Mukand Ltd Management Discussions.

Generally, sustainability has been associated with activities related to the environment. Today we understand that Sustainability is not limited to the environment and greenery alone but incorporates the very existence of life on the planet.

Sustainability in Business Strategy is about survival of Industry by doing business in a manner that contributes to the survival of the people, planet and eco system. The Sustainable Development Goals adopted by the United Nations member states calls upon not just governments but also civil society and business to join together to improve the health and education of humanity, reduce inequality, and spur economic growth for the sustenance of humanity while tackling climate change and working to preserve our ecosystem. Simply put, it is about the economic, cultural, social and ecological aspects of life.

The manufacturing sector perhaps could take the lead to spur economic activity given the knowhow, scalability and ingenuity that is inherent to this sector. Incorporating sustainability into the core of business, results in creating a balanced economic, social and environmental value to a whole range of stakeholders which is beyond employees, customers and the immediate beneficiaries.

Mukand - having successfully continued in the manufacturing industry for more than 80 years doing business in an ethical and sustained manner focuses on incorporating sustainability in its Business Strategy. Our endeavor today is to put sustainability at the top of every decision, action and plan. It is an ongoing transformation to bring in the larger picture and not succumb to short term goals.

The Big challenge is to grow the economy while leaving the world a better place. To achieve this, there has to be a paradigm shift in the way we do our business. We have to do more with less, balance national interest with responsibilities as a global community and achieve short term results while making long term investments.

The Global Economy

Global growth softened to 3.6 percent in the calendar year of 2018 and is projected to decline further to 3.3 percent in 2019. There was a downward revision in growth of 0.2 percentage points for 2019 from the January 2019 projection. With improved prospects for the second half of the calendar year of 2019, global growth in 2020 is projected to return to 3.6 percent. This recovery is precarious and predicated on a rebound in emerging market and developing economies, where growth is projected to increase from 4.4 percent in 2019 to 4.8 percent in 2020.

Turbulence in the international oil market has made an unexpected comeback in January 2019 when prices sharply rose after the US imposed sanctions on countries dealing with Iran. This order will significantly increase in inflation in non-oil producing countries, including India.

The Indian Economy

Since September 2018, the industrial sector witnessed a sharp production slowdown, lower than expected sales and high inventory build-up. The last six months have seen weak demand and lower sales growth in key sectors such as, automobile, fast-moving consumer goods (FMCG), etc.

According to the ‘Monthly Economic Report for March 2019 released by the Department of Economic Affairs, "declining growth of private consumption, weak increase in fixed investment and muted exports were some of the reasons for the slowdown.

The Steel Industry

The World Steel Association had estimated steel demand in India to touch 103 million tonnes (mt) in 2019 as against 96 mt logged in 2018. It is estimated to further grow to 110.2 mt in 2020. However, The Indian Steel Association expects the steel demand to slow down from 8 percent in 2018 to 7.2 per cent for the next two years due to relatively slow growth in major consuming sectors such as automotive and consumer durables.

The Indian automobile industry, has recorded a slowdown after a neardecade of high growth. The Society of Indian Automobile Manufacturers (SIAM) announced a 17 percent decline in passenger vehicle sales for April, the lowest in nearly eight years. The automotive sector is witnessing softer demand since October 2018 but is expected to revive in July due to prebuying before the BS-VI norms kick in.

The Company

The Turnover of the company for the year 2018 -19 stood at Rs 3,547.98 crore as against Rs.3,074.66 crore in the previous year despite a lackluster economy. The EBIDTA has improved to Rs.155.72 crore as against Rs.74.18 crore in the previous year. The interest cost continues to be high due to large borrowings.

The revenue of the Steel Division has increased to Rs. 3,451.35 crore from Rs. 3,033.40 crore in the previous year.

The billet and blooms production during the year was marginally lower and correspondingly, the rolled and finished production was also marginally lower. The development of new products and customers enabled the company to maintain the production levels in spite of lower demand during the second half of the year. The selling price was increased to partly cover the increased input costs. The companys exports increased to Rs. 257.74 crore as against Rs. 219.42 crore in the previous year, an increase of 17.5%.

International prices of Iron Ore (both fines and lumps), the principal raw material required to produce steel continued to soar during the year under report. However. iron ore from the mines in Karnataka showed volatility. Prices of Metallurgical coke, coking coal, Nickel, stainless steel scrap, etc. although had risen in the first two quarters of the year, declined marginally in the third quarter.

The revenues of the Industrial Machinery Division for the year under report stood at Rs.138.66 crore as against Rs.80.50 crore in the previous year. The year under report brought hope to a revival of the otherwise dormant capital goods market.

The division received and executed export orders for EOT cranes to Bangladesh and Oman. In the year under report, the division also executed domestic orders for various Shipyards. The Company has received orders from some of the steel plants and Naval Dockyards during the year.

