Monnet Ispat & Energy Ltd Management Discussions.

Established in 1990 Monnet Ispat and Energy Limited ("MIEL" or "the Company"), has a de-risked business portfolio that encompasses manufacturing and marketing of sponge iron, pellets, steel and ferro alloys. MIEL is a primary steel producer with steel plants at Raigarh and Raipur in the state of Chhattisgarh.

During the financial year 2017-2018, the Corporate Insolvency Resolution Process ("CIRP") of the Company was initiated by the financial creditors of the Company. The financial creditors petition to initiate the CIRP was admitted by the National Company Law Tribunal, Mumbai Bench on 18th July, 2017. There has been a successful resolution of the CIRP. as per Honble National Company Law Tribunal, order dated 24th July 2018 ("NCLT Order"), under which there has been a change in the management of the Company on 31st August 2018. CIRP process is detailed in Directors report. A consortium of AION Investment Private II Limited and JSW Steel Limited ("Consortium") have invested in the equity share capital and Compulsorily Convertible Preference Share (CCPs) of the Company thereby bringing in the desired liquidity for smooth operation of the facilities of the Company. There has also been a significant reduction in the debt profile of the Company.


The year 2018 started on an optimistic note with global growth expectations pegged at 3.9%, driven by strong economic activity and policy-level interventions (Source: World Economic Outlook (WEO) by International Monetary Fund (IMF), January 2018). In the first half of CY2018, economic growth remained robust backed by the US fiscal stimulus plan rolled out in December 2017 and the resilient Emerging markets. A steady global oil consumption also supported the growth.

However, towards the second half of 2018, fears of trade wars among major economies, especially between the US and China, weighed on the growth momentum significantly. In addition to trade wars, geopolitical tensions across regions provided headwinds. The world economy grew at 3.7% in 2018 (Source: WEO by IMF, April 2019), comparable to CY2017 levels though below 3.9% expected at the start of the year.


The IMFs revised 2019 growth forecast reflects the spill-over effects of softening economic activities during the second half of calendar year (CY) 2018. IMF now estimates global growth rate at 3.3%, lower from 3.6% previously. Growth is expected to soften in the first half of 2019 and gradually pick up in the latter half. Improving overall financial market sentiment, expectations of positive developments in the resolution of trade wars, stabilisation in emerging markets, receding headwinds in the Eurozone and policy stimulus in China are expected to drive an improved sentiment.

Region-wise growth and outlook estimates

Country / Region CY2017 CY2018 CY2019 CY 2020
(%) (%) (%) (%)
World 3.8% 3.6% 3.3% 3.6%
AMEs 2.4% 2.2% 1.8% 1.7%
EMEs 4.8% 4.5% 4.4% 4.8%
ASEAN 5.4% 5.2% 5.1% 5.2%
US 2.2% 2.9% 2.3% 1.9%
EU-28 2.7% 2.1% 1.6% 1.7%
China 6.8% 6.6% 6.3% 6.1%
Japan 1.9% 0.8% 1.0% 0.5%
Russia 1.6% 2.3% 1.6% 1.7%
India 7.2% 7.1% 7.3% 7.5%

Source: IMF


• 7% Indias Economic Growth in Financial Year2019 (Source: CSO)

• 77 Indias Ease of Doing Business Rank

• More than र 10 trillion each direct and indirect tax collections in Financial Year2019

• 7.3% Indias expected growth rate in Financial Year2020

India continues to hold the tag of the Fastest growing major economy

An exciting, yet testing time lies ahead for the Indian economy. Reforms such as Make in India campaign in 2014, demonetisation in 2016, implementation of Goods and Services Tax (GST) in 2017, among many others played a vital role in shaping and propelling the economy. The country is yet to fully realise the impacts of the reforms that took shape in the last few years.

India ranked 77th position in the World Banks Ease of Doing Business Index 2018. This was a remarkable feat as the nation jumped up 23 positions to achieve this feat. Better access to electricity, better avenues for credit and enterprise, and enhanced direct and indirect tax payment mechanisms have played an instrumental role in this.

