national general industries ltd share price Management discussions

FORWARD LOOKING STATEMENT

This report contains forward-looking statements, which may be identified by their use of words like ‘plans, ‘expects, ‘will, ‘anticipates, ‘believes, ‘intends, ‘projects, ‘estimates or other words of similar meaning. All statements that address expectation of projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market position, expenditures and financial results are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Companys actual results, performance or achievements could, thus differ materially from those projected in any such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments, information or events.

OVERVIEW OF FY 2022-23

National General Industries Limited (‘The Company) is engaged in the production and selling of Steel. The Company has manufacturing facilities at Ghaziabad, Uttar Pradesh.

GLOBAL ECONOMY

The world economy maintained a steady growth trajectory at the start of CY 2022, following a gradual recovery from the pandemic, but it was disrupted by the outbreak of the Russia-Ukraine conflict, steadily rising inflation and delayed normalisation of global supply chains. Inflation was on an upswing following the massive stimulus injection to tide over the pandemic. As central banks prepared to squeeze out excess liquidity to rein in inflation, constrained supply chains were further aggravated by economic sanctions on Russia and Chinas stringent shutdown to contain the spike in COVID-19 cases. This pushed inflation in advanced economies to multi-decadal highs, led by energy and commodity prices. Accelerated rate hikes by major central banks and slowing demand and investment sentiments impacted economic growth during the year.

Aggressive monetary tightening by central banks started showing the desired effect on Source: IMF World Economic Outlook, April 2023 demand. Tightening financial conditions in most regions and reducing liquidity in global markets led to a strong appreciation of the US dollar, further aided by its ‘safe haven status during periods of uncertainty. Chinas ‘Zero COVID policy weakened local demand, which had a spill-over effect overseas, keeping global supplies under pressure and inflation higher.

However, as global demand weakened, commodity prices started easing in the third quarter. Chinas earlier than expected re-opening in end of 2022 paved the way for a rebound in global economic activity and recovery in commodity prices.

INDIAN ECONOMY

The Indian economy stayed on a steady growth path, demonstrating strong resilience to multiple headwinds stemming from elevated inflation and a volatile global macro environment. The Indian economy is estimated to have grown by 7.2% in FY 2022-231, driven by strong private consumption, steady manufacturing and normalisation of contact-intensive services sectors. Although inflation remained above the upper band of the RBIs comfort range of 4-6% for most part of FY 2022-23, it started easing during the third and fourth quarters, as the central bank hiked its policy rates by 250 basis points cumulatively to contain inflation. In April 2023, the RBI hit a pause to its rate hike cycle, and is widely expected to maintain it, if a benign inflationary environment persists.

The Indian economy growth stems from the resilience seen in the rebound of private consumption, seamlessly replacing the export stimuli as the leading driver of growth. The uptick in private consumption has also given a boost to production activity resulting in an increase in capacity utilisation across sectors. The rebound in consumption was engineered by the near-universal vaccination coverage overseen by the government, which brought people back to the streets to spend on contact-based services, such as restaurants, hotels, shopping malls, and cinemas, among others.

In FY 2022-23, growth has been principally led by private consumption and capital formation. The capex of the central government, which increased by 26% in FY 2022-23, was another growth driver in the current year. It has helped generate employment, seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund. A sustained increase in private capex is also imminent with the strengthening of the balance sheets of the corporates and the consequent increase in credit financing it has been able to generate. The much-improved financial health of well-capitalised public sector banks has positioned them well to increase the credit supply.

OUTLOOK

High inflation curbs demand; supply faces margin pressure Global steel demand was impacted by high inflation and consequent aggressive monetary policy tightening by major central banks, coupled with supply chain bottlenecks. In 2022, the developed economies experienced a significant decline in steel demand due to factors such as monetary tightening and surging energy expenditure. Following a substantial decrease of 6.2% during CY 2022, there is an anticipation of a modest rebound with a projected 1.3% increase in steel demand for CY 2023. Looking ahead to CY 2024, a more substantial recovery of 3.2% is expected. Further, the looming energy crisis in the EU led to weakened sentiment, aggravated by the fear of potential gas rationing in the absence of Russian supplies. Chinas steel demand contracted by 4% in 2022.

In CY 2022, total crude steel production stood at 1,885 MnT, down 3.9% y-o-y, as steel producers reduced output in response to weak demand and weak margins due to falling steel prices and elevated raw material costs. The worlds largest steel producer China recorded production of 1,018 MnT, a 1.6% y-o-y decline and Japans production fell 7.4% y-o-y to 89.2 MnT. This was partly offset by a 6.0% y-o-y increase in production to 125.3 MnT in India.

India is the second-largest producer of crude steel in the world, with an output of 126.2 MnT in FY 2022-23. Crude steel production rose 5.0% year-over-year while finished steel consumption rose 13.3% to 119.9 MnT4. Although production and consumption increased due to robust domestic demand, margins came under pressure due to high raw material and energy costs. The imposition of export duty on steel led to the built-up of domestic inventories, as exports became unviable in the weak global price environment. Further, few low-priced shipments from Russia and duty-free steel from FTA countries made their way to domestic markets, as imports rose sharply putting more pressure on steel prices.

OPPORTUNITIES, THREATS AND RISKS

Commodity prices are likely to remain volatile in 2023, given the ongoing Russia-Ukraine conflict and the expected slowdown in three largest economies in the world the US, China and the EU. Further, the embargo on energy exports from Russia to the EU could lead to realignment of supply chains. Meanwhile, iron ore prices are likely to soften in the second half of CY 2023 due a seasonally stronger supply environment amid a depressed steel demand environment on the back of Chinas property market weakness and global manufacturing headwinds.

