Newmalayalam Steel Ltd Management Discussions

I. ECONOMIC OVERVIEW, INDUSTRY STRUCTURE AND DEVELOPMENTS

1. GLOBAL ECONOMY:

The global economy is undergoing a gradual recovery in 2024, though growth momentum remains weak. Looking ahead to 2025, global economic growth is expected to remain stable but with widening disparities across regions. Inflation is projected to continue its downward trajectory, while labor markets are expected to remain relatively stable. Fiscal policies worldwide are anticipated to return to normalized pathways, while monetary policies are likely to maintain their accommodative stance.

Global trade is expected to recover, driven by easing supply chain pressures and the restructuring of supply and value chains. Cross-border investments are also projected to gradually rebound, though flows will likely exhibit pronounced regional disparities. However, the global growth outlook remains subject to downside risks, particularly geopolitical uncertainties and potential policy shifts from the new U.S. administration, which could significantly impact the recovery trajectory.

The steel industry plays a vital role in the world economy, serving as the backbone of modern infrastructure and industrial development. Steel is a critical input in the production of various goods, including buildings, bridges, automobiles, appliances, and machinery. The industrys significance can be gauged from the fact that every ton of steel produced supports around $1,000 of economic activity, generating substantial employment opportunities and contributing to GDP growth. Furthermore, the steel industry is a key driver of technological innovation, with ongoing research and development aimed at improving production processes, reducing environmental impact, and developing new steel products with enhanced properties.

The steel industrys importance extends beyond its economic contributions, as it also plays a critical role in supporting sustainable development and addressing global challenges. Steel is an essential material in the construction of renewable energy infrastructure, such as wind turbines and solar panels, which are critical for reducing greenhouse gas emissions and mitigating climate change. Additionally, steel is used in the production of energy-efficient buildings, transportation systems, and appliances, which help reduce energy consumption and support sustainable lifestyles. The industrys commitment to sustainability is also reflected in its efforts to reduce its environmental footprint, including investments in cleaner production technologies and the development of recycled steel products.

2. INDIAN ECONOMY:

The Reserve Banks monthly bulletin for March 2025 states that the Indian economy continues to demonstrate resilience despite global challenges. According to an article titled State of the Economy in the bulletin, the global economy is being tested by escalating trade tensions and a heightened wave of uncertainty around the scope, timing, and intensity of tariffs.

However, the article noted that the Indian economy has improved despite these challenges, as evident in the robust performance of the agriculture sector and rising consumption. According to the article, Indias macroeconomic strength in facing these challenges is bolstered by a decline in headline CPI inflation to a seven-month low of 3.6 per cent in February 2025, driven by a further correction in food prices. The article also highlights that sound fiscal policies, a well-calibrated monetary framework, and digital transformation initiatives are expected to provide a strong foundation for long-term sustainable economic growth.

One of the primary forces behind industrialization has been the use of metals. Steel has traditionally occupied a top spot among metals. Steel production and consumption are frequently seen as measures of a countrys economic development because it is both a raw material and an intermediary product. Therefore, it would not be an exaggeration to argue that the steel sector has always been at the forefront of industrial progress and that it is the foundation of any economy. The Indian steel industry is classified into three categories - major producers, main producers and secondary producers.

India is the worlds second-largest producer of crude steel, with an output of 137.96 MT of crude steel and finished steel production of 132.57 MT in FY25. Indias domestic steel demand is estimated to grow by 9-10% in FY25 as per ICRA. The steel industry in India is a cornerstone of the economy, contributing significantly to GDP and employment. It provides direct and indirect jobs to millions, supports various sectors like construction, defense, railways, automobiles, energy, and capital goods, and plays a vital role in infrastructure development. The industrys growth is driven by domestic availability of raw materials and cost-effective labor, making it a major contributor to Indias manufacturing output. The Indian steel industry is modern, with state-of-the-art steel mills and a focus on continuous modernization and energy efficiency. The sectors growth is projected to continue, with annual growth rates expected to range from 5% to 7.3%.

3. INDUSTRY IN WHICH OUR COMPANY OPERATES

Our Company was incorporated on March 31, 2017 as NewMalayalam Steel Private Limited, for taking over the entire business of M/s. Demac Steel along with its assets and liabilities in entirety, on a going concern basis (the Transfer). Our Company entered into an agreement to sell business undertakings executed dated August 7, 2017 with M/s. Demac Steel and undertook the transfer of the Assets and Liabilities for a total consideration of ^ 532.39 lakhs.

Further, our Company was converted into a public limited company pursuant to a resolution passed by Board of Directors in their meeting held on December 15, 2023 and by our Shareholders in an Extraordinary General Meeting held on December 19, 2023 and consequently the name of our Company was changed to NewMalayalam Steel Limited and a fresh certificate of incorporation dated February 1, 2024 was issued by the Registrar of Companies, Central Processing Centre.

