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Overview of Global Trade and Developments
As per WTO forecasts, World merchandise trade volume is projected to slow down to 3.7% in 2019 as global GDP growth dips to 2.9%. World trade will continue to face strong headwinds in 2019 and 2020 after growing more slowly than expected in 2018 due to rising trade tensions and increased economic uncertainty. WTO economists expect merchandise trade volume growth to fall to 2.6% in 2019 - down from 3.0% in 2018. Trade growth could then rebound to 3.0% in 2020; however, this is dependent on an easing of trade tensions. Weak import demand in Europe and Asia dampened global trade volume growth in 2018 due to the large share of these regions in world trade.
Overview of developments in India during 2018-19
India moved up by 23 places in the World Banks Ease of Doing Business Index 2018 and got 77th rank. This is attributed to 6 reforms this year- starting a business, getting electricity, construction permits, getting credit, paying taxes and trading across borders. Breaking into the top 50 is possible in the near future, with focussed attention on reforms. The "Make in India" Campaign launched by the Government of India in September 2014 permitted 100% FDI in 25 sectors of the economy except aero space, defence and media industry of India in which 74%, 49% and 26% respectively is allowed. GST, a uni ed consumption tax on all goods and services introduced in 2017 eradicated the disparity of taxes among different state governments and the multilayer tax system. It has pooled the resources of centre and state government under a single tax, which can benefit both. Government of India. has made a large investment in infrastructure which will provide better connectivity and hence better growth for the country. The Make-in-India concept initiated by the Government aims to take the growth upto 25% of GDP in manufacturing sector from the current 17% by year 2025. Besides, the Government has also come up with Digital India initiative, which focuses on three core components: creation of digital infrastructure, delivering services digitally and to increase the digital literacy.
Outlook for 2019-20
With a projection of 7.5% growth per annum in GDP over the next three years, India is expected to retain its mantle as the fastest growing major economy in the world. India is expected to emerge as the worlds fifth largest economy in the near future.
The Economic Survey presented to the Parliament this year sees FY20 GDP growth at 7%.It recommends a renewed focus on pushing up exports. Indian MSMEs need to be freed from shackles that convert them into dwarfs. MSMEs need to be seen as a source of innovation, growth and job creation. Policy should enable MSMEs to grow, create greater profits for their owners and contribute to job creation and productivity in the economy.
MMTC- 2018-19 in retrospect
In the backdrop of above international business scenario, Your Company achieved a trade turnover of Rs.28,292.82 crore during 2018-19 as against the turnover of Rs.15,756.92 crore registering last fiscal. This turnover includes Exports of Rs.1103.91 crore, Imports of Rs.21,624.99 crore and domestic trade of Rs.5563.92 crore. The increase in the performance of almost 80% over the previous year is despite various constraints like fall in average price of urea, reduced import of steam coal for Government Power Plants due to increased domestic supplies by Coal India, continuing ban on export of iron ore from Karnataka and restrictions on iron ore mining in Goa, Odisha etc and the resultant lower exports etc. Your Company earned a Gross Profit from operations of Rs.474.30 crore as compared to
Rs.333.45 crore in 2017-18. The profit before tax from ordinary activities is Rs.118.59 crore as compared to Rs.59.13 crore in 2017-18. The Company has registered a net Profit of Rs.81.43 crore during the year as compared to Rs.48.84 crore earned last year. Thus the earnings per share of face value of Rs.1/- each is Rs.0.54 as on 31.3.2019. Besides, MMTC continues to be a zero long-term debt company.
Source and Utilization of Funds
The source of funds of the company as on 31st March, 2019 comprises of shareholders fund amounting to Rs.1489.25 crore including equity share capital of Rs.150 crore and non-current and current liabilities of Rs.188.55 crore and Rs.2776.97 crore respectively. These funds have been deployed inter alia towards non-current assets amounting to Rs.806.73 crore and current assets of Rs.3648.04 crore as on 31st March, 2019.
Internal Control Procedures
In MMTC, day-to-day a airs are managed at various managerial levels in accordance with defined "Delegation of Powers". Major issues are deliberated to arrive at conscious decisions by the respective Committees of Directors constituted by the Board of Directors as detailed in the report on Corporate Governance annexed to the Directors Report.
