Maithan Alloys Ltd Management Discussions.

Global economic overview

The global economy grew 3.6% in 2018 compared with 3.8% in 2017, largely on account of the failure of Brexit negotiations, tightened financial conditions, geopolitical tension and higher crude oil costs. Global growth is estimated at 3.3% in 2019 on account of a sustained weakening in advanced economies. (Source: World Economic Outlook).

Global economic growth over six years

(Source: World Economic Outlook, April 2019) E: Estimated; P: Projected

Indian economic overview

After growing at 7% in 2017-18, the Indian economy grew 6.8% in 2018-19 (initial estimate). The principal developments during the year comprised 8.6% increase in per capita income, decline in inflation, steady interest rates, decline in the price of crude oil and weaker consumer sentiment in the second half of the financial year following a large non-banking financial company announcing its inability to meet dues. India retained its position as the sixth largest economy (eleventh largest in 2013-14). In 2018, India received more foreign inflows than China - US$38 billion compared with Chinas US$32 billion. India reported a 23-notch jump to record 77th position in the World Banks report on the Ease of Doing Business that captured the performance of 190 countries reporting an improvement in 6 of 10 parameters. Indias global-rank for ‘getting credit as per World Banks Ease of Doing Business Index improved from 44 in 2016 to 22 in 2018.

Key government initiatives

Bank recapitalisation scheme: In addition to infusing H2.1 lakh crore in public sector units, the Indian government announced a capital infusion of H41,000 crore through recapitalisation bonds in FY2018-19.

Expanding infrastructure: The Government of India invested H1.52 trillion to construct 6460 kilometres of roads in 2018. Its proposed expenditure of H5.97 trillion (US$89.7 billion)

on all infrastructure for 2018-19 is expected to strengthen the national economy.

Increasing MSP: The Government fixed MSPs for 22 mandated kharif and rabi crops and FRP for sugarcane. The Central government committed to provide farmers with a 50% return over the cost of production for all mandated crops, strengthening the rural economy.

Budgetary allocation: Indias defence budget is projected to surpass H300,000 crore (US$42.19 billion) in 2019-20 for the first ever time.

The Insolvency and Bankruptcy Code (Amendment), Ordinance 2018: The Ordinance provides significant relief to home buyers by recognising their status as financial creditors. The major beneficiary comprised MSMEs, empowering the Government to provide a special dispensation under the Code.


(Source: Live Mint, Economic Times, Reuters, PIB, Union Budget, World Bank, Times Now)


Indias economic growth is expected to be sluggish in 2019-20. Strong private consumption and services are expected to catalyse economic activity. Private investment is expected to revive as the corporate sector adjusts to GST. The recapitalisation package for public sector banks announced by the Government of India is expected to resolve banking sector Balance Sheets, enhance credit availability and spur national investment. (Source: IMF, World Bank)

Global steel industry overview

Global crude steel production reached 1,808.6 million tonnes in 2018, up 4.6% over 2017. Crude steel production increased in all regions in 2018 except in the EU, which saw a 0.3% contraction. Asia produced 1,271.1 million tonnes of crude steel in 2018, an increase of 5.6% over 2017. Chinas crude steel production in 2018 reached 928.3 million tonnes, up 6.6% on 2017. Chinas share of global crude steel production increased from 50.3% in 2017 to 51.3% in 2018. Indias crude steel production for 2018 was 106.5 million tonnes, up by 4.9% on 2017, replacing Japan as the worlds second-largest steel-producing country. Japan produced 104.3 million tonnes in 2018, down by 0.3% compared to 2017. South Korea produced 72.5 million tonnes of crude steel in 2018, an increase of 2% compared to 2017. The EU produced 168.1 million tonnes of crude steel in 2018, a decrease of 0.3% compared to 2017. Crude steel production in North America stood at 120.5 million tonnes in 2018, 4.1% higher than in 2017. The US produced 86.7 million tonnes of crude steel, up 6.2% on 2017. (Source: World Steel Association)


The short-term outlook forecasts a 1.4% growth in global steel demand in 2019, reaching 1,681.2 million tonnes. The demand for steel in the developed world remains healthy, while in the developing countries steel demand could continue to recover amid challenges. Chinas steel demand is being forecasted to remain flat at 781 million tonnes in 2019 as the nations economy undergoes ‘rebalancing and environmental regulations become stringent. For the last two years, China has been holding ~49% share of the total global crude production but Chinas steel demand growth is expected to decelerate in the absence of stimulus measures. Demand in ASEAN is expected to resume backed by infrastructure programmes in 2019 and onwards. Steel demand in developing Asia (excluding China) is expected to increase by 6.8% in 2019. (Source: World Steel Association)

