are highly capital intensive due to requirement of expensive & niche technologies, significant capital investment and building of competencies.

Human Resources and Industrial Relations (HR&IR)

We puta lotoffocus on encouraging a healthy work atmosphere and giving our workers plenty of possibilities for professional growth. Our employees health and safety are of utmost concern to us. We had taken substantial steps to guarantee the safety of our personnel in light of the COVID-19 outbreak.

• Covid Vaccination and Awareness: We facilitated 100% COVID-19 immunisation for both our contractual and on-roll staff as part of our dedication to protecting their health. We also established telemedicine services, allowing employees to do physical health checks remotely, in recognition of the significance of routine health check-ups.

• HR Connect: We launched a new project called HR Connect to address the worries and problems experienced by our workers on the shop floor. As part of this programme, shop floor meetings are held once a month to encourage efficient communication and raise awareness. Additionally, we have integrated punching machines atall of our locations as part of the HRMS solutions we have putin place for more efficient employee life cycle management.

Information Technology (IT)

As a major enabler of productivity and efficiency in the contemporary business landscape, information technology is widely used by our Company in its operations. Enterprise resource planning (ERP) software, customer relationship management (CRM) tools and supply chain management (SCM) systems, world class testing equipments, automation of various production units with predictive & analytical algorithms including State of Art control mechanism are just a few of the IT systems and applications that our Company employs to manage its business activities.

Our Company employs IT to assist its manufacturing and production procedures, including computer-aided design (CAD) and computer-aided manufacturing (CAM) tools. In order to foster cooperation and information sharing among its staff, our Company also makes use of a variety of communication tools, including email, video conferencing, instant messaging and virtual data, mails & meeting platforms.

The successful implementation of SAP S4/HANA software and SAP Ariba for procurement has yielded remarkable improvements in efficiency and productivity within our Integrated Steel Plant Division. These advanced technologies have played a crucial role in streamlining our operations and enhancing overall effectiveness. With the success achieved in the Integrated Steel Plant Division, we have extended the

• Recruitment of Management Trainees: We started management trainee programmes at 34 institutions across states including Chhattisgarh, Madhya Pradesh, Maharashtra, Odisha, NCR, Punjab and Andhra Pradesh as part of our commitment to developing talent. 3100 students were drawn in by our recruitment activities and participated in the written exam stage. Following the campus drive, 1861 applicants showed upfor the final interviewand 92 people have joined our Company.

• Training and Development: Our Company recognizes the importance of investing in the training and development of its Human Resources (HR) to enable them to perform their roles effectively and enhance their career growth. We offer various HR development programs, both in-house and external, to help HR employees acquire new skills and knowledge to support their job roles. These programs include training on performance management, recruitment and selection, employee engagement and retention strategies, as well as career development opportunities such as job rotations, stretch management, coaching and mentoring programs. Additionally, our Company encourages the employees to pursue relevant professional certifications to enhance their credentials and expertise.

implementation of SAP S/4 HANA to our Castings Division, further optimizing our performance across multiple segments. This integration of cutting-edge information technology platforms reflects our commitment to continuous improvement and innovation, reinforcing our position as a leading player in the industry and enabling us to deliver greater value to our stakeholders.

Risk Management

At our Company, we take risk management seriously, and have a robust framework in place to tackle various risks that may affect our business. Through a comprehensive process and a Risk Management framework, we identify, assess, monitor, and mitigate potential risks, ensuring a proactive approach to safeguarding our operations and interests.

To ensure the effectiveness of our risk management efforts, we have a dedicated Risk Management Committee and active involvement of Audit Committee and the Board. They regularly review our risk assessment and Action taken report, aligned with our well-defined RiskManagement Policy and Plan. This ensures that our management can make informed decisions and implement appropriate measures to address potential risks promptly and efficiently. By fostering a culture of risk awareness, preparedness and management, we strive to protect the stability and growth of our Company, always looking ahead to secure a promising future.

The identified riskareas are as under:

1 Macro-Economic and Market conditions

2 Fluctuations in Foreign Exchange

3 Political Environment

4 Competition

5 Revenue Concentration

6 Inflation and Cost Structure

7 Technological Obsolescence and Cyber security Risk

8 Financial Reporting and Financial Leverage Risk

9 Risk of Corporate Accounting Fraud

10 Legal Risks

11 Quality and Project Management

12 Environmental Riskand Pandemic/Epidemic Risk Management

13 Fluman Resource Management Risk

Internal Control System & their Adequacy

The Board of Directors of our Company is responsible for ensuring that the Internal Financial Controls have been laid down properly in our Company and that such controls are adequate and operating effectively.

Our Company has an Internal Control System commensurate with the nature of the business, the size and complexity of its operations. The Internal financial controls with reference to the Financial Statements are adequate. Its a risk focused system, analyzing and reporting to the Management on the day-to-day operations of our Company.

The Internal Audit Department across locations monitors and evaluates the efficacy and adequacy of the internal control system in our Company, its compliance with the operating systems, accounting procedures, policies and the rules & regulations.

On the basis of the report of the Internal Audit department, the respective department and functional head undertakes corrective action in their respective areas and thereby strengthens the controls. The Internal Audit Department presents audit observations and corrective actions thereon to the Audit Committee of the Board.