Mukand Ltd Management Discussions

for the Annual Report 2023-24 Overview of the Global Steel Industry

The global steel industry witnessed a mixed performance in the financial year 2023-24, characterized by a combination of challenges and opportunities. While emerging economies such as China and India continued to drive demand for steel, developed economies faced challenges due to geopolitical tensions resulting in logistical challenges, trade disputes, and economic slowdowns. However, despite these unfavourable conditions, technological advancements, digitization, and sustainability initiatives remained key drivers of growth in the global steel industry.

China, the worlds largest steel producer, continued to dominate the market, contributing to a significant portion of global steel output. However, efforts to address overcapacity and environmental concerns led to production cuts in certain regions of China. In contrast, other Asian countries such as India and Vietnam witnessed steady but not rapid growth in steel production. This growth was mainly driven by domestic demand and export opportunities. In Europe and North America, steel production levels recovered from the pandemic-induced downturn, supported by increased demand from the automotive and construction sectors.

In the year 2023-24, Price volatility remained a key concern for the global steel industry, particularly in the context of fluctuating raw material costs. Prices of iron ore and coking coal, essential inputs for steel production, experienced volatility due to supply-demand dynamics, logistical constraints, and geopolitical factors. High input costs impacted the profitability of steel manufacturers, necessitating strategic cost management and operational efficiency measures.

In addition to these forces at play, the industry also felt the impact of Environmental regulations and sustainability initiatives which continued to shape the global steel industry landscape. Governments and regulatory bodies implemented stringent emission norms, energy efficiency standards, and carbon reduction targets to mitigate the environmental impact of steel production. Steel manufacturers focused on adopting cleaner technologies, investing in renewable energy sources, and enhancing resource efficiency to meet regulatory requirements and address stakeholder concerns.

Looking ahead, the global steel industry is expected to continue its growth trajectory, albeit with challenges and uncertainties. India is the main growth market and we expect finished steel consumption in India to increase by 9% in the financial year ending March 2025, to reach 146 Million MT, following a 12% rise in FY24. Production capacity additions should be absorbed by this demand growth, maintaining robust margins. Although imports have increased, we do not expect import volumes to be an immediate threat to domestic producers. However, if domestic prices and margins drop sharply due to an import surge, we expect the government to introduce tariff-related measures, as it did in early 2016.

In the FY 2024-25, we are hopeful that economic recovery, infrastructure investments, and technological advancements will drive steel demand in emerging and developed markets. However, we will have to watch out for geopolitical tensions, trade disputes, and environmental concerns as those will remain key factors influencing industry dynamics. To thrive in this evolving landscape, we need to focus on innovation, sustainability, and operational excellence to maintain competitiveness and ensure long-term growth.

Overview of the Indian Steel Industry

India, currently one of the fastest-growing major economies, is set to emerge as the third largest economy by 2030, propelled by a host of factors, including favourable demographics, stable and progressive policies with a strategic focus on infrastructure, digitization, manufacturing, logistics, trade, and energy transition etc. Despite strong global headwinds and rising interest rates, India is still expected to grow between 6.5 percent to 7.0 percent by 2030.

The steel industry is a cornerstone of economic development, providing essential raw materials for the construction, infrastructure, manufacturing, and transportation sectors. In recent years, the steel industry in India has been thriving with an impressive growth rate. Despite global challenges, the Indian steel market showed remarkable resilience and emerged as one of the key players in the global steel market.

The success of the steel sector can be attributed to its ability to meet the significant demand generated by the construction, infrastructure, automotive, engineering, and defense sectors. Thanks to the governments investment in numerous infrastructure projects, India has been able to maintain its position as the worlds second-largest steel producer. In a nutshell, we can say that despite facing challenges such as volatile raw material prices, environmental regulations, and geopolitical tensions across different regions, the steel industry has demonstrated resilience and adaptability over the years. Indias steel industry is gearing up to meet the growing domestic demand for steel, thanks to the rapid development of the countrys economy. Domestic steel manufacturers are aiming to expand their operations to new heights, as they have been receiving attention from steel producers around the world.

