MSP Steel & Power Ltd Management Discussions

: its growth and performance objectives.

II. EXTERNAL ENVIRONMENT GLOBAL ECONOMY

The global economy is gradually recovering from the pandemic, Russias invasion of Ukraine, and the cost-of-living crisis. The resilience displayed has been notable. Despite disruptions in energy and food markets caused by the war and unprecedented monetary tightening aimed at curbing decades- high inflation, economic activity has decelerated but not halted. However, growth is slow and uneven, with increasing disparities..

Global growth at 3.2 percent in CY 2023,is estimated to continue at the same pace in CY 2024 and CY 2025, whereas Headline inflation continues to decelerate, on a year-over-year basis, with advanced economies returning to their inflation targets. As global inflation descended from its peak, economic activity grew steadily, defying warnings of stagflation and global recession. In the advanced economies, the US experienced a growth rate of 2.5% in 2023, with projections indicating an increase to 2.7% in 2024 before slowing to 1.9% in 2025. The UKs growth remained relatively flat in 2023 but is expected to rise by 0.5% in 2024 and 1.5% in 2025. In China, growth is anticipated to decelerate from 5.2% in 2023 to 4.6% in 2024 and 4.1% in 2025, driven by the diminishing impact of one-off consumption and fiscal stimulus measures post-pandemic, along with ongoing challenges in the real estate sector. Conversely, Indias growth rate is robust, estimated at 7.8% in 2023 and projected to sustain strong performance with 6.8% in 2024 and 6.5% in 2025.

GLOBAL OUTLOOK

For advanced economies, growth is projected to decline slightly from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. In the United States, growth is projected to increase to 2.7% in 2024, before slowing to 1.9% in 2025, as gradual fiscal tightening and a softening in labour markets slow aggregate demand.

On the fiscal policy front, the IMF expects governments in advanced economies to tighten fiscal policies in 2024 and beyond. This tightening is evident in projections for the structural fiscal- balance-to-GDP ratio, which is anticipated to rise notably in the US and the Euro area. Emerging markets and developing economies are likely to maintain a broadly neutral policy stance in 2024, with slight tightening anticipated in 2025.

INDIAN ECONOMY ANALYSIS

The Indian economy maintained its positive growth trajectory despite a sluggish global economy. Experts across the board agree on Indias robust GDP growth of 7.6% for FY 2023-24 as compared to a growth rate of 7.0% in FY 2022-23 with projections indicating a resilient economy even in the face of global challenges in FY 2024-25.

The financial sector has been resilient, largely unaffected by global financial stress in early 2023. While the budget deficit has eased, public debt remains elevated and fiscal buffers need to be rebuilt. Globally, Indias 2023 G20 presidency has demonstrated the countrys important role in advancing multilateral policy priorities.

We see India continuing to grow well this decade piggybacking significant investments in the emerging sectors, continuation of major investments by the government and efficiency gains stemming from advances in digitalisation and physical connectivity.

Indias rate of unemployment declined to 3.1% (2022: 3.6%) and labour force participation rate expanded to 59.8% (2022: 56.1%) in 2023. ?

Source: Govt. of India - Dept. of Economic Affairs Monthly Economic Review, February 2024

Indias foreign currency reserves stood strong at $645.6 billion as of March 31, 2024, and the Indian currency remained stable during the year.

As per the past three fiscals, capex in the country has been driven by the household sector and the infrastructure buildout bankrolled by the central and state governments. Going forward, the industrial sector is expected to pick up pace, with investments flowing towards both conventional and emerging sectors, even as infrastructure capex maintains momentum.

The industrial manufacturing sector has experienced a significant boost, attracting global technology giants to expand their supplier networks within India. This momentum is further supported by the implementation of state industrial policies that complement sector specific incentive schemes. Concurrently, substantial investments in logistics and infrastructure development, including the construction of new roads, highways, and rail tracks, underscore the Governments commitment to bolstering this critical sector. Capital spending by the Government and strong manufacturing activity have meaningfully contributed to the robust growth outcomes in 2023.

The government has played a crucial role in triggering industrial capex across conventional and emerging sectors through the Production Linked Incentive (PLI) scheme. With incentives worth Rs 1.82 lakh crore offered across 14 sectors, PLI focuses on improving Indias attractiveness as a global manufacturing hub and narrowing the gap with major destinations.