Indias Gross Domestic Product (GDP) increased by 7.2% in Financial Year 2017-18 and 7% in Financial Year 2018-19 (Source: CSO). It continues to hold on to its position as the third largest start up base in the world with more than 4,750 technology start-ups on its soil.

Since 2012, Indias growth rate has continued to outperform the global growth trend

Year Global GDP growth rate (%) Indian GDP growth rate (%) Difference
2012 3.52 5.46 1.94
2013 3.47 6.39 2.92
2014 3.58 7.41 3.83
2015 3.45 8.16 4.71
2016 3.23 7.11 3.88
2017 3.76 6.74 2.98
2018 3.94 7.36 3.42

Source: DSIJ Oct-Nov 2018

As reported by IBEF in April 2019, the mergers and acquisitions activity in India witnessed US$ 129.4 billion in 2018 while private equity (PE) and venture capital (VC) investments stood at US$ 20.5 billion.

The Union Budget 2019-2020 gave special mention on measures to improve the existing social and physical infrastructure of the country. Such actions are expected to move the economy high up on the development scale and provide benefits to all sectors.

To empower Indians at large and bolster every individuals purchasing power, Make in India initiative is trying to advance the manufacturing sector. The government aims to make this sector take up 25% of GDP as opposed to the current share of17%.

Similarly, the Digital India initiative will provide digital infrastructure to perform and provide services and make the nation emerge as a digitally literate nation.

The government is expected to focus on faster policy implementation, with infrastructure segment taking up the cornerstone of this focus. The government is looking at boosting private sector investments, which in turn will opti mise the overall growth.

During the year, eight core industries saw an overall growth of 2.7% with cement and coal leading the march at 8% and 7.3% respectively. These eight sectors contributed 41% to Indias Index of IndustrialProduction (IIP). Demand for long steel remain high due to increase in housing and construction projects and rose by 4.9% in 2018.

The recent Union Budget expanded the fiscal deficit target to 3.4% Financial Year 2018-19 and Financial Year 2019-20. This was necessary due to higher expenses set aside for support schemes towards farmers, income tax rebate and pension schemes for unorganised sector workers. Indias forex reserves remained upwards of US$405 billion (as of when), facilitated by growing merchandise export that has increased 8.85% y-o-y to US$ 298.47 billion and services exports that grew by 8.54% y-o-y to US$ 185.51 billion (source: IBEF).


Indias economy is expected to contribute 13.7% of the growth in global economy that is higher than that of most advanced nations. The growth rate is expected to pick up to 7.3% in Financial Year 2020 and 7.5% in Financial Year

2021(Source: IMF). High investments, stronger fiscal policies and robust consumption will be the key growth drivers in the coming years. Through the year, other fundamentals remained supportive for the economy, which has contributed to Indias fastest-growing major economy status.

2019-2020 World Economy Growth Contribution (Intl$)

There has been a definite effort to balance growth with fiscal prudence. However, increased effort is needed if the nation wants to make its investment position stronger and maintain its fiscal deficit within target range at the same time. The need to keep the fiscal numbers within range is the result of budgetary allocations to social sectors, need to cut taxes and increased infrastructure spending.

The government should chart a roadmap to attract more private investors and manage its public finances effectively. The need of the hour is to make the right policy decisions so that there is the right mix in fiscal expenditures and incentivise private players in a way so that they stand to gain in the long run.

3. GLOBAL STEEL INDUSTRY Robust growth in CY2018

Global steel demand grew by 4.9% in 2018, largely driven by a better-than-expected finished steelconsumption in China, coupled with an investment-led recovery in the advanced economies.

Global crude steel production reached 1,808.6 million tonnes in 2018, up 4.6% from 2017 levels. The rising production pushed capacity utilisation rates above 70%. Crude steel production increased across regions in 2018, except in the EU and Japan, which saw a 0.3% contraction (source: Worldsteel).

US trade protection shifts global steel market dynamics

The US proclaimed Section 232 on imports of steel and aluminium by imposing a 25% and 10% duty, respectively, for select countries including India, citing national security concerns.

