Manaksia Steels Ltd Management Discussions

Global economy

Overview: Global economic growth declined from 3.5% in 2022 to an estimated 3.1% in 2023. A disproportionate share of global growth in FY 2023-24 is expected to come from Asia, despite the weaker-than-expected recovery in China, sustained weakness in USA, higher energy costs in Europe, weak global consumer sentiment on account of the Ukraine-Russia war and the Red Sea crisis resulting in higher logistics costs. A tightening monetary policy translated into increased policy rates and interest rates for new loans.

Growth in advanced economies is expected to slow from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024 as policy tightening takes e_ect. Emerging market and developing economies are projected to report a modest growth decline from 4.1 percent in 2022 to 4.0 percent in 2023 and 2024. Global inflation is expected to decline steadily from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024, due to a tighter monetary policy aided by relatively lower international commodity prices. Core inflation decline is expected to be more gradual; inflation is not expected to return to target until 2025 in most cases. The US Federal Reserve approved a much-anticipated interest rate hike that took the benchmark borrowing costs to their highest in more than 22 years.

Global trade in goods was expected to have declined nearly USD 2 trillion in 2023; trade in services was expected to have expanded USD 500 Billion. The cost of Brent crude oil averaged USD 83 per barrel in 2023, down from USD 101per barrel in 2022, with crude oil from Russia finding destinations outside the European Union and global crude oil demand falling short of expectations.

Global equity markets ended 2023 on a high note, with major global equity benchmarks delivering double-digit returns. This out performance was led by a decline in global inflation, slide in the dollar index, declining crude and higher expectations of rate cuts by the US Fed and other Central banks.

Employees by age group

Regional growth(%)	2023	2022
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

Performance of major economies, 2023

United States: Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022 China: GDP growth was 5.2% in 2023 compared to 3% in 2022 United Kingdom: GDP grew by 0.4% in 2023 compared to 4.3% in 2022 Japan: GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022 Germany: GDP contracted by 0.3% in 2023 compared to 1.8% in 2022 (Source: PWC report, EY report, IMF data, OECD data, Livemint)

Outlook: Asia is expected to continue to account for the bulk of global growth in FY 2024-25. Inflation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy has demonstrated resilience amid high inflation and monetary tightening, growth around previous levels for the next two years.

(Source: World Bank).

Indian economy

Overview: The Indian economy was estimated to grow 7.8% in the FY 2023-24 against 7.2% in FY 2022-23. India retained its position as the fifth largest economy. The Indian rupee has demonstrated resilience compared to the preceding year, outperforming many other Asian currencies. Since April 2023, it has experienced a 0.6% depreciation against the dollar, indicating its relative stability. This resilience is underpinned by the robust growth anticipated for the Indian economy, expected to reach 7.6% during the FY 2023-2024 according to government projections. The rupees stability is strengthened by the countrys surplus in balance of payments. In the 11 months of FY 2023-24, the CPI inflation averaged 5.4 percent with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5 percent, a sharp decline from 6.2 percent in FY 23. The softening of global commodity prices led to a moderation in core inflation. The nations foreign exchange reserves surged to a record high of USD 645.6 Billion as of March 2024 surpassing the previous high of USD 642.49 Billion recorded in March 2023. The credit quality of Indian companies remained strong between October 2023 and March 2024 following deleveraged Balance Sheets, sustained domestic demand and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in H2 FY24. UPI transactions in India posted a record 56% rise in volume and 43% rise in value in FY24.

Growth of the Indian economy

Regional growth(%)	FY 21	FY 22	FY23	FY24
Real GDP growth (%)	(6.6)	8.7	7.2	8.2

Growth of the Indian economy quarter by quarter, FY 2023-24

	Q1FY24	Q2FY24	Q3FY24	Q4FY24E
Real GDP growth (%)	8.2	8.1	8.4	7.8

(Source: Budget FY24; Economy Projections, RBI projections, Deccan Herald)

Indias monsoon in 2023 hit a five-year low, with August marking the driest month in a century. Despite receiving only 94% of its long-term average rainfall from June to September, wheat production estimatedly recorded 114 Million Tons in the FY 2023-24 crop year due to higher coverage. Rice production was anticipated to decrease to reach 106 Million metric tons (MMT) in comparison to 132 Million metric Tons in the previous year. Total kharif pulses produced in FY 2023-24 stood at an estimated 71.18 Lakh metric Tons, which is lower than FY 2022-23 due to climatic conditions.