MMTC has well-settled Internal Audit System & Procedures which is commensurate with its diverse functions. The company has an Internal Audit Division, to coordinate with external auditing firms in conducting internal audit all through the year. Number of initiatives started during the last fiscal for strengthening the internal controls through concurrent audit of bullion transactions, special audit for bullion transactions for earlier years, etc. continued during the year also. Towards this, a well defined Internal Audit Manual, Corporate Risk Management Policy and Business-cum-Internal Control Manual for various trades of MMTC approved by the Board of Directors have been put in place to take care of internal control mechanisms, risk assessment on the business proposals and systematic SOP for undertaking various trades.
The Audit Committee of Directors meets the Companys Statutory Auditors and Internal Auditors regularly to ascertain their concerns and observations on financial reports. The directions of the Audit Committee are strictly implemented by the Management.
To tap South East Asian market for trading in commodities, MMTC Transnational Pte. Ltd. (MTPL), Singapore, the wholly owned subsidiary of your Company has been engaged in commodity trading and has established itself as a credible and reputable trading out t in Singapore. During the financial year 2018-19 MTPL achieved sales turnover of USD154.12 million as against USD11.84 million during last fiscal. The Net Profit of MTPL during the financial year 2018-19 amounted to US$0.27 million as against Net Loss of US$ 0.38 million incurred during 2017-18. The net worth of MTPL stood at USD 12.29 million as on 31st March 2019.
Business Group wise Review for 2018-19
The Minerals group of your Company play a leading role in iron ore trade for a period spanning over five decades. In the last decade, MMTC could withstand the sti competition in the global market by consolidating the mineral portfolio, dynamic and prudent strategies to insulate against the market vagaries, expanding extensively its infrastructure facilities and by attaching utmost care and importance to its trade commitments as also the quality of service and products.The group has been consistently striving to enhance its competitiveness in the area of value addition.
MMTC has provided further llip to value addition of minerals. MMTCs co-promoted 1.1. million tpa NeelachalIspat Nigam Ltd. (NINL) consumes annually over 2.2 million tons of various types of minerals on annual basis arranged mainly by MMTC.
During 2018-19 the Minerals Group of your Company achieved a turnover of Rs.848.78 crore, which includes exports of Iron Ore valuing Rs.563.52 crore, export of Chrome Ore and Chrome Concentrate Rs.125.57 crore and export of Manganese ore/oxide amounting to Rs.9.75 crore. As per current EXIM Policy of Government of India (2015-20) MMTC Limited is the designated State Trading Enterprise for export of iron ore for grade Fe 64% and above.
Continuation of restrictions on Iron ore mining and its ban on movement for exports from Bellary-Hospet Sector, regulation of exports from Eastern Sector, uncompetitive FOB sale prices of Indian origin ore vis-a-vis other international suppliers i.e. Australia and Brazil (on account of export duty), subdued iron ore demand/prices in the international/spot market, high iron ore inventory with Chinese steel mills, general slowdown of Chinese economy, relative price increase in domestic demand of ore, etc. continued to have impact on the iron ore exports during 2018-19 as well. Despite this and the sti competition, MMTC continued to maintain its position as a prominent exporter of minerals during the year under review. MMTC has established itself as a reliable supplier of iron ore to Japanese & South Korean markets over many decades and this portfolio will continue to bring steady business for your Company.
During the year under review supply of iron ore (Lumps and Fines) under Long Term Agreements (LTAs) continued to Japanese Steel Mills(JSMs) and POSCO, South Korea. The agreement will enable India to secure international market for its ores and shall provide direct and indirect employment in mining, logistics and related sectors.
Export of Chrome ore/Concentrate is canalized through MMTC while imports are under OGL. Material o ered to MMTC for export is by commercial mine-owners and Processors. Sukinda Valley, JajpurDistt., Odisha contains most of Indias known reserves of chromite out of total countrys reserves of 344 MMT. More than 90% of local production is consumed by ferro chrome industry, leaving a small surplus quantity for export.
Chrome ore Mining operations are impacted due to apex court order in August 2017 imposing 100% penalty on mining companies operating in Odisha without environmental clearance. Leases of Commercial Mines will expire on 31st March, 2020 while for captive mines, leases will expire on 31st March, 2030.