The US advocacy to promote domestic steel for domestic consumption has led to a growing threat of trade diversion, igniting a global trade friction spanning China, Europe and

Turkey and is likely to spill over to other economies and trade beyond steel.

Supply-side structural reforms by China to streamline capacities

China has taken a conscious call to close excess and inefficient capacities across various core sectors including steel and coal. Between 2016 and 2020, the country has set a steep target of closing down 200 MT of inefficient capacity. In 2017, China closed down 55 MT of steel and 30 MT of coal capacities in 2018. This, coupled with the restructuring of the 140 MT induction furnace capacities, has helped market sentiment, pricing power, and bottom-lines of most Chinese steel producers.

Outlook for moderate expansion

World steel expects that global demand for steel to grow by 1.3% in 2019 and 1.0% in 2020. As far as steel production is concerned India is the second largest producer of crude steel followed by China. Indias crude steel production in 2018 was at 106.5 MT, up by 4.9% from 101.5 MT in 2017. Japan produced 104.3 MT in 2018, down 0.3% compared to 2017. This points to prove that India replaced Japan and is now ahead of the curve.


Indias financial years 2019 crude steel production grew by 3.3% YoY while the apparent finished steel consumption grew by 7.5%. Imports during this period surged by 4.7% YoY and exports declined by 33.9% YoY. Steel consumption was primarily driven by government expenditures on infrastructure (the central and state governments infra spending pegged at र 7-8 lakh crore). The infrastructure, construction and real estate sectors account for 60-65% of domestic steel consumption. The Smart Cities programme is a key demand driver. 1.29 million houses were built under the Pradhan Mantri Awaas Yojana (affordable housing). Rural development projects are also contributing to the uptick.

Performance highlights - Indian Steel Industry

(Source: Joint Planning Committee Report, March 2019)

In financial year 2019, steel production was 106.56 MT representing annual growth of 3.3 %.

. Hot metal production was 72.63 MT, an increase of 6.8%.

Pig iron production was 6.06 MT, up by 5.7%.

Total finished steel gross production was 131.57 MT, an increase of 3.7%.

Export of total finished steel reached 6.36 MT, a decrease of 33.9%.

Import of total finished steel was 7.83 MT, an increase of 4.7%. This displaces 15% of flat steel demand, 9% of total Indian steel demand and most significantly, poses a threat to over 2,30,000 jobs across direct and indirect employment associated with Indian steel industry.

Indian exports plummet to 26% to 8.5 MT in 2018-19 due to rising trade tensions across the globe, making India a net importer of steel.

Per capita consumption is up from 69-Kg to 73-Kg while share of flats remains steady at 46%. The growth of flat products witnessed a growth of 4.2% and long products at 10.4%.

Consumption of total finished steel was 97.54 MT, an increase of 7.5%.

Infrastructure sector

I ncreased spending in infrastructure projects increased the countrys overall steel demand. It increased by 7.5% and stood at 97.52 million tonnes. Infrastructure, construction and real estate sector comprise 60-65% of steel demand. Housing projects such as Pradhan Mantri Awaas Yojana, construction projects such as Smart Cities programme are helping the uptick.

Worldsteel forecasts that Indias steel demand will surpass that of United States. The demand is expected to be more than 7% in the next two years. The demand is projected to grow to approx. 100-105 MT, with per capita consumption improving to 75-76 kg. What bothers the steelmakers are lower domestic prices and cheaper imports. Major steelmakers have proposed to i nstate stronger border controls and stricter quality checks to overcome this threat.


India continues to remain a bright spot and has the distinction of witnessing the highest growth rate in steel consumption among major steel consuming markets. This, admittedly, has also made India a magnet to attract higher imports from steel surplus economies, especially from countries like Japan and South Korea who enjoy a Free Trade Agreement.

In India, a strong momentum in government spending on infrastructure is driving an increase in Gross Fixed Capital Formation (GFCF), this is likely to get an impetus with government policies. While IIP and manufacturing PMI have weakened recently, and automotive and consumer durables production have corrected sharply, there is an expectation of improvement in H2 financial year 2020. Government is likely to take measures to spur investment and end user demand.

