I) OVERVIEW
The objective of this report is to convey the Management?s
perspective on the external environment and steel industry, as well as strategy, operating
and financial performance, material developments in human resources and industrial
relations, risks and opportunities and internal control systems and their adequacy in the
Company during the financial year 2021-22. This report should be read in conjunction with
the Company?s financial statements, the schedules, notes thereto and other
information included elsewhere in the Annual Report. The Company?s financial
statements have been prepared in accordance with the Indian Accounting Standards
(‘Ind AS?) complying with the requirements of the Companies Act, 2013, as
amended and regulations issued by the Securities and Exchange Board of India
(‘SEBI?) from time to time.
II) Industry Structure and Developments
(Source: World Steel Association: 2022 world steel in figures)
Global Steel Industry
Global steel industry witnessed recovery in 2021 after being impacted
by COVID-19 pandemic in 2020, due to revival in end-market demand. The resumption of
operations across major steel-consuming sectors following the lifting of lockdowns and
restrictions led to an increase in steel demand during the year under review.
The world crude steel production has increased to around 1951
Million Tonnes (MT) in the year 2021 as per the data provided by World Steel Association,
China being the top-most steel producing nation.
The world apparent steel use per capita has increased to around
232.80 kilograms for the Calendar Year (CY) 2021 as compared to 229 kilograms in the CY
2020.
Indian Steel Industry
The Indian steel industry witnessed a strong revival in Financial Year
2022 surpassing the pre COVID - 19 level because of a combination of factors like strong
retail demand, and the automobile sector, especially passenger vehicles, tractors, and
commercial vehicles. The central government?s call for Aatmanirbar Bharat has given a
whole new dimension to the nation. Some of the recent Government initiatives in the Steel
Industry include the Production Linked Incentive (PLI) scheme for specialty steel,
Memorandum of Cooperation (MoC) with the Ministry of Economy, Trade and Industry,
Government of Japan, to boost the steel sector through joint activities.
As per the World Steel Association India gained second position
among the major steel producing countries with a crude steel production of 118.2
MT in the CY 2021 and based on the growth patterns in the industry over the years, it
is expected to become the first largest producer of crude steel soon.
The apparent steel use per capita has increased to 76 kilograms
for the CY 2021 as compared to 64.52 kilograms per the data provided by World Steel
Association.
The steel sector contributes to over 2% of the Country?s GDP.
III) Opportunities and Threats
Opportunities
(Source: Ministry of Steel: Overview of Steel Sector)
In a de-regulated, liberalized economic/market scenario like India the
Government?s role is that of a facilitator which lays down the policy guidelines and
establishes the institutional mechanism/ structure for creating conducive environment for
improving efficiency and performance of the steel sector. Indian Steel Industry has the
following opportunities: India is expected to become the largest producer of steel in the
world.
The Government has released the National Steel Policy 2017, which has
laid down the broad roadmap for encouraging long term growth for the Indian steel
industry, both on demand and supply sides, by 2030-31. The Government has also announced a
policy for providing preference to domestically manufactured Iron & Steel products in
Government procurement. In line with Government?s announcement of various schemes
like Housing for all, Jal Shakti and the resulting investments they will drive into roads,
railways and other infrastructure will be major drivers for the growth of the steel sector
in India.
Government?s focus on strengthening the domestic manufacturing
base under the flagship "Atmanirbhar Bharat" programme. The Production Linked
Incentive scheme has been introduced to boost the manufacturing sector in industries like
automobile & auto components, consumer durables, solar equipment, telecom, etc. These
are expected to boost steel consumption.
Government has announced an investment of over Rs. 1 trillion in
infrastructure over the next 5 years. This would be a key growth driver not only for steel
industry but will also be a multiplier of growth across the sectors, boosting steel demand
from sectors such as transportation, real estate and infrastructure.
Threats
Demand-Supply imbalance. Political, legal and regulatory risks.
Financial Risks.
Depletion of high quality raw materials required for production of
steel.
Environmental concerns.
Dumping of excess inventory in other countries by countries producing
steel in abundance.