As per the first advance estimates of national income released by the National Statistical O_ce (NSO), the manufacturing sector output is projected to have grown 6.5% in FY 2023-24 compared to 1.3% in FY 2022-23. The Indian mining sector experienced an estimated growth of 8.1% in FY 2023-24 compared to 4.1% in FY 2022-23. Financial services, real estate and professional services grew a projected 8.9% in FY 2023-24 compared to 7.1% in FY 2022-23. Real GDP or GDP at constant prices increased from to H160.71 Lakh Cr in FY 2022-23 (provisional GDP estimate released on 31 st May, 2023) to an estimated H173.82 Lakh Cr in FY 2023-24. Growth in real GDP during FY 2023-24 stood at 8.2% compared to 7.2% in FY 2022-23. Nominal GDP or GDP at current prices was estimated at H295.36 Lakh Cr in FY 2023-24 as compared to the provisional FY 2022-23 GDP estimate of H269.50 Lakh Cr . The gross non-performing asset ratio for scheduled commercial banks improved from 4.1% as of March 2023 to 2.8% as of March 2024. Indias exports of goods and services were expected touch USD 900 Billion in FY 2023-24 compared to USD 770 Billion in the previous year despite global headwinds. Merchandise exports were expected to expand between USD 495 Billion and USD 500 Billion, while services exports were expected to touch $400 Billion during the year. Indias net direct tax collection increased 17.7% to H19.58 Lakh Cr in FY24. Gross GST collection amounted to H20.2 Lakh Cr , marking an 11.7% increase, with an average monthly collection of H1,68,000 Cr , surpassing the previous years average of H1,50,000 Cr .

The agriculture sector was expected to see a growth of 1.8% in FY 2023-24, lower than the 4% expansion recorded in FY 2022-23. Trade, hotel, transport, communication and services related to broadcasting segment are estimated to grow at 6.3% in FY 2023-24, a contraction from 14% in FY 2022-23. The Indian automobile segment was expected to close FY 2023-24 with a growth of 6-9%, despite global supply chain disruptions and rising ownership costs.

The construction sector was expected to grow 10.7% year-on-year from 10% in FY 2023-24. Public administration, defence and other services were estimated to grow by 7.7% in FY 2023-24 compared to 7.2% in FY 2022-23. The growth in gross value added (GVA) at basic prices was pegged at 6.9%, down from 7% in FY 2022-23.

India reached a pivotal phase in its S-curve, characterised by acceleration in urbanisation, industrialisation, household incomes and energy consumption. India emerged as the fifth largest economy with a GDP of USD 3.6 trillion and nominal per capita income of H123,945 in FY 2023-24.

Indias Nifty 50 index grew 30 percent in FY 2023-24 and Indias stock market emerged as the worlds fourth largest with a market capitalisation of USD 4 trillion. Foreign investment in Indian government bonds jumped in the last three months of 2023. India was ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Indias unemployment declined to a low of 3.2% in 2023 from 6.1% in 2018. Outlook: India withstood global headwinds in 2023 and is likely to remain the worlds fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass USD 4 trillion in FY 2024-25.

Union Budget FY 2024-25: The Interim Union Budget FY 2024-25 retained its focus on capital expenditure spending, comprising investments in infrastructure, solar energy, tourism, medical ecosystem and technology. In FY 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. Of these, the Ministry of Defence reported the highest allocation at H6,21,541 Cr , accounting for 13% of the total budgeted expenditure of the central government. Other ministries with high allocation included Road transport and highways (5.8%), Railways (5.4%) and Consumer Aairs, food and public distribution (4.5%).

(Source: Times News Network, Economic Times, Business Standard, Times of India, The Hindu BusinessLine, fxstreet.com)

Indian steel industry overview

India remains a bright spot in the global steel industry. The India steel market size is estimated at 135.81 Million tons in 2024, and expected to reach 209.93 Million tons by 2029, growing at a CAGR of 9.18% during the forecast period (2024-2029). The steel demand in the country is expected to report a growth of 7.7% in 2024. The primary drivers comprise the construction and infrastructure sectors, contributing 60-65% to the demand, followed by the auto cum engineering sectors, population growth and urbanisation. Domestic finished steel consumption registered a growth of 13% to 136 Million in FY 2023-24. The rise in disposable income and urban lifestyles fuels demand for consumer goods like automobiles and appliances, which rely heavily on steel. Additionally, ongoing eorts to modernise the countrys manufacturing capabilities support the increasing consumption of steel in India.

