KIC Metaliks Ltd Management Discussions

ECONOMIC OVERVIEW GLOBAL ECONOMIC OVERVIEW

There are indications that the global economic situation is starting to improve, although growth remains moderate. Tighter monetary conditions are still having an impact, particularly in the housing and credit sectors, but overall global activity is showing resilience. Inflation is decreasing at a faster rate than initially predicted, and there is a noticeable uptick in private sector confidence. The labour market is experiencing a lessening of supply and demand imbalances, with unemployment nearing record lows. Real incomes are on the rise as inflation stabilizes, and trade growth is beginning to show positive results. Economic growth is varied among countries, with many advanced economies, particularly in Europe, seeing weaker outcomes, while strong growth is expected in the United States and several emerging markets.

Outlook

The global economy is demonstrating impressive resilience, . with a consistent decrease in inflation and sustained growth. Projections indicate that the world economy will grow by 3.2% in the years 2024 and 2025, maintaining the same pace as seen in 2023. Advanced economies are expected to experience a slight acceleration, with growth rates increasing from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. This growth is expected to be offset by a modest slowdown in emerging market and developing economies, decreasing from 4.3% in 2023 to 4.2% for both 2024 and 2025. Furthermore, global inflation is projected to decrease steadily, dropping from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Advanced economies are anticipated to reach their inflation targets sooner than emerging market and developing economies.

Artificial intelligence (AI) holds the potential to significantly contribute to economic recovery during challenging periods such as recessions. Through the utilization of advanced technologies like algorithms and machine learning, AI can enhance operational efficiency for businesses, creating new job prospects and fostering economic expansion. The adoption of AI by numerous companies has been on the rise, primarily among larger corporations. The overall impact of AI on overall productivity will be influenced by various factors, including the widespread adoption of new technologies across industries and whether AI is used to enhance labour rather than replace it.

INDIAN ECONOMIC OVERVIEW AND OUTLOOK

During FY 23-24 the Indian economy fared better than expected. The National Statistical Offices second advance estimates have pegged growth for the full year at 7.6%. India has been a "source of repeated positive growth surprises". There are expectations of the growth momentum continuing this year as well. It is expected that the Indian economy

is likely to remain the fastest growing large economy in the world. According to the India Meteorological Department, the southwest monsoon this year is "most likely to be above normal". There are also expectations of a firm pickup in private investment activity as capacity utilisation rates rise. Both bank and corporate balance sheets looks healthy. As per provisional data, the GNPA ratios of Banks and NBFCs stood at 2.8% and 2.5%, respectively, as at end March 2024.

It is expected that growth in the global workforce will be driven by India and sub-Saharan Africa, with these regions accounting for "nearly two in every three entrants over the medium term". Creating more productive forms of employment opportunities for the millions entering the labour force each year is expected be a top priority for the government after the general elections. In the next seven fiscals (2025-2031) it is expected that the Indian economy would cross the $5 trillion mark and would inch closer to become a $7trillion dollar economy.

INDUSTRY STRUCTURE AND DEVELOPMENTS

GLOBAL STEEL INDUSTRY OVERVIEW

Steel is a versatile and widely used alloy composed primarily of iron and carbon, with small amounts of other elements such as manganese, chromium, nickel, and others. It is a widely utilized material in construction, manufacturing, and various industries. Steel exhibits a range of desirable properties, including high tensile strength, durability, hardness, corrosion resistance, heat resistance, and the ability to be formed into different shapes. Steel is utilized in the manufacturing of various products, including ingots, semi-finished materials, hot-rolled sheets and coils, galvanized sheets, steel tubes and fittings, plates, wire rods, and many others. Its applications span various industries such as building and construction, electrical appliances, metal products, automotive, transportation, and mechanical equipment.

The global steel market reached US$ 942.3 Billion in 2023 and is projected to reach US$ 1,279 Billion by 2032, exhibiting a growth rate (CAGR) of 3.3% during 2024-2032. Global crude steel making capacity is increasing rapidly, reaching a record-high level of 2.498 billion tonnes in 2023, adding 0.057 billion tonnes in 2023 which is the highest growth rate in a decade. Global steel demand is expected to rise by 1.7% to 1.793 billion tonnes in 2024 and to increase further in 2025 to 1.2% to 1.815 billion tonnes. Markets are becoming bifurcated, with ASEAN, the Middle East and Africa expanding their crude steel producing capacity at a rapid pace, whereas capacity growth in Europe, the Americas and Oceania is much more modest.