Top 10 steel producing countries

Rank Country 2018 (Mt) 2017 (Mt) %2018/2017
1 China 928.3 870.9 6.6
2 India 106.5 101.5 4.9
3 Japan 104.3 104.7 -0.3
4 United States 86.7 81.6 6.2
5 South Korea 72.5 71 2
6 Russia(e) 71.7 71.5 0.3
7 Germany(e) 42.4 43.3 -2
8 Turkey 37.3 37.5 -0.6
9 Brazil 34.7 34.4 1.1
10 Iran(e) 25 21.2 17.7

Indian steel industry overview

India emerged as the worlds second-largest steel producer after China in 2018, while retaining its position as the third-largest finished steel consumer. India also emerged as the largest producer of sponge iron in the world. India possessed an installed capacity of 132 million tonnes in 2018 whereas production for the period was pegged at 106.5 million tonnes compared to 101.5 million tonnes in 2017, registering a y-o-y growth of 4.9%. Indias per capita consumption of steel rose from 59 kilograms in 2013-14 to 69 kilograms in 2017-18, which is still below the global average of ~214 kilograms. India emerged as the fastest-growing market for stainless steel in the world. The per capita consumption of stainless steel in India is at 2 kilograms, compared to the world average of ~6 kilograms, indicating a large headroom. In 2018, Indias total stainless steel production was pegged at ~3.6 million tonnes for long and flat products.


Indias steel demand is estimated to register a growth of 7.3% in 2019, riding on the back of robust GDP growth. Despite burgeoning demand, steel production is projected to grow 2.5-3% by the end of 2018-19. Domestic steelmakers are expected to increase their capacity by ~16 million tonnes between FY2019 and FY2021. This capacity ramp-up and debottlenecking of stressed assets would warrant an industry-wide capex of ~H750-800 billion between FY2019 and FY2021. Looking ahead, the steel industry is expected to achieve 300 million tonnes of production capacity by 2030. Increased outlays for the railways sector, a_ordable housing push and rising demand capital goods and consumer durables could boost the domestic steel industrys growth. (Source: Live Mint, Economic Times, PIB, Bloomberg, Ministry of Steel, Hindu)

Advanced materials: The weight and engine power of vehicles have been on the rise, prompting a greater demand for stronger components across body frame, brake and suspension. In this context, the auto industry is seeing an increasing application of advanced materials for lightweighting materials such as high-strength steel, aluminum and magnesium and carbon fibre. Light-weighting gains particular importance in the case of electric vehicles as it directly reduces the power demand on the battery, increases battery range, reduces charging cycles and enhances battery life. This is pushing up demand for aluminum and high-strength steel. By 2030, the share of high-strength steel in the material costs of a vehicle is expected to double. Magnesium and carbon fibre are also lightweight materials, but they are expensive, which would limit their use to niche applications, e.g., performance vehicles where the price premium justifies the trade o_.

Key downstream demand drivers

Construction and infrastructure: Infrastructure sector is the largest consumer of steel in India, accounting for more than 60% of the total finished steel consumed. The demand for steel in India is estimated to grow at a rate of 7.3% in 2019, riding on the back of growing demand from the construction sector. Steady order inflow, supported by increased governmental spending towards infrastructure, improved the medium-term revenue visibility of most construction players. The construction companies are likely to witness significant opportunities from the railways, ports, urban infrastructure and airport segments, boosting the demand for steel.

Engineering and fabrication:

The engineering and fabrication sector had the second-largest share of 22.1% of the total finished steel consumed. This segment involves industries such as capital goods, consumer durables, electrical goods, general engineering and defence equipment, among others. Steel products, including hot-rolled coils and sheets, are used in general engineering; galvanised sheets are used in consumer durables. Rapid urbanisation and growing per capita incomes can ensure this industrys sustained growth. Automotive: The automotive sector enjoyed the third largest share of around 10.1% of the total finished steel consumed. The Union Budget gave a much-needed focus to growth and development of the rural economy by extending necessary incentives. Increasing the zero-tax income limit to H500,000 will prove beneficial for the middle-class, strengthening sales of automotive products. (Source: Economic Times, CARE, SIAM, ICRA)

Government initiatives

• The National Steel Policy strives to achieve crude steel capacity of 300 million tonnes per annum production of 255 million tonnes and a per capita consumption of finished steel of ~160 kilograms by FY2030.