Export of Manganese Ore is canalized through MMTC while imports are kept under OGL. However, MOIL, a Govt. of India Enterprise. can directly export Manganese Ore mined from its own mines. India has proven reserves of 475 MMT but annual production hovers around 2.4 MMT. Annual consumption of manganese in India is about 5 MMT. Almost all ore produced is consumed by domestic industry as India is de cient in high grade Mn Ore. Lumpy ore has good demand in domestic market and hence entire production is consumed by domestic industry.
Challenges for the group is increase in steel production/consumption in India which would result in further demand of iron ore, Chrome ore and Manganese ore from domestic industry and may a ect the availability of these products for export in future. Intense competition, competitors o ering unsecured credit and wide price uctuations are the threats facing the group. Export of more ferro-chrome may adversely a ect availability of chrome ore and also concentrates for export. To address these challenges, the orts are being made to tap smaller mining companies, especially of low grades to expand supply base and enhance volumes.
Precious Metals, Gems & Jewellery
Indias gems and jewellery sector is one of the largest in the world contributing 29 percent to the global jewellery consumption. This sector plays a significant role in the Indian economy, contributing around 7% percent to the countrys GDP. It is one of the fastest growing sectors and is extremely export oriented and labour intensive.
Your Company enjoys the position of one of the market leaders in the Indian bullion trade, having exibility to operate from various centers spread all over the country o ering novel product services, besides maintaining enduring relationship.
Despite high volatility in prices of bullion as well as Indian Rupee - US Dollar exchange rates, Precious Metals Group of your Company contributed a gross turnover of Rs.12,787.71 crores, contributing to almost 45% of the Total turnover achieved by the company. The turnover of this group includes import of gold and silver worth Rs.9581.56 crore, domestic trade of Rs.3206.15 crore. MMTC is one of the nominated agencies for import of Bullion for supply to exporters as well as domestic traders/jewellers which is the basic raw material for Gems &Jewellery Industry of India. MMTCs share stands at 3.80% for Gold and 14.70% for Silver in the countrys bullion trade for 2018-19. Being a nominated Body, MMTC plays a vital role in association with Govt. of India in Policy formulation to support Gems &Jewellery exports from India and development of Jewellery sector on Pan-India basis. Government has always been supportive since inception way back in 1980s when the Jhandewalan jewellery Complex was approved by the Ministry of Commerce and MMTC being nominated as Agency for supply of gold to DTA w.e.f. September 1992.
Under the Governments Gold Monetization Scheme, MMTC has been assigned two important projects for implementation, namely, sale of Indian Gold Coins and e-Auction of medium and long term gold deposits of Govt. of India, promoting the circulation of domestic gold into the economy thereby reducing the Bullion imports saving valuable foreign exchange. MMTC has been authorized for E-auction of gold procured under Medium and Long Term Gold Deposits-Gold Monetization Scheme(MLTGD-GMS). Under this scheme we have sold almost 9 MT gold valuing
Rs.2700 crores (approx.) and are expecting good volume of business. The group has also started sale of precious metals lying in temples and con scated (Govt. Agency) gold/silver through Auction and have tied up with several temples in South India and expecting good volume of business in coming years.
The Group also sold India Gold Coins(IGC) manufactured out of domestic gold (under GMS) in domestic market valuing Rs.24.78 crore during 2018-19. Your Company tied up with banks to sell Indian Gold Coin. E orts are on to further expand distribution network for sale of Indian Gold Coin. The agship event of MMTC Limited "Festival of Gold" was held from 1-6 November 2018 at Hotel Ashok, New Delhi.
Your company has been supplying Gold/Silver Medallions to various Corporates apart from the ecting showroom sales.
The Companys joint venture MMTC-PAMP India Pvt. Ltd. (MPIPL) achieved a turnover of Rs.47,610.04 crore and a profit (after tax) of Rs.96.00 crore during the period under review.
With increasing competition among the gold traders, there is a continuous decrease in the profit margin being experienced in the trade.
Demand for Gold is expected to remain firm for this year on account of strong demand owing to traditional importance of the metal in India which is very difficult to alter.
Outlook for silver in coming years is an upward trend in prices due to expectations on solid fundamentals, as mine supply is likely to contract while industrial and jewellery demand is like to increase.