Various factors are contributing to the markets growth, such as the expanding automotive industry, increasing demand for steel in the manufacturing of military aircraft, and the rapid adoption of steel in various industries like healthcare, electronics, and transportation. Moreover, infrastructure development, urbanization, population growth, economic conditions, and overall industrial activity play a crucial role in determining the demand for steel.

Outlook

The global economy is exhibiting resilience amidst various challenges, including the ongoing crisis in Gaza affecting supplies in the Red Sea, Russias invasion of Ukraine, high inflation, rising costs, and reduced household purchasing power. Alongside this, there are increasing geopolitical uncertainties and significant monetary tightening measures being implemented. Tighter credit conditions and increased costs have resulted in a notable deceleration in the housing sector and a slowdown in global manufacturing activities. Despite expectations of a smooth transition through this period of monetary tightening, it is anticipated that global steel demand growth will remain subdued, and market volatility will persist due to the delayed effects of tightening monetary policies, elevated costs, and uncertain geopolitical situations.

GLOBAL RAW MATERIAL OVERVIEW

Iron ore: Iron ore is a natural mineral substance typically mined from the Earths crust, containing iron in the form of iron oxides, primarily hematite and magnetite. It serves as a crucial raw material used in the production of iron and steel. Typically, it undergoes processing to extract the iron content and eliminate impurities, resulting in various grades of iron ore. These grades find application in the manufacturing of steel products for various industries. The market is driven by escalating demand for steel, propelled by rapid industrialization and urban development in emerging economies such as China and India.

During the FY 23-24, Iron ore prices (with 62% iron ore content) saw sharp fluctuations. During the 1^st week of April 2023 it remained at USD 121/t and further dipped to USD 104/t. It gained a high of USD 144/t during 1^st week of January 2024 and corrected sharply to reach USD 103/t during the end of March 2024. During FY 24-25, iron ore demand will continue to be closely tied to Chinas economic health and its steel production levels. Additional fiscal measures in China aimed at boosting domestic consumption and the property market could positively impact iron ore demand.

Coking Coal: The increasing demand for steel production worldwide is driving the growth of the coking coal market. Coking coal, also known as metallurgical coal, plays a pivotal role in steel manufacturing, making it a crucial commodity in the industrial sector. The growing infrastructural developments, coupled with the rising automotive industry, are further propelling the market.

During the FY 23-24, Coking Coal prices at the Dalian Commodities Exchange saw sharp fluctuations. During April 2023 it peaked at CNY 1,930/t (USD 266/t) and sharply corrected to CNY 1,200/t (USD 165/t). It further peaked to CNY 2,655/t (USD 366/t) during December 2023 and settled at an average price of CNY 1,638/t (USD 226/t) during March 2024. It is expected that, increased production from major exporters like Australia is anticipated to alleviate supply constraints, leading to more balanced market conditions and prices are expected to stabilize as supply improves and demand remains steady.

INDIA STEEL INDUSTRY OVERVIEW

In the grand narrative of industrialization, metals have always stood as the sturdy backbone, with steel reigning supreme among them. As nations forge ahead in their quest for economic development, the production and consumption of steel emerge as quintessential yardsticks. At the forefront of this global narrative stands India, proudly claiming its position as the worlds second-largest producer of crude steel, a testament to its industrial prowess and relentless growth trajectory. Indian Steel Industry contributes to all the facets of economy, including GDP, industrial and infrastructural development. The steel industry contributes approx. 2.5% to national GDP, employing 2.5 million people, directly & indirectly. The output effect of steel on Indian economy is approx.1.4 times, with an employment multiplier of 6.8 times.

India is currently second largest steel producer in the world. As of March 31, 2024, Indian crude steel production rose by 13.20% on y-o-y basis to reach 144.04 MT. Indias domestic finished steel production in FY 23-24 rose by 12.70% on y-o-y to reach 138.825 MT. This growth was primarily driven by rising infrastructure development and growing demand from sectors like automotives, construction, consumer durables & capital goods. Under the National Steel Policy and National Mission of Atmanirbhar Bharat, the government is aiming to increase Indias annual steel manufacturing capacity to 300 MT and per capita steel consumption to 160 kg by 2030 which currently stands at 86.7 kg.