The government announced outlays of र 1 lac crore in the Interim Budget is expected to spur rural spending and aid overall consumer demand. Further expectations of a normal monsoon bode well for the rural demand. As a result, the Company expects 6.5% - 7% steel demand growth for Financial Year 2020 in India.

Opportunities and threats

Several initiatives in the construction, infrastructure and automotive space has forward and backward linkages with the steel industry. These links will catalyse the countrys total steel demand in the next fiscal.

The fortune of the steel industry is proportionate to the swings in other sectors such as automobile, infrastructure, consumer durable, sectors that generate high steel demand. Availability of raw materials and cheap labour makes this industry cost effective. The country produces its own iron ore as well. The countrys steel demand has been on a rise.

However, the country witnessed unprecedented steel imports from several countries such as China, Japan, Russia and South Korea. Free trade agreement between India and Japan and South Korea eased the process of steel imports. Consequently, the domestic steel industry suffered resulting in high price cuts. The growing imports into India on account of trade diversion is matter of concern. Since, certain trade remedial actions have become irrelevant, imposition of safeguard duty is the need of the hour to stop such imports and corresponding injury to the domestic industry.

The government is expected to continue its long-term vision of giving impetus to the steel industry. Since the steel industry is closely linked to other industries, development of steel industry influences the national economic development.


The Company is engaged in steel business. Brief performance of the Company (standalone) is as follows:

(र in Crores)

Particulars FY 2018-19 FY 2017-18 Variation
Turnover 1,879.41 1,419.09 32.44%
Profit before depreciation, interest, tax and exceptional items (PBDIT) 27.68 72.84 (62.00%)
Interest and finance charges 445.27 1,181.66 (62.32%)
Depreciation 275.60 351.61 (21.62%)
Exceptional Items 2,767.92 440.53 528.32%
Profit /(Loss) before tax (3,461.11) (1,900.96) 82.07%
Other Comprehensive Income (OCI) (33.04) (30.84) 7.13%
Total comprehensive income for the period comprising profit / (loss) and other comprehensive income for the period. (3,494.15) (1,931.80) 80.88%

Financial performance

During the year, the Company recorded a net loss of र (3461.11) crores (previous year: loss of र (1900.96) crores). The Companys PBDIT was र 27.68 crores in the financial year ended 31st March, 2019 as opposed to a PBDIT of र 72.84 crores. PBDIT for the current year was lower as compared to previous financial year as PBDIT generated out of Pellets, DRI, and structural steel was offset by operating loss on commencement of steel operations at Raigarh unit.

Taking into account deprecation and interest cost, profit before tax (PBT) stood at (र 3461.11) crores as against (र 1900.96) crores in the previous year and total comprehensive income for the year was (र 3494.15) crores against (र 1931.80) crores in the previous financial year.

The analysis of major items of the financial statements is given below:

a) Net sales and operating income

(र in Crores)

FY 2018-19 FY 2017-18 Change (?) Change %
Domestic Turnover 1796 1342 454 34%
Export Turnover 76 69 7 11%
Total Turnover 1872 1411 461 33%
Other Operating Revenues 7 8 (1) (13)%
Revenue from operations 1879 1419 460 32%
Other Income 27 12 15 125%
Total income 1,906 1,431 475 33%

During the financial year under review revenue from operations increased as compared to previous year due to higher sales of sponge iron and sales of pellets on account of re-start of pellet plant. Increase in other income is due to receipt of interest on fixed deposits with Bank.

b) Materials

(र in Crores)

FY 2018-19 FY 2017-18 Change (?) Change %
Cost of materials 1,478 1,072 406 38%

Cost of materials consumed increased due to increase in sponge iron production and restart of Pellet Plant, Blast Furnace, SMS and Bar Mill in Raigarh unit during the year under review.

c) Employee benefits expense

(र in Crores)

FY 2018-19 : FY 2017-18 Change (?) Change %
Employee benefits expense 89 80 9 11%

Increase in employee benefits expenses is largely on account of additions in employees. As on 31st March, 2019, the Company had 2295 direct employees apart from contract workforce.