• The housing and construction sector is expected to be catalysed by government initiatives like Pradhan Mantri Awas Yojana, Sardar Patel Urban Housing Mission, 100 Smart Cities Mission by 2022, Pradhan Mantri Gram Sadak Yojana, Urban Infrastructure Development Scheme for Small & Medium Towns, National Heritage City Development and Augmentation Yojana, Bharatmala, Power for All, Development of Industrial Corridors & National Investment & Manufacturing Zones and 75,000 MW Clean Energy Initiative by 2022, among others.

• The Central Government has announced a policy for giving preference to domestically-manufactured iron and steel products for government projects. The policy provides a minimum value-addition of 15% in notified steel products, which are covered under preferential procurement.

• The Central Government has allowed 100% FDI through the automatic route, a 20% safeguard duty on steel imports and an export duty of 30% on iron ore (lumps and fines). (Source: Business Today)

Global manganese industry overview

Manganese ore realisations remained moderately stable with a minor decline in the last weeks of 2018. The Chinese market remained the primary driver behind manganese demand, but silico-manganese (used in steel) futures contracts with the Asian nation, which weighed heavily on the sector in 2017 and created widespread volatility, had a lower impact in 2018.

Indian manganese industry overview

The reserves of high grade manganese ore are limited (<10%); overall production is low (~2.5 million tonnes) and inadequate, considering the demand from the manganese-based alloy industry. Presently, 90% of the countrys production is utilised for making manganese alloys after blending it with imported medium high grade ore. By 2020, the constraints on the availability of high grade manganese ore, coupled with anticipated demand of 8.33 million tonnes of run-o_-mine based on metallurgical calculations for steel making, could put a pressure on the consumption sector (manganese-alloy industry) to provide consistent quality and cost-e_ective products.

Global ferro alloys sector overview

The global ferro-alloys market is set to exceed US$70 billion by 2025. The growing construction industry in emerging economies of the Asia-Pacific region is a prominent factor influencing the growth of the ferro-alloys market. Rising population levels along with growth in per capita income in the region, due to decisions by governments, have propelled construction sector growth. The construction industry accounts for almost half the steel consumption; the presence of enormous raw material reserves in Asia Pacific could augment product manufacture. In India,~US$650 billion of investment is expected to be channelised towards urban infrastructure over the next 20 years. With improving construction methods, various steel products are expected to be consumed. (Source: Global Market Insights)


Maithan Alloys risk management is an enterprise-wide function overseen by a team of qualified specialists with longstanding sectoral experience.

Key Risks


Potential Impact Mitigation measures
• Slowdown in product ofitake With the global steel industry on the recovery path, the alloys companies are witnessing turn around. Maithan with a differentiated business model and a strong product portfolio is growing sustainably.
Industry downturn


• Cyclical nature of steel industry • Unfair trade practices and remedial measures
• Inconsistent product quality The Company works rigorously on the quality front with streamlined operating procedures. Over the years of its existence, the Company has created a dedicated team driving the business. The employees are regularly trained in a harmonious work environment. The Company enjoys one of the best retention rates in the industry. The Companys exports stood at H1,058.98 crore against import of H700.87 crore, providing it with a natural hedge.
Quality Human capital

Internal Internal

• Erratic quality of raw materials procured
• High employee attrition
• Inadequate training and employee errors
• Low employee productivity
• Adverse impact on profitability
• Fluctuation in foreign exchange
Currency volatility


• Fluctuating fair value or future cash flows due to changes in foreign exchange rates
• Locational disadvantages
• Undulating roads and hilly terrains The Company has manufacturing plants located strategically across the country.


The Kalyaneshwari plant of the Company is situated in the countrys steel belt and sells most of its output within 200 kilometres of the plant. Built in an SEZ, the Visakhapatnam plant is located close to two deep-draft ports and caters to export demand.

• Cheap imports from South Asian countries

The Company has strong relationships with miners to ensure timely supply. The
Input cost Internal

• Volatile rates of raw materials

Company sources raw material when it gets sales contracts, helping optimise inventory costs. It has PPA agreements with power utilities for supplying uninterrupted power at pre-determined prices.