Chinas domestic steel demand has fallen 5% year-to-date while potential weakness in exports due to depressed prices could lead to lower steel production targets for CY 2023, and in turn, weigh heavily on iron ore demand as well as prices. Japan, the third largest steel producer, has recorded 16 consecutive months of falling steel production with the majority of output being directed for the Asia market. Further, with Europe now ramping up capacity utilisation, there would be limited scope to increase steel exports. India is likely to remain an outlier with a healthy steel production growth outlook, but the risk of government measures to protect supply of high-grade ore persists, such as the export tariffs imposed in CY 2022.

Against the backdrop of soft global economic outlook, India remains a bright spot with rising demand for steel. India domestic demand grew 13.3% year on year in FY 2022-23, recording consecutive two years of double-digit growth. According to ICRA, domestic steel demand is estimated to grow at 7-8% in FY 2023-24, owing to strong demand from end-user industries such as construction, infrastructure, automobile, real estate, and consumer durables and enabling steel players to maintain high-capacity utilization levels. In addition, the benefits of easing raw material prices are expected to flow through Q2 FY 2023-24 onwards. Further, the rollback of export duty should support exports.

SEGMENT-WISE PERFORMANCE

A detailed note on the segment-wise performance is given under note no. 25 of the Financial Statement of the Company.

RISKS AND CONCERNS

Technology obsolescence is an inherent business risk in a fast changing world and speed of change and adaptability is crucial for survival of business. Though aggressive cost cutting and addition to the product mix to incorporate more value-added products are still the present strengths of the Company, the Company is taking utmost care to ensure very high quality of products.

INTERNAL CONTROL SYSTEM

A robust system of internal control, commensurate with the size and nature of its business, forms an integral part of the Companys policies. The Company has a proper and adequate system of internal control commensurate with the size and nature of its business. The accounting records are adequate for preparation of financial statements and other financial information. The adequacy and effectiveness of internal controls across the various business, as well as compliance with laid down systems and policies are regularly monitored by your Companys internal audit process. The Audit Committee of Board, which met four times during the year, reviewed the financial disclosures.

The Company has appointed M/s B.R.Maheswari & Co., Chartered Accountants, (FRN 001035N), New Delhi to oversee and carry out internal audit of its activities. The internal audit reports are reviewed by the Audit Committee periodically. Based on its evaluation (as defined in section 177 of Companies Act 2013 and Clause 18 of SEBI Regulations 2015), the audit committee has concluded that as on March 31, 2023, your internal financial controls were adequate and operating effectively.

FINANCIAL AND OPERATIONAL PERFORMANCE

The financial performance of the Company for the financial year ended on 31^st March, 2023 and 31^st March, 2022 are summarized below:- (Rupees in Lakhs)

	For the year ended
Particulars	31-Mar-23	31-Mar-22
INCOME:
Revenue from operations	1,344.13	1,826.25
Other Income	111.19	109.91
	1,455.32	1,936.16
EXPENSES:
Cost of materials consumed	1,040.42	1,574.25
Purchase of Stock-in-Trade
Changes in inventories of finished goods, work-in-progress and
	47.58	34.51
Stock-in-Trade
Employee benefit expense	167.38	153.01
Financial costs	13.43	14.19
Depreciation and amortization expense	32.26	41.19
Other expenses	132.44	104.21
	1,433.51	1,921.36
Profit before exceptional items and tax	21.81	14.80
Exceptional Items	-	-
PROFIT BEFORE TAX	21.81	14.80
TAX EXPENSES:
Current tax	-	-
Current tax - Prior Year	-	-
MAT Credit	-	-
MAT Credit - Prior Year	-	-
Deferred tax	(0.46)	4.62
Profit for the period from continuing operations	22.27	10.18
PROFIT AFTER TAX	22.27	10.18
Other Comprehensive Income/(Loss)
(A)Items that will be reclassified to profit or loss	-	-
(B)Items that will not be reclassified to profit or loss	30.49	82.96
Income tax relating to this	7.71	21.50
Total Other Comprehensive Income/(loss) for the year	22.78	61.46
Total Income/(loss) for the year	45.05	71.64

RESULTS OF OPERATIONS AND STATE OF COMPANYS AFFAIRS

The Highlights of the Companys performance for the year ended on March 31, 2023 are as under: Value of Sales decreased to Rs. 610.02 lakhs (PY Rs. 1258.41 lakhs) Value of Job Work Services increased to Rs. 734.11 lakhs (PY Rs. 567.84 lakhs) Value of Other Income increased to Rs. 111.19 lakhs (PY Rs. 109.91 lakhs) PBDIT decreased to Rs.54.07 lakhs (PY of Rs. 55.99 lakhs) PBT increased to Rs. 21.81 lakhs (PY Rs. 14.80 lakhs) Net Profit increased to Rs. 22.27 lakhs (PY Rs. 10.18 lakhs)

INDUSTRIAL RELATIONS AND HUMAN RESOURCE MANAGEMENT

Industrial relations during the year under review were cordial and peaceful with all the employees on the payroll of the Company as at end of the financial year 2022-23. The management wishes to place on record, the excellent cooperation and contribution made by the employees, at all levels of the organization to the continued growth of the Company. There was constant focus on all round organizational development.

Considering human resources as most important resource, the major thrust was on recruiting highly qualified executives in various departments and also recruiting highly skilled workers to strengthen the production. Various training programs including visionary exercises were conducted for personal as well as professional development of the employees. The Companys industrial relations continued to be harmonious during the year under review.