India was the worlds second-largest producer of crude steel, with an output of 125.32 MT of crude steel and finished steel production of 121.29 MT in FY23. Indias steel production is expected to grow 4-7% to 123-127 MT in FY24 to 210 MT by 2030.

(Source: jpcindiansteel.nic.in, theeconomictimes.indiantimes. com, ibef)

Indian metal roofing market

The Indian metal roofing market attained a value of about USD 1,238.63 Million in 2023. The market is expected to grow in the forecast period of 2024-2032 at a CAGR of 7.8% to reach nearly USD 2439.71 Million by 2032. Several factors drive the growth of the metal roofing market in India. Metal roofs, known for their durability of up to fifty years or more, reduce waste and minimise the need for frequent replacements, making them an excellent investment for those seeking long-term roofing solutions. They also claim higher resale value compared to other roofing materials and are notably easier to repair and replace.

Aided by the increasing construction activities and the growing awareness about the benefits of metal roofing, the market is expected to grow significantly by 2032. Metal roofs are 100% recyclable and is considered as the most environmentally friendly and sustainable roofing material available. Metal roofing lasts 50-plus years which is nearly two to three times longer than other materials. The India metal roofing market growth is primarily fuelled by the rapid urbanisation and the expansion of the construction sector. As the country experiences a significant rise in infrastructure development, the demand for durable and sustainable roofing solutions is escalating. The increasing investment in residential and commercial projects, including smart city initiatives, is further boosting the market growth. At the start of 2024, 63.4 percent of Indias population lived in rural areas. In rural India in 2024, metal roofing is increasingly adopted due to its aordability, and resistance to weather conditions like monsoons. It provides better protection from rain and heat.

(Source: mordorintelligence. com, expertmarketresearch.com, economictimes.indiatimes.com)

Growth drivers

Automotive industry: The sectors growth is expected to surge, reaching a substantial size of USD 260-300 Billion by 2026, catalyzing steel demand. Railways: The Interim Budget FY 2024-25 allocated H2.55 Lakh Cr for the Indian Railways, a 5.8% increase over the previous year. In the Union Budget FY 2024-25, the government prioritised the implementation of three major railway corridor programs under the PM Gati Shakti initiative. Steel will be used in the construction of foot over bridges, railway stations, track laying and manufacture of rail coaches. Airports: The number of airports has increased from 74 in 2014 to 148 in 2023. The government aims to increase this to 220 by FY 2024-25. As airports expand or new ones are constructed, the demand for steel products will increase, creating opportunities for steel manufacturers.

Oil and gas: Indias oil demand is expected to increase to 38 Million

barrels per day by 2045 from current 19 Million barrels, strengthen the use of steel in oil & gas infrastructure (especially pipelines).

Monsoon health: Indias monsoon constitutes 75% of the nations annual rainfall. Climate change and sea temperature shifts are anticipated to catalyze rainfall, bolstering rural incomes and benefiting sectors like steel roofing. MSP crops: The government increased the minimum support price of rabi crops for the Marketing Season 2024-25, expected to catalyze the demand for metal roofing. (Source: indiainfoline.com, economictimes.com, pib.gov.in, cmie.com)

Government initiatives

The central government has proposed to hike the budgetary allocation for the Product Linked Incentive (PLI) scheme for specialty steel to H270 Cr in the Union Budget FY 2024-25.

The Union Ministry of new and renewable energy in 2024 released scheme guidelines for the implementation of pilot green hydrogen projects in the steel sector under the National Green Hydrogen Mission (NGHM).

(Source: downtoearth.org.in)

Strengths

Ample indigenous accessibility of raw materials, such as iron ore and coal

Extensive and varied range of products

Low labour costs

Growing emphasis on technology and innovation

Weaknesses

High reliance on foreign technology and equipment

Insufficient transportation infrastructure

Heavy regulatory framework

Limited capacity utilisation

Opportunities

Limited consumption per person in growing economies

Upward trend in the Indian economy.