Outlook

In the ever-evolving landscape of global markets, India emerges as a standout leader in the steel production industry, positioned for significant growth. The country has reaffirmed its dedication to growth through investment by increasing its capital expenditure by over 11%, totalling 11.11 lakh crore in the "interim" budget for FY 2024-25. The allocation of funds towards infrastructure development and transformation projects is not only beneficial for the present, but also paints a promising picture for the future. India is at the forefront of steel production, poised for notable increases in production and strong margins in the coming years. With a projected 7.5% surge in steel demand this fiscal year and an expected 9% rise in finished steel consumption by March 2025, the groundwork is laid for a period of unparalleled expansion.

GLOBAL PIG IRON INDUSTRY OVERVIEW

The growth of the steel industry is inextricably related to the growth of the merchant pig iron market. The steel industry is one of the main consumers of pig iron. The expansion of the steel industry, which is being driven by manufacturing, the development of infrastructure, and building, results in an increase in the demand for merchant pig iron. Rapid urbanization and the development of infrastructure projects in emerging economies drive the demand for steel products, which in turn fuels the need for pig iron. This cycle keeps the demand for steel products and pig iron in a positive feedback loop. Global pig iron production in 2023 (From January- December 2023) increased by 0.63% compared to 2022 - to 1,309 million tons.

Outlook

Looking ahead, the pig iron market is anticipated to evolve with the overarching trends of the steel industry and the global economy. The Asia-Pacific region is expected to continue its dominance in both production and consumption due to sustained industrial activities and infrastructural developments. Meanwhile, the potential for increased scrap steel recycling may pose a challenge to the pig iron market, as this could reduce the reliance on primary steelmaking inputs. Nonetheless, the construction of new blast furnaces and investment in ironmaking technologies are likely to maintain the demand for pig iron in the medium term.

INDIA PIG IRON INDUSTRY OVERVIEW AND OUTLOOK

Domestic production of merchant pig iron stood at 6.985 million tonnes (mnt) in FY 23-24. Production increased by 19.4% y-o-y compared to 5.85 mnt recorded in FY 22-23. Indias hot metal production stood at 87.02 mnt in FY 23-24, up by 7.6% y-o-y compared to 80.87 mnt in FY 22-23. The rise in hot metal production was in line with an increase in steel production.

The countrys rapid economic development, urbanisation, and growing population will sustain metals and steel production in the mid to long term which in turn would provide opportunities to the domestic pig iron manufacturing. Indias automotive sector is also expected to give a leg-up to pig iron production, a material used in making vehicle components.

Pig Iron prices in India

In the first half of FY 2023-24 (April to September 2023), pig iron prices in India remained relatively high due to strong demand from the construction and infrastructure sectors, coupled with high input costs for iron ore and coking coal. The average price of pig iron in the Indian market during this period ranged between 40,000 to 43,000 per metric tonne, depending on the region and grade. However, in the second half of FY 2023-24 (October 2023 to March 2024), pig iron prices started to decline due to a slowdown in economic activities and decreased demand from end-user industries, such as automotive and construction. The average price of pig iron during this period fell to a range of 36,000 to 40,000 per metric ton.

OPPORTUNITIES AND THREATS

Opportunities

1. Domestic Infrastructure Development: The Indian governments significant investment in infrastructure, including roads, highways, ports, and urban development, is expected to drive demand for steel and pig iron. Initiatives like the Smart Cities Mission and the development of industrial corridors will further boost the need for construction-grade steel, thereby increasing the demand for pig iron.

2. Housing Sector: The ongoing push for affordable housing under schemes like the Pradhan Mantri Awas Yojana (PMAY) is likely to increase the consumption of steel, providing a direct boost to pig iron demand.

3. Automotive Sector: The automotive industry, a major consumer of steel, is expected to grow, driven by increasing demand for vehicles. This growth will lead to higher demand for pig iron used in manufacturing automotive components. The governments emphasis on electric vehicles (EVs) could also create new demand for specific steel grades, indirectly supporting pig iron production. The revival of industrial production post-pandemic and the focus on boosting domestic manufacturing under the "Make in India" initiative will drive demand for steel and pig iron.