In the financial year 2023-24, our domestic steel market benefited from increased government spending on infrastructure projects, such as highways, railways, and affordable housing. Additionally, initiatives such as the Production-Linked Incentive (PLI) Scheme for specialty steel and the Atmanirbhar Bharat (Self-reliant India) campaign aimed at promoting domestic manufacturing contributed to the growth of the Indian steel industry. The governments vision of Viksit Bharat by 2047, schemes such as the implementation of three railway corridor programmes under the PM Gati Shakti Scheme and comprehensive development of new airports under the UDAn scheme, announcements such as an increase in the capital expenditure and building of more than two crore houses under the Pradhan Mantri Gramin Awas Yojna also indicate a plethora of opportunities for the Steel industry in the near future. Going by the new initiatives and increased thrust on the infrastructure, it is evident that the Indian steel industry is poised for a bright future and is expected to continue its upward trajectory in the coming years.

Overview of the Companys Performance

The Financial Year 2023-24 has been a challenging period for your company, marked by market volatilities and external pressures. Despite these hurdles, your company achieved Bloom production (Kalwe & Hospet plant) of 5,09,126 MT in the year 2023-24, underscoring its unwavering commitment to operational excellence and customer satisfaction.

Total revenue of your company for the Financial Year 2023-24 was Rs. 5,197 crore. Despite the decline from Rs. 5,597 crore in the previous year, this performance underscores your companys ability to maintain its strong position in the industry. This places your company among the top league of Rs. 5,000+ crore turnover companies in the private sector of India, highlighting its market leadership.

Furthermore, amidst the challenging geo-political environment caused by the Russia-Ukraine war and Red Sea crisis, and the overall sluggish performance of the industry, your companys Profit After Tax for the year stood at Rs. 103 crore for the year 2023-24.

The net debt-equity ratio as on March 31, 2024, stood at 1.52, indicating a healthy financial position and prudent capital management.

In the Financial Year 2023-24, your company witnessed an 0.15% increase in the total steel production compared to the previous year 2022-23.

On the other hand, the Industrial Machinery division recorded a revenue of Rs. 223 crore, during the FY 2023-24 compared to Rs. 140 crore in the year 2022-23. This achievement is a testament to your companys technical expertise and commitment to delivering high-quality, innovative solutions to its clients.

In the year 2023-24, your company witnessed no substantial increase in the production of Alloy Steel, compared to the previous year 2022-23.

Earnings Per Share (EPS): Your company recorded an EPS of Rs 7.17, compared to Rs 12.84 of the previous year 2022-23. Please refer Note 47 (Financial Ratios) of Standalone Financial Statements for details of significant changes in key financial ratios.

For material developments in Human Resources / Industrial front, including number of people employed, refer Annexure - 3 and Annexure - 9 of Boards Report.

In conclusion, the Financial Year 2023-24 has been challenging for Mukand Limited, marked by weak domestic demand and tough economic conditions in major European markets. However, even during these tough times, your company continued its journey of growth despite facing headwinds such as market volatilities, supply chain disruptions, Red Sea crisis and regulatory complexities. Going forward, your company remains committed to its core values of excellence, innovation, and customer satisfaction as we continue to strive for greater heights in the years to come.

Operational Highlights of Steel Division

Your companys operational performance in 2023-24 demonstrated resilience and adaptability to changing market dynamics. Key operational highlights for the year 2023-24 include:

• Production Volume: The Alloy Steel Division achieved a production volume of 3,58,225 metric tons and Stainless Steel Division achieved a production volume of 1,50,901 metric tons during the financial year 2023-24. The Company achieved a total production volume of 5,09,126 metric tons, reflecting a 0.15 % increase over the previous year 2022-23.

• Market Expansion: Your company has been actively pursuing expansion into new markets and exploring new application areas. Leveraging its robust distribution network and strong customer relationships, the Company has made strides in both domestic and international markets. However, it may take some time before these efforts translate into tangible results. In the year 2024, your company also participated in one of the most important Stainless Steel Exhibitions which takes place once in two years in Dusseldorf, and was able to generate a lot of interest amongst the visitors with its product quality and range.

• Product Innovation: The Company continued its focus on product innovation, to meet evolving customer needs and market demands.

• Environmental Compliance: With a focus on Sustainability, your company entered into a groundbreaking partnership with Tata Power Renewable Energy Limited (TPREL). This transformative collaboration signifies the signing of a Power Delivery Agreement (PDA) for an innovative 43.75 MW AC Group Captive Solar project to generate an impressive 99.82 MUs annually.