IV) Outlook – Steel Sector
(Source: World steel SRO April 2022)
In 2021, recovery from the pandemic shock turned out to be stronger
than expected in many regions, despite continuing supply chain issues and COVID waves.
However, a sharper than anticipated deceleration in China led to lower global steel demand
growth in 2021. As per World Steel Association (WSA), the outlook for 2022 and 2023 is
highly uncertain. The expectation of a continued and stable recovery from the pandemic has
been shaken by the war in Ukraine and rising inflation.
As per WSA, the magnitude of the impact of this conflict will vary
across regions, depending on their direct trade and financial exposure to Russia and
Ukraine. There immediate devastating effect will be felt globally via higher energy and
commodity prices – especially raw materials for steel production – and continued
supply chain disruptions, which were troubling the global steel industry even before the
war. Furthermore, financial market volatility and heightened uncertainty will undermine
Investment.
Such global spillovers from the war in Ukraine, along with low growth
in China, point to reduced growth expectations for global steel demand in 2022. There are
further downside risks from the continued surge in virus infections in some parts of the
world, especially China, and rising interest rates. The expected tightening of Unite
States monetary policies will hurt financially vulnerable emerging economies.
The World Steel Association forecasts that steel demand will grow by
0.4% in CY 2022 to reach 1,840.2 Mt after increasing by 2.7% in CY 2021. In CY 2023 steel
demand will see further growth of 2.2% to reach 1,881.4 Mt.
The current forecast is on the assumption that spread of variants of
Covid-19 will be less on account of good vaccination progress.
V) Risks and Concerns
The business environment in which the Company operates faces a variety
of risks which may affect its operations, financial results. Many of risks are driven by
the factors which are beyond the control of the Company.
Broadly, the risks are classified as under: Macroeconomic Risk;
Operational Risk; Market Related Risk; Regulatory Risk; and Environmental Risks.
The Company on continuous basis access the different risks as mentioned
above and take necessary steps/actions to mitigate its effects.
VI) SEGMENT WISE OR PRODUCT WISE PERFORMANCE
The Company operates only in one segment i.e. Manufacturing Segment.
The product wise performance in detail is given in Note No. 23 to the
Annual Audited Accounts of the Company.
VII) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has Internal Financial Controls (‘IFC?)
framework, commensurate with the size, scale, and complexity of the Company?s
operations. The Board of Directors of the Company is responsible for ensuring that IFC
have been laid down by the Company and that such controls are adequate and operating
effectively. The internal control framework has been designed to provide assurance with
respect to recording and providing reliable financial and operational information,
complying with applicable laws, safeguarding assets from unauthorised use, executing
transactions with proper authorisation and ensuring compliance with corporate policies.
The Company maintains an adequate and fair system of internal control
based on well established policies and procedures designed for transparent operations. The
management is regular in reviewing, on periodic basis, issues and concerns that have or
could have an effect on the operations, functioning or performance of the Company.
VIII) MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS
FRONT
INCLUDING NUMBER OF PEOPLE EMPLOYED
Human resource is considered as one of the key assets of an
organization as it is unique to a particular organization and plays an active role in its
growth.
As on March 31, 2022, the Company had 691 permanent employees on roll.
The Company strongly believes in the policy of hiring the right talent for the right
position at the right time, with a focus to improve employee productivity.
The Company provides adequate opportunity for training and learning to
the employees. The Company takes responsibility for effective management of careers of
individuals to make them expert in their respective fields. The team is strongly motivated
to work on their abilities and deliver better results.
IX) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL
PERFORMANCE
A. FINANCIAL PERFORMANCE
During the year under review, the revenue from operations is reduced to
81,504 Lakhs [Previous Year – 1,57,848 Lakhs] on account of utilizing the majority of
its production capacity of the plant & machinery under job-work. The Earnings Before
Interest, Tax, Depreciation and Amortization (EBITDA) is increased to 971.17 Lakhs
[Previous year - (644) Lakhs] on account of reduction in provision for doubtful
debt/advances during the year. The Loss Before Tax has been (24,397) Lakhs [Previous Year
- (25,272) Lakhs] and Loss After tax is (21,489) Lakhs [Previous Year - (22,740) Lakhs].