SECTORAL ANALYSIS Global Steel Industry

The global economy continues to show resilience despite facing several strong headwinds, the lingering impact from the pandemic and Russias invasion of Ukraine, high inflation, high costs and falling household purchasing power, rising geopolitical uncertainties, and forceful monetary tightening. As MSP Steel approaches the monetary tightening cycle, tighter credit conditions and higher costs have led to a sharp slowdown in housing activity in most major markets and have hampered manufacturing sector globally. While it seems the world economy will experience a soft landing from this monetary tightening cycle, it is expected to see global steel demand growth remaining weak and market volatility remaining high on lagged impact of monetary tightening, high costs and high geopolitical uncertainties.

We expect that steel demand in China in 2024 will remain around the level of 2023, as real estate investments continue to decline, but the corresponding steel demand loss will be offset by growth in steel demand coming from infrastructure investments and manufacturing sectors. In 2025 we see China steel demand returning to downtrend with a 1% decline.

Steel industry has been impacted by high inflation and interest rate environment in addition to growing geo-economic fragmentation. The slowdown of steel consuming sectors, especially in EU & US continued in 2023 as investment and consumption weakened. The delayed effect of tightening monetary policy may allow slow recovery in 2024 in advanced economies while emerging economies, particularly Asia may grow faster. Persistent core inflation, high oil prices and tight job market remain the downside risks to stabilising inflation.

Indian Steel Industry

India remains a bright spot in the global steel industry and the steel demand in the country is expected to show a healthy growth of 7.7% in 2024 compared to a global growth of 1.9%, according to Short Range Outlook of The World Steel Association. Growth in Indias construction sector is driven by government spending on infrastructure and recovery in private investment. Infrastructure investment will also support capital goods sector. Besides, healthy growth momentum is expected to continue in the automotive sector. China, the USA, India and Brazil were among the nations to see manufacturing output rise, in contrast to declines in places such as euro area, Japan and the UK.

India is 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. The country accounted for 8.4% of world crude steel production during the month. Among the top 10 steel producing countries, India, Japan, Russia, South Korea, Turkey, and Iran registered yoy growth in production in January 2024 while the remaining countries reported yoy contraction in production during the month. India remained the leader in world DRI production with an output of 4.50 mt (up 19% yoy) in January 2024. The country accounted for 46.5% of world DRI production during the period under review.

Union budget FY23-24 provisions

Under the Union Budget 2023-24, the government allocated Rs. 70.15 crore (US$ 8.60 million) to the Ministry of Steel.

Opportunities:

• Indias finished steel consumption stood at 119.17 MT in FY23 and 112 MT in FY24 (until January 2024).

• The industry is witnessing consolidation of players, which has led to investment by entities from

other sectors. The ongoing consolidation also presents an opportunity to global players to enter the Indian market.

• In February 2024, The government has implemented various measures to promote self-reliance in the steel industry.

• Easy availability of low-cost manpower and presence of abundant iron ore reserves make India competitive in the global set up.

• India is home to fifth-highest reserves of iron ore in the world.

THREATS: Challenges in the Steel Industry

Capital and Labor Intensive Industry:

One of the primary challenges facing the steel industry is its high capital and labor intensity. Establishing steel plants requires substantial investment, and managing labor remains a persistent challenge.

Logistics Issues:

Handling bulk materials like iron ore and steel presents logistical challenges, significantly impacting transportation costs. Efficient logistics are crucial for maintaining cost competitiveness.

Economic Growth Driver:

The steel industry is a key driver of national economic growth, acting as a significant booster for industrial development. However, producing low-cost, high-quality steel while optimizing resource usage is a major challenge.

Disruptions in Raw Material Supply:

The import of critical raw materials such as coking coal is susceptible to supply chain disruptions and price fluctuations. These disruptions can affect production schedules and cost structures.

Fluctuating Demand:

Accurately predicting demand is difficult, often leading to delayed returns on investment. This uncertainty makes strategic planning and capacity management complex.

Government Restrictions:

large portion of the Companys business hinges on Government contracts. Delays or changes in government spending plans could significantly impact the Companys revenue streams.

COMPANY OVERVIEW

Financial performance of the Company

Key financial ratios (Consolidated)

Return on Networth :-

The details of return on net worth are given below: -

Please Note that since the company was in Loss in 2022-23, there was no ROE.

COMPANYS PRODUCT PERFORMANCE

HUMAN RESOURCES MANAGEMENT - Workforce and Employee Engagement

People are the cornerstone of our organization. As the saying goes, its the people who make the organization successful. Our employees are the foundation and pillars that hold the organization strong and tall, providing the skills and competencies necessary to execute our organizational strategies. At MSP, we deeply believe in this philosophy and are committed to attracting, retaining, and developing the best talent.