This project is poised to substantially reduce our carbon footprint, offsetting an estimated 54,687 Metric Tons of CO2 emissions per year and this Solar Power project is projected to fulfill up to 70% of the total energy requirement of your Kalwe Plant. Further solidifying our dedication to sustainable operations and fostering a brighter, cleaner future for generations to come, your company has replaced furnace oil & LPG wef 1 Apr 2024 in its reheating furnaces, boilers, and annealing furnaces with Piped Natural Gas which is more environment friendly & will improve surface quality of stainless steel.

• Sustainable Future: Your Companys Alloy Steel plant at Hospet, Karnataka has inked a groundbreaking Power Delivery Agreement (PDA) with Amplus Phoenix Energy Pvt Limited (APEPL), a proud member of the PETRONAS Group. This collaboration marks a significant step towards fostering clean energy solutions and sustainable practices in the steel manufacturing industry. The 23.89 MWp Group Captive Solar project, nestled in the picturesque Hulkoti village in the Gadag district of Karnataka, is expected to generate 36 MUs annually. This solar venture is projected to offset approximately 28,440

tonnes of CO2 emissions per year. The collaboration with APEPL underscores Mukands dedication to reducing its carbon footprint and embracing non-conventional energy solutions. This solar power plant adheres to stringent quality standards and specifications, ensuring reliability and operational excellence. The aim of the installation is to meet the growing energy requirements of Mukand Limiteds Alloy Steel production facility and contribute to making the steel manufacturing processes and production greener.

• Cost Management: Strategic cost management initiatives resulted in improved operational efficiency and reduced production costs. The division optimized raw material procurement, implemented energy-efficient technologies, and streamlined logistics operations to enhance cost competitiveness.

• Product Mix and Market Penetration: Mukand Limited strengthened its presence in key market segments. The division focused on high-value specialty steel products catering to diverse industries including automotive, infrastructure, and engineering.

• Quality and Compliance: The Steel Division maintained its commitment to quality and compliance with regulatory standards. Stringent quality control measures and adherence to environmental norms ensured the delivery of superior-quality products to customers.

Operational Highlights of Machine Building Division

Mukand Limiteds Machine Building Division continued its growth trajectory in the financial year 2023-24, capitalizing on emerging market opportunities and leveraging its technological expertise. Key highlights of the Machine Building Divisions performance include:

• The Machine Building Division secured the turnover of Rs. 223 crore in the year 2023-24, representing around 59% increase compared to the previous year 2022-23.

• Product Innovation: The Machine Building Division focused on product innovation and R&D initiatives to develop cutting-edge solutions for diverse industries. The division also supplied heavy-duty cranes to ports in different parts of the country, enhancing its market competitiveness.

• Customer Relationships: Strong customer relationships and a customer-centric approach were instrumental in driving growth for the Machine Building Division. The division deployed Customer Relationship Management software across its sales and marketing function to provide timely support, after sales services, and technical assistance to customers, fostering long-term partnerships.

• Quality and Reliability: The Machine Building Division maintained a strong focus on quality and reliability across its product portfolio. The division adhered to utmost quality standards, ensuring the delivery of reliable and durable equipment to customers.

Outlook

Looking ahead, Mukand Limited remains optimistic about the future outlook for both its Special Steel and Machine Building Divisions. Despite the challenges posed by the evolving business environment, the Company is well-positioned to capitalize on emerging opportunities and sustain long-term growth. Mukand Limited will continue to invest in technology and innovation to enhance operational efficiency, productivity, and product quality. The adoption of advanced manufacturing technologies, automation, and digitization will drive competitiveness and differentiation in the market.

On the Sustainability front, the company remains committed to environmental stewardship and will focus on reducing carbon emissions, optimizing energy consumption, and promoting circular economy practices across its operations. Going forward, your company is also considering diversifying into new markets and customer segments and will explore opportunities in emerging sectors such as renewable energy, electric vehicles, and infrastructure development.

Your company will continue to prioritize customer satisfaction and value creation and shall strengthen its customer relationships, understand evolving customer needs, and tailor its offerings accordingly. In conclusion, your company remains committed to delivering value to its shareholders, customers, employees, and other stakeholders. The Companys robust performance, strategic initiatives, and forward-looking approach position it for sustained growth and success in the years to come.