4. Export Opportunities: Declines in steel production in countries like China due to environmental regulations and policy shifts provide an opportunity for Indian pig iron manufacturers to capture a larger share of the global market. The country can leverage its position as a competitive producer to increase exports of pig iron to regions with high demand, such as Southeast Asia and Europe. Free trade agreements (FTAs) and bilateral trade pacts with other countries can also open new markets for Indian pig iron exports, providing opportunities to expand the industrys global footprint.

5. Technological Advancements: Investing in modern, energy-efficient blast furnaces and adopting new technologies can increase production efficiency, reduce costs, and improve the quality of pig iron. Technological advancements in reducing emissions and improving environmental sustainability can also enhance the industrys competitiveness. Innovation in Steel Production:

6. Innovations in steel production processes, such as the use of direct reduced iron (DRI) and electric arc furnaces (EAF), can complement pig iron production and create new market opportunities.

7. Raw Material Availability: Indias substantial iron ore reserves provide a reliable and cost-effective source of raw materials for pig iron production, ensuring stable supply and competitive pricing.

8. Policy Support: Policies and incentives aimed at boosting domestic manufacturing, such as the Production Linked Incentive (PLI) scheme, can support the growth of the pig iron industry. Initiatives to improve the ease of doing business and reduce regulatory burdens can also create a more favourable environment for pig iron producers.

Threats

1. Slowdown in economic activities: The Indian economy experienced a slowdown in economic activities during the latter part of FY 2023-24, which led to a decrease in demand for steel and its raw materials, including pig iron.

2. Decreased demand from end-user industries: Key end-user industries like construction, infrastructure, and automotive witnessed a slowdown in demand during the latter half of FY 2023-24.

3. Oversupply situation: Despite the lower demand, pig iron production levels remained high, leading to an oversupply situation in the market.

4. Decline in input costs: The prices of raw materials used in pig iron production, such as iron ore and coking coal, declined during the latter part of FY 2023-24. This reduced the production costs for pig iron manufacturers, allowing them to lower their selling prices.

5. Global market conditions: The global demand for steel and pig iron was subdued during FY 2023-24, particularly in major markets like China. This global oversupply situation and lower demand from export markets contributed to lower pig iron prices in India.

6. Shifting towards alternative raw materials: Some steel producers in India started shifting towards alternative raw materials like direct reduced iron (DRI) and hot briquetted iron (HBI), which are substitutes for pig iron. This reduced the demand for pig iron and put downward pressure on its prices.

7. Environmental regulations: Stricter environmental regulations and concerns about the carbon footprint of pig iron production may have led some buyers to opt for alternative raw materials, thereby reducing the demand for pig iron and affecting its pricing.

These factors, combined with the general market dynamics and competition among pig iron producers, resulted in subdued pricing of pig iron in India during the financial year 2023-24.

BUSINESS AND FINANCIAL OVERVIEW

K I C Metaliks Limited, a Kolkata headquartered Company is a leading pig iron manufacturer in West Bengal. Its manufacturing facility is situated at Durgapur. The company has over 35 years of experience catering to hundreds of satisfied customers using cutting-edge technology. Shares of the Company are also traded the Bombay Stock Exchange Limited.

The Companys financial statements were prepared as per the Indian Accounting Standards ("Ind AS") as prescribed by Ministry of Corporate Affairs pursuant to Section 133 of the Companies Act, 2013 ("the Act"), read with the Companies (Indian Accounting Standards) Rules, 2015 (as amended), other relevant provisions of the Act and other accounting principles generally accepted in India.

Brief financial performance for F.Y. 2023-24:

Particulars	Year ended March 31, 2024	Year ended March 31, 2023
Revenue from Operations	85,418.42	74,927.09
PBDIT	2,724.20	5,574.87
Interest and Financial Charges	1,094.65	1,119.33
Depreciation and amortization	1,478.95	1,423.80
Tax expenses	-77.88	1,177.10
Net Profit	228.48	1,854.64

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios, alongwith detailed explanations thereof including:

Ratios	2023-24	2022-23	% Change	Reason
Debtors Turnover Ratio (in days)	2.05	0.87	135.63	Increase due to increase in receivables
Inventory Turnover Ratio (in days)	79.41	59.51	33.44	Increase due to increase in inventory
Interest Coverage Ratio (in times)	1.14	3.71	-69.27	Decrease due to decrease in profit
Current Ratio (in times)	1.18	1.18	0.00	NA
Debt Equity Ratio (in times)	0.72	0.72	0.00	NA
Operating Profit Margin (%)	2.87	5.83	-50.77	Decrease due to decrease in profit
Net Profit Margin (%)	0.27	2.44	-88.93	Decrease due to decrease in profit
Return on average Net Worth (%)	1.28	11.00	-88.36	Decrease due to decrease in profit