The Precious Metals Group of your Company shall be making the orts to bring back big customers in various locations through constant customer engagement., maximize DTA operations due to the setting up of SEZ units in Jaipur and Noida, NCR. The group shall be conducting successful rollout of the e-auction of bullion bars PAN India under the GMS scheme. Beside follow-up with DGFT/RBI for reintroduction of OGL Loan Scheme the group shall be exploring new avenues of business like the Dore import business for which Govt. departments are being pursued vigorously.
Enrolment of new LBMA foreign suppliers to have better supplier base to be more competitive and have adequate quantity to supply is being explored. The group also plans to conduct customer meet at all the bullion centres followed by marketing drive to enroll new customer or recommence business with existing customers. Proper follow-up mechanism shall be introduced to convert positive customers.
a) Non-Ferrous Metals &Industrial Raw Materials
The domestic non ferrous metals industry is broadly comprised of manufacturers of base non ferrous metals, minor metals and Ferro alloys and overseas traders. India is among the worlds largest producers of Aluminum, Copper, Zinc. Over the past few years, domestic manufacturers have expanded their reach through numerous stock points and reduced lead time in the process. Manufacturers of Ferro Alloys like Ferro Silicon, Ferro Manganese, High Carbon Ferro Chrome have expanded operations over the past few decades. These manufacturers who initially started out as ancillary industries around steel plants have forayed into international export markets.
The import market in India is dominated by large multinational trading companies based out of Europe and Asia. The worlds biggest commodities traders are active in the Indian market. Smaller LME trading houses and trading companies have also built customer bases in India. Most of the imported material is sold directly by overseas traders to their customers in India or on high seas basis.In Copper, Aluminum, Zinc and Lead markets, traders face sti competition from domestic producers. In Nickel, Tin and minor metals segment, overseas traders/producers command a dominant position as domestic production of these metals is virtually nil.
During 2018-19 the group has achieved a Sales Turnover of Rs.193.93 crore out of which import of Non Ferrous Metals like Zinc, Nickel, Cobalt and Tinetc was worth Rs.191.94 crore, and brass worth Rs.1.47 crore. MMTCs supplier base comprised of reputable international suppliers of all base and minor metals and has linkages with major PSUs, Railways and Ordnance Factories to ensure steady stream of business. However, nonstandardized and custom specified material are not available with empanelled suppliers.
The opportunities in NFM trade are sale of NFM and Minor Metals through MMTCs extensive sales network in collaboration with foreign suppliers and sale of non-ferrous metals and metal alloys sourced from Asian countries under various trade agreements. The threats include increase in domestic production of secondary and recycled metals and installation of secondary re ning and smelting plants by customers and increase in domestic manufacture of base metals like Copper, Aluminum, Lead and Zinc over the past five years has made the market more competitive.
Possibility of sale of Non Ferrous Metals through FTWZ will be explored by the NFM Group of your company. Tie up for long-term/annual supplies with producers and major overseas traders may also be explored to enable MMTC to o er better commercial terms and competitive edge over other traders in the market.
(b) Steel/Pig Iron
The year 2018 was a subtle year full of upheavals especially for the iron and steel industry. While the robustness of steel demand recovery seen in 2017 was carried forward to 2018, risks have also increased. Rising trade tensions and volatile currency movements are increasing uncertainty in the global steel industry. While the forecast for 2019 is that global steel demand will grow by1.4% reaching to 1,681.2 MnT, however, the same will be dependent upon growth of steel consuming industry.
During the year the group has achieved a turnover of Rs.1871.15 cr which includes export of Pig Iron worth
Rs.375.52 crore and slag worth Rs.8.18 crore. The Domestic Trade in Steel products like pig iron, slag, billets etc was worth Rs.1487.45 crore. The Pig Iron is produced by MMTCs joint venture with Govt. of Odisha, M/s. Neelachal Ispat Nigam Limited. MMTC-NINL is the 2nd largest Pig Iron exporter. MMTC caters to the overseas market like Thailand, Malaysia, South Korea, China, Taiwan, Indonesia & Vietnam and has entered into emerging markets like Bangladesh and Sri Lanka. After a long time the group has entered into Billets domestic market which was very well accepted. The group has sold approx. 36,000 MT of steel Billets in domestic market, through E-Auction & Price Circular. During the year the group has been awarded with EEPC National Award for the year 2017-18 for export of Pig Iron.