• Increased interest payouts

Interest rate Internal

• Fluctuations in market interest rates

The Company has a sizeable cash surplus while borrowings on its books are low.
Due to this, interest payout is low.
Liquidity Internal • Financial distress arising due to shortage of funds The Company has a cash and liquid investments of H621 crore.

• Congestion, strikes, channel blockages

The Companys proximity to key customers as well as ports helps reduce logistical costs.
Logistical External

• Rake unavailability, landslides, strikes, derailments

• Storage, transportation and material handling risks


Profit and loss account analysis

Total income

Total income increased by 5.68% during FY19 i.e. from H1,905.69 crore in FY18 to H2,014.00 crore in FY19.


The Companys EBITDA decreased by 11.90% in FY19 i.e. from H395.40 crore in FY18 to H348.37 crore in FY19 owing to an increase in raw material cost.

Finance costs

Finance costs increased by H1.86 crore from H4.05 crore in FY18 to H5.91 crore in FY19 owing to higher bank interest cost incurred to meet non-fund based requirements.

Other incomes

Other incomes increased by 77.47% from H14.69 crore in FY18 to H26.07 crore in FY19 owing to an increase in financial income and gain on investments.

Tax expenses

Tax expenses decreased by 14.96% from H84.16 crore in FY18 to H71.56 crore in FY19 owing to lower profits.

Net profit

Net profit stood at H255.26 crore in FY19, compared to H291.75 crore in FY18, registering a drop of 12.51%.

Balance sheet analysis

Net worth

Net worth stood at H1,119.87 crore as on 31 March 2019 compared to H875.12 crore as on 31 March 2018, an increase of 27.97%. Net worth comprised paid-up equity capital worth H29.11 crore and other equity of H1,090.76 crore, as on 31 March 2019.

Loan profile

Total loan funds stood at H7.09 crore while long-term borrowings stood at H3.62 crore as on 31 March 2019.

Total assets

Total assets increased by 24.85% from H1,221.90 crore as on 31 March 2018 to H1,525.58 crore as on 31 March 2019.


Inventories increased by 5.14% from H248.19 crore as on 31 March 2018 to H260.94 crore as on 31 March 2019. Inventories comprised raw material amounting to H206.26 crore, work-in-progress worth H1.76 crore, finished goods worth H44.79 crore and stores and packing materials worth H8.13 crore.

Sundry debtors

Sundry debtors stood at H256.66 crore as on 31 March 2019 compared to H243.72 crore as on 31 March 2018, an increase of 5.31%.

Cash, cash equivalents and current investments

Cash, cash equivalents and current investments as on 31 March 2019 stood at H637.10 crore compared to H358.28 crore as on 31 March 2018.

Current liabilities

Current liabilities stood at H370.70 crore as on 31 March 2019 compared to H315.37 crore as on 31 March 2018.

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 therefore

There was significant change only in the Interest Coverage Ratio compared to the previous financial year as it decreased from 97.63 to 58.95 due to an increase in finance costs from H4.05 crore to H5.91 crore and lower profits during FY2018-19.

Details of change in Return on Net Worth as compared to the immediately previous financial year along with detailed explanations therefore

The Return on Net worth was 22.79% during the FY2018-19 compared to 33.34% during the FY2017-18. The increase in raw material prices mainly squeezed the profit margin by 12.51% during the FY2018-19 as compared to FY2017-18. The surplus fund deployed in liquid investment amounting to H621 crore, was proposed to be utilised for capex requirements which yields lower return compared to funds utilised for manufacturing operations. Consequently, the Return on Net worth was lower by 10.55%.

Human resources and industrial relations

The Company believes that the quality of the employees is the key to success and is committed to equip them with skills, enabling them to seamlessly evolve with ongoing technological advancements. During the year, the Company organised training programmes in different areas such as technical skills, behavioural skills, business excellence, general management, advanced management, leadership skills, customer orientation, safety, values and code of conduct. The relationship between the management and employees continues to be cordial and plants are running smoothly. The total number of employees on the payroll of the Company as on 31 March 2019 was 598.

Internal control systems and their adequacy

The Companys internal audit system is continuously monitored and updated to ensure that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly. The audit committee reviews reports presented by the internal auditors on a routine basis. The committee makes note of the audit observations and takes corrective actions, if necessary. It maintains a constant dialogue with the statutory and internal auditors to ensure that internal control systems operate effectively.