Untapped rural market with government emphasis on rural development.

Low export market penetration

Threats

Limited investment in research and development with the risk of technology becoming outdated.. Increasing environmental regulations and carbon footprint concerns Fluctuations in the accessibility and costs of raw materials Material dumping due to recessions in other countries. Company review Manaksia Steels Limited is a versatile light engineering company with a multi-location presence, specialising in the production of various metal products through metal formation processes. Since the fiscal year 2014-15, the Company has been actively involved in numerous manufacturing activities, with a primary emphasis on steel flat products. These products encompass a range of offerings, including cold-rolled steel sheets, galvanized steel sheets, and color-coated sheets.

In the fiscal year 2024, the Companys main revenue streams derived from colour coated steel sheets and coils, constituting 30.91% of total revenues. Following closely behind were galvanized steel sheets, contributing 29.34% to the revenue pie. Hot rolled steel sheets and coils made up 26.12% of the revenue, with cold-rolled steel sheets and coils representing 3.85% of the Companys earnings.

Our range of products

The Company manufactures and sells value-added steel products comprising: Cold-rolled sheets find application in the interior and exterior panels of automobiles, buses, and commercial vehicles, contributing 3.85% to the revenue in FY24.

Galvanized corrugated sheets are used in the rural housing sector and factory buildings, accounting for 25.24% of the revenue for FY24. Galvanized plain sheets are used in the manufacture of containers and water tanks, accounting for 0.29% of the revenue for FY24.

Pre-painted galvanized sheets and coils are used in construction and architectural applications, such as roofing, cladding and paneling, accounting for 30.91% of the revenue for FY24.

Financial review

Revenues: Revenue from operations reported a 1.48% de-growth from H641.48 Cr in FY 2022-23 to reach H631.96 Cr in FY 2023-24. Other income of your Company reported a 116.26% increase due to consistent returns in Mutual Funds and Equity.

Expenses: Total expenses Decreased by 3.99% from H624.41 Cr in FY 2022-23 to H599.52 Cr in FY 2023- 24 due to reduced cost of production in power and consumables. Raw material cost, accounting for an 87.57% share of your Companys revenues decreased by 4.51% from H561.76 Cr in FY 2022-23 to H536.45 Cr in FY 2023-24 owing to an increase in the operational scale. Employees expenses accounting for a 2.30% share of your Companys revenues increased by 8.37% from H13.40 Cr in FY 2022-23 to H14.53 Cr in FY 2023- 24.

Key ratios

Particulars	2023-24	2022-23
EBITDA/turnover (%)	7.61	3.79
EBITDA/net interest ratio (x)	6.67	9.84
Debt-equity ratio	0.59	0.16
Return on net worth (%)	10.23	4.69
Book value per share (H)	47.15	43.01
Earnings per share (H)	4.61	1.93
Debtors turnover ratio	31.02	37.98
Inventory turnover (days)	70.74	51.93
Interest coverage ratio (x)	6.40	7.66
Current ratio (x)	1.59	3.44
Net profit margin (%)	4.78	1.97

Internal control systems and their adequacy

Your Company has implemented robust internal control procedures tailored to its size and operations. The Board of Directors oversees this system, establishing guidelines to ensure its sufficiency, effectiveness, and application. Designed to facilitate efficient management and enable the measurement and verification of outcomes, the internal control system relies on SAP for ensuring the reliability of accounting and management information. Additionally, the system ensures compliance with all relevant laws and regulations, safeguarding the Companys assets. Its primary purpose is to identify and manage risks promptly and effectively, encompassing operational, compliance-related, economic, and financial risks.

Human resources

Human resource practices at Manaksia Steels have played a pivotal role in solidifying its market leadership position. The Company has made substantial investments in both formal and informal training, along with on-the-job learning opportunities, to foster the skill and knowledge development of its employees. Emphasising employee engagement, Manaksia Steels has created an enriched workplace environment, offers challenging job profiles, and maintains regular dialogues with management. By nurturing leadership from within, the Company strengthens its future prospects. As of March 31, 2024, Manaksia Steels had a total staff of 192 employees.

Cautionary statement

This statement made in this section describes your 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. Your Company cannot guarantee that these assumptions and expectations are accurate or will be realised by your 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 your Company. Your Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.