d) Depreciation and amortisation expense

(र in Crores)

FY 2018-19 : FY 2017-18 Change (?) Change %
Depreciation and amortisation 276 352 (76) (22)%

The reduction in depreciation charges is on account of lower depreciation due to impairment of property plant and equipment during the year under review.

e) Other expenses

(र in Crores)

FY 2018-19 : FY 2017-18 Change (र ) Change %
Other Expenses 311 170 141 83%

Other expenses increased primarily on account of increase in power and fuel cost, repairs and maintenance and other manufacturing expenses arising on account of commencement of Pellet Plant, Blast Furnace, SMS and Bar Mill in Raigarh unit during the year under review.

f) Finance costs

(र in Crores)

FY 2018-19 Change (र ) Change %
Finance costs 445 1,181 (736) (62)%

Reduction in finance cost is mainly on account of lower interest charge pursuant to implementation of resolution plan as approved by NCLT.

g) Exceptional items

(र in Crores)

FY 2018-19 Change (र ) Change %
Exceptional items 2,768 441 2,327 528%

The increase in exception items is on account of impairment/write-off of certain assets and write-back of certain liabilities during the year under review.

Impairment/ (reversal of provision for impairment) Write off/ (write back)
Property, Plant and Equipment and capital work in progress 2,403 27
Investments 69 715
Inventories 79 -
Trade Receivables 51
Loans and Other Receivables 564 238
Plant start up expenses 27*
Reversal of provision for Impairment of Non Current Investments (197) -
Provision for doubtful trade receivables reversed (35) -
Liability for current and non current borrowings written back - (1,008)
Trade payables and other current liabilities written back - (165)
Total 2,884 (116)

* Charged to statement of profit and loss.

h) Fixed assets

(र in Crores)

FY 2018-19 FY 2017-18 Change (र ) Change %
Tangible assets 3,373 6,017 (2,644) (44)%
Capital work-inprogress 154 166 (13) (8)%
Total 3,525 6,183 (2,657) (43)%

The reduction in fixed assets is mainly on account of impairment of property, plant and equipment and capital work in progress during the year under review.

i) Investments

(र in Crores)

FY 2018-19 :FY 2017-18 Change (र ) Change %
Investments in subsidiaries, associates and joint ventures - 587 (587) (100)%
Other Investments 1 35 (34) (97)%
Total 1 623 (622) (100)%

The reduction in total investments is mainly on account of impairment/write-off of certain investments in subsidiaries, joint venture and associates due to non recoverability of investments.

j) Inventories

(र in Crores)

FY 2018-19 FY 2017-18 Change (र ) Change %
Raw Materials 188 151 37 25%
Work-in-Progress 6 3 3 108%
Semi Finished/ 350 103 247 240%
Finished Goods Production 75 64 12 18%
Consumables and Stores & Spares Stock in trade 40 40 100%
Total 659 321 339 105%

Increase in inventories is mainly on account of stocking of raw materials and finished goods due to commencement of Pellet and finished steel operations in Raigarh unit.

k) Trade receivables

(र in Crores)

1 FY 2018-19 FY 2017-18 Change (र ) Change %
Total Debtors 48 97 (49) (51)%
Less: Provision for doubtful debts (2) (37) 35 (94)%
Total Receivables 46 60 (14) (24)%

Decrease in trade receivables is on account of reduction in collection period and write off of certain trade receivables.

l) 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;

(र in Crores)

Key Ratios FY 2018-19 FY 2017-18 Change in %
(i) Debtors Turnover (days) 10.29 20.25 (49)%
(ii) Inventory Turnover (days) 129 87 30%
(iii) Interest Coverage Ratio 0.03 0.06 (48)%
(iv) Current Ratio 2.38 0.50 374%
(v) Debt Equity Ratio 1.11 *


(vi) Operating Profit Margin (%) 0.05 4.28 (99)%
(vii) Net Profit Margin (%) (184.16) (133.96) 37%

• Debt Equity ratio has not been computed for FY 2017-18

due to negative equity in FY 2017-18.