Slowdown in Steel Sector all across globe had also hit Indian Pig Iron Exports to a great extent. Despite adverse market conditions during the year, the Group has performed well. Its customer base has grown for both domestic and international markets.
The group shall be exploring possibility of export of Pig Iron & Billets to Bangladesh & Sri Lanka.
The Agro group of your Company achieved a turnover of Rs.980.03 crore during FY 2018-19 which include import of pulses worth Rs.609.69 crore, and domestic trade of pulses and edible oil amounting to Rs.370.34 crore. The group has imported pulses on Government Account to contain the price uctuation in the open market. The main commodities are pulses like red lentils, tur dal, urad, chana, etc.
MMTC has been in agri trade business for almost two and half decades, beginning with the then sunrise segment of Soyabean processing for export of soya DOC and sale of Crude Soya Oil in the domestic market. Opportunities for export/import of grains like Rice, Wheat and Sugar also were available either on Government account or on commercial basis. Under the Price Stabilization, MMTC has played a pioneering role for import of pulses. For building bu er stock of pulses, MMTC has been designated as one of the agencies for import of pulses by Government of India. As per directions of Govt. of India, during FY 2018-19, MMTC has imported approx 3.79 lakh tonnes of various pulses for the bu er stock programme. These pulses are being stored at various port godowns and are being released to State Government Agencies and open market as per the advice of Department of Consumer A airs, Govt. of India. MMTC is also participating in the tenders of State Governments for supply of RBD palm oil.
Depending upon the domestic production, opportunities either for export or for import emerges. Very high volatility in some of the agro commodities is on the basis of price trend in international commodity market, and currency rate uctuations pose a threat to agri business apart from natural vagaries like draught/monsoon etc.
Globally, there has been slow down in all commodities markets right from crude oil, steel, agri commodities, edible oils, etc. Slow down of economic growth in China, EU and other countries have adversely affected the commodities markets. This group is no exception to this development.
Outlook for 2019-20 for agri commodities except pulses are not very encouraging considering the fact that international market for commodities like wheat, rice, edible oil, etc is yet to recover from the bearish sentiments. Currency risk is one of the major concerns for Agri commodities trade, followed by high volatility in prices and its tendency to move along with other non-related commodities like Crude Petroleum.
In order to add business volume, the group is looking into the possibilities of export of sugar considering the record domestic production and demand existing in the neighboring countries. Similarly the orts are on to explore possibilities of export of Indian non-basmati rice to neighboring countries and also to some of the African countries. The group is participating in the tenders of State Governments for supply of RBD palm oil in consumer packs for distribution through PDS system. MMTC is taking initiatives for import of maize and palm oil and is also exploring opportunities for export of rice and sugar.
Fertilizers and Chemicals
MMTC Limited is one of the major importers of fertilizers in India. It is engaged in the import of nished, intermediate and raw fertilizers. MMTC handles about 3 to 4 million tonnes of fertilizers. It continues to remain a trusted and reliable supplier of fertilizers to many institutional customers in India. This has been possible owing to a reputation of trust and reliability assiduously built by the company over four decades.
MMTC has built a niche for itself and has been extending the benefit of its four decades of experience in buying, selling and excellent net-working, which has been continuously adding value in the supply chain. As a result, MMTC remains the single unique window for buying and selling of all fertilizer products globally.
The Fertilizer group of your Company imports urea on behalf of Department of Fertilizers, Ministry of Chemicals and Fertilizers.
During FY 2018-19, the Fertilizer and Chemicals group of your Company has contributed a turnover of Rs.10132.43 crore during the financial year 2018-19. It included import on behalf of Government of India of about 4.49 million tonnes of urea amounting to Rs.10,096.53 crore, and import of Sulphur worth Rs.17.27 crore, domestic trade of fertilizers worth Rs.4.55 crore. Urea is one of the major fertilizers to meet nitrogen nutrient requirement of the soil. During the financial year 2018-19, MMTCs urea import have accounted for approximately 81% of countrys import requirement.