Two major orders received in the Financial years 2016 and 2017 from SAIL were commissioned in the year under report.

This revived activity in the capital equipment market shows promise and the division expects the division to stimulate more orders in the coming year.

The rupee weakened as against the dollar by 6.52 percent during the year under report. The exchange rate was volatile to the extent of 14.85 percent.

Significant changes in key financial ratios as compared to the previous year

Operating profit margin ratio has improved to 2.55% as compared to 0.18% in the previous year. Net profit /(loss) margin ratio is at (2.75%) as against (5.18%) for the previous year. Interest coverage ratio is better at 0.61 as compared to 0.25 in the previous year.

Operating profit and net profit /(loss) margin ratios have improved for the year under report. In steel business higher sales realisation was on account of better product mix and increase in turnover. In case of industrial machinery business, larger turnover as compared to previous year, resulted in lower segment loss. The interest coverage ratio has improved in view of increased operating profit margin.

For computation of these ratios, the gains on fair value of equity investments have not been considered being of non-operating nature. Operating profit margin ratio is calculated taking all the expenses except interest expenses.

Current ratio for the year under report is 1.34 as against 0.95 for the previous year. Debt equity ratio stood at 21.35 as compared to 9.23 in the previous year.

Unsecured long term funds were obtained to improve current ratio by payment to trade creditors and finance cash losses incurred.

Sustainability of our Business

Over the years, the company has been shifting its focus towards sustainable development by upgrading its processes and technology with modern, more efficient, energy saving equipment. For example the continuous casting machine at the Ginigera steel plant has been modernised to enhance the quality of the output while increasing the life of the equipment. The modern ultrasonic testing and eddy current steel bar testing equipment and the computer aided roll pass cutting hardware and software for roll turning lathes will all contribute towards increasing the efficiency and quality of our products.

There is no doubt that renewable energy is the best sustainable form of energy. At Mukand 45% of energy needs are met through wind and flue gases from the Blast Furnace.. The company also plans to move towards using natural gas as fuel in place of fossil fuels currently used in the Billet re-heating furnaces.

The company continues to develop new products that are either import substitutes or niche in the market thereby consolidating its market position as one of the formidable quality producers of steel in India. These efforts made by your company also help customers to use alternate cheaper process routes for their production requirements.

The Test lab in Mukand continues its certification by National Accreditation Board for Testing & Calibration Laboratories (NABL) under ISO/ IEC 17025:2005 Laboratory quality Management system. The steel plant also achieved recertification by BVC for IATF:16949:2016, ISO 9001:2015, ISO 14001:2015. Surveillance audits for AD 2000 and pressure equipment directive 2014/68/EU and ISO 50001:2011 were also successfully completed.

Total Productive Maintenance (TPM) that the Company adopted in the 90s is based on a holistic approach to equipment maintenance that strives to achieve perfect production with no breakdowns, no defect and no accidents. TPM emphasises on proactive, preventive maintenance to maximise the operational efficiency of equipment. This philosophy is complimentary to the idea of sustenance as operational efficiency saves time and optimises the consumption of energy and all raw materials.

The Government of India set up the Bureau of Energy Efficiency (BEE) in the year 2002 with the objective of reducing the energy intensity of the Indian economy through active participation of all stake holders. In the two PAT cycles (Perform, achieve and Trade) monitored by the government, Mukand was able to achieve energy levels better than the target and thus earned energy credits from BEE. This achievement reaffirms the commitment that has fructified in actions towards energy conservation and sustainability.

Water is yet another precious resource that requires urgent sustainability measures. The consumption of water in industries such as ours, is huge. At Mukand, there is a constant effort to minimise usage of this precious resource and also recycle water wherever possible. It is a matter of pride to mention here that the daily consumption of water at Kalwe Plant has been reduced drastically from 1200 kl to 800 kl in five years.

In Mumbai Chapter of QCFI, five teams of the company participated in Quality Circle and Kaizen competitions. All the five teams won the Gold Award in their respective competitions. Three of these teams participated in the national level competition and were awarded "Par Excellence".

The Safety and Health of the employees are of great concern for the company and continuous measures are taken to impart information on the same. Every employee undergoes training and the company also insists that all employees are trained and informed about the Sexual Harassment of Women at workplace (Prevention, Prohibition and Redressal) Act, 2013.

The Company entered into a Wage Settlement with the recognised Union on 26.05.2018 after prolonged negotiations. This settlement is effective for five years from 1st April 2018. It may be noted that the Company entered into six settlements covering a period of 34 years without any industrial unrest. The company places on record the dedication and commitment of all employees and looks forward to their continued support.

On behalf of the Board of Directors,

Niraj Bajaj Rajesh V. Shah
Chairman & Managing Director Co-Chairman & Managing Director
Mumbai, May 20, 2019