B. EXCEPTIONAL ITEM - WRITTEN OFF TARGET PLUS INCENTIVE
An incentive scrip amounting to 4,043.75 lakhs under Target Plus scheme
on exports had been availed by the Company for waiver of import duty on subsequent
imports. The same was accounted for as gain and was shown as other current assets in the
Financial Statements. The incentive scrip was valid till March 1, 2022. However, due to
other operational difficulties the Company could not availed the benefit, the same has
been provided for in the Statement of Profit & Loss as an exceptional item.
C. OPERATIONAL PERFORMANCE OF THE COMPANY
During the year under review, the Company through its plant facilities,
has utilized near about 84% (approx) of its production capacity through its Colled Rolling
Mill, Galvanized Plant and Color Coating Line in the following manner: The Cold Rolling
Mill of the Company has given a production of 2,65,973 MT, which is 86% to the
capacity utilization.
The Galvanized Plant has given a production of 2,67,044 MT,
which is 81% to the capacity utilization.
The Colour Coating Line has given a production of 1,38,338 MT,
which is 81% to the capacity utilization.
X) HEALTH, SAFETY, SECURITY AND ENVIRONMENT
Health, safety, security and environment have always been an integral
part of our value system. Our operations are driven by the value system so established and
hence are in compliance with the norms of health, safety, security and environment.
Considering the present circumstances due to the outbreak of COVID-19
pandemic, the Company is taking all the requisite precautions for its staff and workforce
like sanitisation, social distancing, mandatory mask wearing and thermal screening at the
entrance of premises, maintaining proper hygiene.
The Company has been regularly putting efforts for conservation of
energy and resources.
XI) CHANGES IN KEY FINANCIAL RATIOS:
The change in the key financial ratios as compared to previous year is
stated below:
| Sr.No. Particulars |
2022 |
2021 |
% Change |
Explanations, if any |
| 1. Debtors Turnover |
3.88 |
7.98 |
51.31 |
Due to the change in the business model of the Company from
sale to job-work basis. |
| 2. Inventory Turnover |
10.12 |
19.59 |
48.37 |
Due to the change in the business model of the Company from
sale to job-work basis. |
| 3. Interest Coverage Ratio |
(0.19) |
(0.03) |
470.77 |
On account of non-provision of Rs. 15698.49 lakhs for the
year ended on 31st March, 2022 towards interest payable to Secured Financial creditor
namely JM Financial Asset Reconstruction Company Limited, Interest Coverage ratio has been
increased. |
| 4. Current Ratio |
0.04 |
0.08 |
(54.19) |
Incentive receivable under Target Plus Scheme which was lying
in the Current Assets has been written off as exceptional item. Further, current liability
has been increased by provision of interest towards non- fulfilment of export obligation
on various advance license obtained from DGFT. The Company has also made provision of
advances given to suppliers but material not received. |
| 5. Debt Equity Ratio |
(1.04) |
(1.20) |
(12.68) |
- |
| 6. Operating Profit Margin |
1.19 |
(0.41) |
(393.07) |
The increase is due to reduction in provision for Debts/ -
Expenses during the year. |
| 7. Net Profit Margin (%) |
(0.27) |
(0.14) |
(89.40) |
Due to change in the business - model of the Company from
sales of products to jobwork basis and by making interest provision and exceptional items
as mentioned above |
| 8. Return on Net Worth |
0.15 |
0.19 |
20.66 |
- |
XII) CAUTIONARY STATEMENT
This Management Discussion and Analysis Report, giving a brief profile
of the Company along with its vision, mission, objectives, performance and future
prospects and also reflecting the scenario of the industry at domestic and global level,
may consist of "forward looking statements" which involve a number of risks and
uncertainties that could cause actual results to differ materially from those stated.
Important factors that could make a difference to the Company?s operations include
external economic conditions affecting demand/supply or influencing price conditions in
the market in which the Company operates, changes in regulatory regime and other
incidental factors.
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