Fertilizer industry in India has been passing through tough phase in recent years. The year under review was a difficult period for the fertilizer industry in general in India due to the rainfall turned marginally below the average which directly impacts the quantum of chemical fertilizers used in agriculture. Around 59% of India received substantially less rainfall. Short rainfall directly impacts the quantum of chemical fertilizers used in agriculture. Further, disparity in the import price of various fertilizers caused the demand destruction which ultimately a ects the industry.
Urea remains the only canalized product for import and all other fertilizers are under OGL. One significant development on the import of canalized urea has been the signing of an MOU between the Department of Fertilizers and the canalizing agencies for import of urea.
The outlook for 2019-20 for India will depend on the monsoon and as per forecast, the rainfall may be less than normal in current year monsoon and the Government policy. The global economy continues to face challenges. The focus especially for the developing nations would be on increasing productivity in agriculture. However, the global supply position of all the major fertilizers is expected to remain comfortable with new addition in capacities mainly in Urea, DAP and MOP.
E orts are continuously being made to increase the volume of business in the existing product line, i.e. import of Urea on Government account and aggressively exploring new fertilizer products for trading. The action plan for achieving targets for 2019-20 includes import of required quantities of Urea on behalf of Department of Fertilizers and focus on Phosphates raw materials intermediates and finished fertilizers, export of urea & DAP to Nepal to improve bilateral relations between the two countries.
Coal and Hydrocarbons
India imports around one-fourth of the domestic coal consumption in the country. Govt. thrust is to lower the countrys reliance on coal imports by boosting the indigenous coal production; except to feed power plants located along the coast. As per the present Import Policy, coal can be freely imported (under Open General License by the consumers themselves considering their needs. The imported steam coal segment is dominated by private players.
The Coal and Hydrocarbons Group of your Company has achieved a turnover of Rs.1452.19 crore which included domestic trade of hydrocarbons worth Rs.355.57 crore. The products handled by this group are Steam Coal and Coking Coal.
For Steam Coal, MMTC has till now mainly focused on catering to the requirements of Govt. Power Utilities. However, MMTC is envisaging good opportunity in supplying imported steam coal to cement, sponge iron units and captive power plants in India so as to generate more business. MMTC may also target neighboring countries for export of coal to prospective buyers in these countries.
MMTC is organizing supplies of Coking coal, non-coking (steam) coal, low ash metallurgical coke, Naphtha etc. Currently there is big gap between demand and supplies of coking coal in the domestic market, which is likely to widen further. MMTC imported coking coke on a regular basis for its JV Company - Neelachal Ispat Nigam Limited, Duburi, Orissa. In order to meet growing coking coal requirements of our steel plant set up under joint venture, MMTC is importing coking coal supplies from LTA suppliers i.,e. BHP Billiton, Australia and Contura Coal Sales, USA. MMTC is regularly selling LAM Coke & Nut Coke to bulk buyers like RINL, TATA Metalliks and other buyers in East India to generate fund in ow.
As reported in earlier years, the changed market requirements and technological developments in Mica processing technologies globally led to activities at Mica Division coming to a halt since 2002-03. E orts are being made to utilize the land located at Abrakhnagar, Koderma District.
The General Trade Group of your company achieved a turnover of Rs.26.60 crore during the year under review. The group nalized export of about 82 MT of Red Sanders based on the allocation received from Directorate of Revenue Intelligence, valuing Rs.21.37 crore during the year 2018-19. Further, MMTC has signed contracts with foreign buyers for quantity of approx. 49 MT valuing Rs.12.50 crore approx. which is under performance. During the year the group has created panel of Associate manufacturers for supply of Conductors, Cables and Transformers and participated in the tender in Liberia for supply of line hardware.
Sale of Wind Power generated from the Wind Farm at Gajendragad in Karnataka earned a turnover of Rs.5.18 crore and earned a profit of Rs.3.74 crore. The power generated from the project is sold to HESCOM. The project is running successfully and has contributed to the development of the area by meeting some portion of energy needs of Karnataka State.
Statements in the Management Discussions and Analysis describing the Companys projections, estimates, and expectations may be "forward looking statements" within the meaning of applicable laws and regulations. Actual results could di er materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions a ecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in Government regulations/policies, tax laws, other statutes and other incidental factors.