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Companys internal financial controls are commensurate with the nature of its business, the size, and complexity of its operations and such internal financial controls with reference to the Financial Statements are adequate. The controls were tested during the year and no reportable material weaknesses either in their design or operation were observed. To maintain independence and objectivity in its function, the Internal Auditor reports directly to the Audit Committee of the Board.

Further, your Companys Internal Financial Controls (IFC) has been reviewed and all necessary steps have been taken to strengthen financial reporting and overall risk management procedures. Detailed procedural manuals are in place to ensure that all the assets are safeguarded, protected against loss, proper prevention & detection of frauds & error, the accuracy and completeness of the accounting records, and all transactions are authorized, recorded and reported correctly.

The scope and authority of the Internal Audit (IA) function is defined in the internal financial control policy. These are monitored and routinely monitor and evaluated by the Statutory as well as Internal Auditors. The Internal Auditor monitors and evaluates the efficiency and adequacy of Internal Financial control system in the Company, its compliance with operating systems, accounting procedures and policies. To maintain its objectivity and independence, the Internal Auditor reports directly to the Chairman of the Audit Committee of the Board, all the significant audit observations and follow up actions thereon. Both Statutory and internal auditor have quarterly sessions with the Audit committee. The Internal audit reports are placed before the Audit committee on quarterly basis and all findings and observation, if any are recorded thereon. The said observation and comments, if any of the Audit Committee are placed before the board. The Internal Auditor is a permanent invitee to the Audit Committee Meetings. The Audit Committee advises on various risk mitigation exercises on a regular basis.

M/s Agarwal Maheswari & Co., the statutory auditors of the company have audited the financial statements included in this annual report and have issued an attestation report on our internal control over financial reporting (as defined in section 143 of Companies Act 2013). The company has appointed M/s B.N. Agarwal & Co., Chartered Accountant to oversee and carry out internal audit of activities of the company. In line with companys business & presence, the conduct of internal audit is oriented towards the review of internal controls and risks in the companys operations.

The audit committee also reviews reports submitted by the management and audit reports submitted by internal auditors and statutory auditors on periodic basis. Suggestions for improvement are considered and the audit committee follows up on corrective action. The audit committee also meets companys statutory auditors to ascertain, inter alia, their views on the adequacy of internal control systems and keeps the board of directors informed of its major observations, if any, periodically.

Your Board is of the opinion that the Internal Financial Controls, affecting the Financial Statements of your Company are adequate and are operating effectively.

RISKS AND CONCERN

The Company has laid down a well-defined risk management mechanism covering the risk mapping and trend analysis, risk exposure, potential impact and risk mitigation process. A detailed exercise is being carried out to identify, evaluate, manage and monitor business and non-business risks. The Audit Committee and the Board periodically review the risks and suggest steps to be taken to manage/mitigate the same through a properly defined framework.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS

K I C Metaliks Limited considers employees as the most valued asset, who are at the core of the business. Human capital is the most important business driver. A strong people culture is the soul of the organization and biggest competitive advantage for a sustainable growth.

As an organization, all colleagues, at every level, are part of the organizations growth strategy and are empowered enough to take business decisions. The Company takes care of them much beyond salary, pay and perks and ensures that they get best-in-class learning and career advancement opportunities. The key pillars of the core philosophy are talent care and development, empowerment and decision making at all levels, innovation, agility and digital transformation.

The Company understands that internal selection and succession is very critical for the long-term sustenance of the business as it ensures business continuity, preserves corporate culture, enhances knowledge capital and fuels the ambitions of the companys talent leading to better retention. It is ensured that internal talent is groomed for the next level responsibilities.

The Company has 331 personnel on its payroll as on 31^st March, 2024.

INFORMATION & TECHNOLOGY

The Companys constant drive for growth leads to the strengthening of its information technology too. The Companys unwavering pursuit of expansion has resulted in the advancement of its information technology infrastructure.

CAUTIONARY STATEMENT

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be forward looking statements within the meaning of applicable securities laws and regulations. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.