Reason for change in above key ratios

• Debtors Turnover has improved due to reduction in collection period

• Inventory turnover increased on account of stocking of raw materials and finished goods on account of restart of steel making operations at Raigarh

• Interest Coverage Ratio decreased due to lower interest charges pursuant to implementation of resolution plan as approved by NCLT.

• Current Ratio increased on account of reduction in creditors pursuant to implementation of resolution plan as approved by NCLT

• Debt Equity Ratio - Debt equity ratio is at 1.11 on account of increase in equity share capital and reduction of borrowings as compared to previous year as per approved resolution plan.

• Operating Profit Margin reduced on account of higher expenses incurred on restart of steelmaking operations

• Net Profit Margin (%) reduced due to increase in exceptional items.


The DRI units at Raigarh and Raipur unit DRI plant were in continuous operation at time of acquisition of management control by the Consortium on 31st August 2018 pursuant to the of the Honble NCLT order. Post-acquisition of management control, operations of Raigarh Pellet plant was started in October 2018 and production was ramped up to around 90% of installed capacity. Cost control measures were

initiated in Raipur and Raigarh plant. Measures are being taken to increase the Pellet plant capacity to 2.50 MTPA in Financial Year 2019-2020, with marginal investment which will further reduce cost of production. In the month of February 2019, the Company started integrated steel production through blast furnace (for iron making), electric arc furnace (steel making), ladle refining, continuous casting and bar mill rolling. The management is working towards investing in equipment upgradations with the objective of producing value added steel (long) products for applications in automobile sector, energy, railways and general engineering. With this the Company is expected to enter into the value added market by the end of current financial year.

Synergy from JSW Steel

Apart from the infusion of capital, the Company derives synergistic benefits from JSW Steel Limited (JSW). The Company will get the benefits of know-how expertise, training and marketing support from JSW which is already present in the value added steel market.

The Company also benefits from JSW Steels centralised procurement of raw materials and capital shipments to optimise. The Company is planning to export special steel cast products, to global customers potentially including JSW Piomdino Works (Italy).

Demand scenario

There is rising demand for speciality steel products in the Eastern, Northern and Western markets. The Companys, plant in Chhattisgarh, is ideally located to cater to these geographies driven by favorable cost of logistics.

Segment-wise or product-wise performance

The Company is engaged in the steel business, the details of which have been included in the financial statements of the Company.


Risk Management and Control System to ensure that the risks of the Company are identified and managed effectively. The re-constituted management of the Company has adopted risk management framework for identifying and evaluating risks and opportunities that may have bearing on the organisation. The Company recognises that these risks needs to be managed and mitigated to protect the shareholders and other stakeholders interest.

Although the entire steel industry is under threat due to steel imports from China, Japan, South Korea and Russia yet consumption in expected to rise due to the boost in infrastructure, construction and automobile sectors. The demand of steel in the capital good sectors is expected to rise as well. The National Steel Policy, 2017, has envisaged

300 million tonnes of production capacity by 2030. The Indian Government is giving increased focus to find new markets for Indian manufactured steel, trying to shift industrys attention towards special steel production and increasing per capital steel consumption.


The internal control systems include documented policies, checks and balances, guidelines and procedures, that are supplemented by robust internal audit processes and monitored continuously by periodical reviews by management to provides reasonable assurance that all assets are safeguarded; transactions are authorized, recorded and reported properly. Post-acquisition, the reconstituted Board/ Management is in the process of further strengthening the internal controls framework with an objective to have a best-in-class internal control framework commensurate with the size, scale and nature of business.


As on 31st March 2019, the Company had 2295 direct employees apart from contract workforce.

The Company strives to provide a safe working atmosphere in the Company, where in every employee can develop his /her own strength and deliver their expertise in the interest of the Company.


Statements in the Management Discussion and Analysis describing the Companys estimates and expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results/ performance could differ materially from those expressed or implied.

By Order of the Board

For Monnet Ispat and Energy Limited

Jyotin Mehta

Chairman DIN: 00033518

Place: Mumbai

Date: 17th May, 2019