As of March 31, 2024, our workforce consists of 1198 employees, compared to 1137 employees as of March 31, 2023. Our Company maintains a cordial relationship with its employees and places a high value on their safety, ensuring the implementation of safe work practices. To foster a lively and enthusiastic work environment, we organize various employee engagement activities. We celebrate occasions such as Diwali, Holi, Christmas, and Womens Day. Additionally, we organize sports activities, including cricket tournaments at both our plant locations and corporate office. Other engagement initiatives include planting saplings on World Environment Day and yoga training sessions on Yoga Day.

For employee development, we offer a range of inhouse and external training programs. Our Company fosters a culture of collaboration through joint consultation between senior management and employees, demonstrating a strong commitment to mutual development. We prioritize building long-term relationships with our employees on an ongoing basis. Industrial relations at all our manufacturing units have been harmonious and peaceful, with active employee participation in the collective bargaining process.

MSP remains dedicated to ensuring that our employees are engaged, safe, and continually developing their skills, which in turn supports the overall success and growth of the organization.

STATUTORY COMPLIANCE

Statutory compliance adherence provides a great deal of security, starting from employees minimum wages to the companys business existence. The Company has adequate systems and processes to ensure that it is in compliance with all applicable laws and it is complying with all the Statutory rules and regulations applicable to it. The HR department complies with Statutory Acts like Factories Act, PF & Misc Provision Act, ESI Act, Minimum Wages Act, Bonus Act, Professional Tax Act, Shop and Establishment Act, Maternity Benefit Act, Payment of Wages Act and Other Labour Regulations as applicable for the organization. The Accounts Department complies with Income Tax Act and Service Act, etc. The Company Secretary complies with Companies Act, SEBI Regulations and other allied corporate laws applicable to the Company.

All the Statutory Compliances are met for the smooth functioning of the Company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

To ensure effective internal controls across business process and systems, the Company has established a robust framework that is designed to provide reliable and quality assurance related to the Companys financial and operational information so that it can comply with applicable laws and safeguard the Company assets.

The framework comprises both entity level controls and business process controls. The adequacy and efficacy of these controls are evaluated on a regular basis.

Apart from strong internal control, your Company has also appointed external and independent Audit Firms as its Internal auditors for periodical checking and monitoring of the Internal Control Measures

The Companys internal financial control framework commensurate with the size and the operation of the business and is in line with requirements of the Companies Act, 2013. The Company has laid down Standard Operating Procedures and policies to guide the operations of each of its functions. The Audit Committee also meets the Companys Internal Auditors as well as Statutory Auditors to ascertain for their views on the adequacy of internal control systems of the Company and keeps the management informed of its major observations Robust and continuous internal monitoring mechanisms ensure timely identification of risks and issues. The Management, Statutory and Internal Auditors undertake rigorous testing of the control environment of the Company.

RISK & CONCERNS

Our company recognizes that all businesses inherently carry certain risks, and we place great importance on actively identifying and mitigating these risks. To achieve this, we have implemented a robust organizational risk management system that consistently evaluates both our internal and external environments to detect potential risks. This proactive approach enables us to develop and implement effective strategies to mitigate these risks.

The risks we address are diverse and encompass various types, including geopolitical developments (e.g., war or natural calamities), travel restrictions, industry-specific risks, foreign currency volatility, client concentration, technology hazards, and financial risks, among others.

We have instituted measures at different levels of management to address these significant threats.

Furthermore, we continuously review and monitor our risk mitigation plans to ensure their ongoing effectiveness in protecting our business from potential threats. Our commitment to proactive risk management underscores our dedication to the long-term stability and success of our company. These measures are integrated into our strategic plans, ensuring their implementation throughout the organization.

The Board of Director of your Company aimed to ensure resilience for sustainable growth and sound corporate governance by having a process of risk identification and management in compliance with the provisions of the Act and the Listing Regulations. In concern to the same the Board of Directors of your Company has approved and adopted a revised Risk Management Policy of your Company: https://www.mspsteel.com/about-us/ corporate-policies

By maintaining this comprehensive risk management framework, we strive to safeguard our business and enhance our resilience against potential challenges.

CAUTIONARY STATEMENT

The Management Discussions and Analysis describe Companys projections, expectations or predictions and are "forward looking statements" within the meaning of applicable laws and regulations. These statements are based on current information and may differ from actual results due to risks and uncertainties. Important factors that could make a difference to the Companys operations include demand-supply conditions, finished goods prices, raw materials costs and availability, fluctuations in exchange rates, changes in Government regulations, tax laws, natural calamities including critically of pandemic (Covid- 19), litigation and industrial relations, economic developments within the country and other factors.