In 2018, our Company commenced manufacturing of galvanised pipes, tubes, and sheets by installing another electric resistance welding tube mill of an installed capacity of 3,500 MT in our manufacturing unit situated at Door No. 2/546/A & 2/546/B Mala, Pallipuram P O, Mala, Thrissur - 680 732, Kerala, India. Our products find extensive application in the general households of Kerala. Galvanised pipes and tubes are used for building the roofs to reduce heat and avoid leakage, further the galvanisation process offers an added advantage of increasing the life of the product and enhancing its quality by making it rust-free. Our products are therefore manufactured to provide an effective solution to the continuous damage caused to houses in Kerala on account of inclement weather conditions. Accordingly, our products experience a constant demand on account of being an indispensable raw material in the construction industry in Kerala. In order to capture the market and cater to the growing demand, in the year 2019, we increased our manufacturing capacity by installing another electric resistance welding tube mill of an installed capacity of 4,000 MT in our manufacturing unit.

COMPETITIVE STRENGTHS:

i. Widespread distribution network and presence across various retail channels.

Our company has invested in establishing robust processes, teams, and technology to manage our distribution channels and retail presence, leveraging a unique business model to market and sell our products. We have engaged a network of dealers to ensure easy product availability, efficient supply chain, focused customer service, and short turnaround times. Our sales and marketing team periodically reviews new products, assesses market trends, and develops business relations, supported by an efficient sales team that makes our products available to retailers and wholesalers in Kerala. Through our distribution network, we stay connected with customers, perceive market requirements, and improve our products to meet their needs. With a focused approach to creating brand awareness, we target deeper penetration in small cities and towns, and have deployed a team of sales professionals in Kerala to provide guidance and assistance to our dealers, enabling us to identify market trends, connect with consumers, and gain their trust over the years.

ii. Diversified Product Basket

We are engaged in manufacturing and supply of steel tubes and pipes. We provide various products such as: a) Circular hollow sections, also known as round steel tubes. These are a common type of steel section that is used in a variety of formats over various industries in India. b) Hot rolled rectangular steel tube is ideal for structural applications, general fabrication, repairs and manufacturing. Its box-shape design allows for increased strength and rigidity over other shapes of hot rolled steel. Hot rolled rectangular steel tubes are easy to cut, weld, form and machine. C) DEMAC square steel tubing is valued for its overall strength, durability and ability to withstand extreme temperatures, pressures and a wide range of elements. Square steel tubing is regularly used for domestic and industrial applications and is easily welded, formed and drilled.and many other products such as GP Pipes, GI Pipes, coil, sheet, slit and many others.

Owing to our wide range of products, our business and results of operations are less susceptible to price fluctuation or disruptions in market trends.

iii. Brand recall and established track record.

Our brand Demac Steel has established a strong reputation and quality, enabling us to build brand equity and cater to customer needs. With a deep understanding of the steel industry, weve developed home-grown brands, marketed through our dealers and sales teams. We focus on creating a diverse portfolio to gain market share, enhance brand visibility, and sustain demand with value-added products, ultimately enjoying considerable brand equity and reliability in the market.

iv. Existing client and supplier relationships

We prioritize addressing customer needs and fostering long-term relationships with our dealers and customers, resulting in repeat business and a strong retention strategy. Our existing relationships generate multiple repeat orders, representing a competitive advantage in acquiring new dealers and expanding our business. As a small to medium-sized organization, we leverage personal relationships to drive growth and believe our existing relationships will remain a core competitive strength.

v. Quality Assurance and Quality Control of our products.

We prioritize quality, with well-defined procedures guiding our manufacturing process from raw material procurement to product distribution. Our experienced Quality Division team ensures compliance with regulatory standards, conducting rigorous checks and inspections at every stage. Our in-house laboratory enables thorough testing of raw materials, semi-finished, and finished products. Our commitment to quality has earned us ISO 9001:2015 certification from Jas Global Certifications, demonstrating our adherence to international quality management standards.

OUR BUSINESS STRATEGIES:

i. Increasing our manufacturing capacity to focus on the growing demand of our core products

ii. Strengthen our brand value and create awareness for our new products

iii. Strengthen our marketing network

iv. Improving operational efficiencies

v. Leveraging our Market skills and Relationships

vi. Value proposition for consumers

II. OPPORTUNITY AND THREATS

1. OPPORTUNITIES

- Growing Demand from Infrastructure and Construction Sectors: The rapid pace of urbanization and industrialization in India has led to a surge in demand for steel products, particularly in the construction of infrastructure projects such as roads, bridges, and buildings

- Technological Advancements and Innovation in Steel Manufacturing

Processes: Technological advancements such as electric arc furnaces, continuous casting, and automation have revolutionized the steel manufacturing process, leading to higher productivity, improved quality, and cost efficiency.

- Government Initiatives: Indian government plans to reduce imports by 50% in FY26 to become a net exporter of steel in the near future. The Directorate General of Trade Remedies (DGTR) has recommended a 12% provisional safeguard to protect domestic players from surge in imports and potentially increasing their profitability. This development could potentially lead to a decrease in imports and increase market competitiveness.

- Sustainable Steel Production: The steel industrys future must prioritize responsible and sustainable growth, focusing on reduced carbon emissions and de-carbonization. To maintain self-sufficiency in steel, securing a sustainable supply of raw materials like iron ore and coking coal is crucial. While India has ample iron ore reserves, production must be increased by identifying and auctioning more captive and commercial mines, and adopting advanced technologies to boost output from existing mines

2. THREADS

- Supply Chain Issues: Disruptions in the supply chain can affect inventory levels and delivery times.

- Economic Instability: Economic downturns can reduce business investment in new equipment.

- Market Saturation: High competition and market saturation can drive down prices and reduce profit margins.

- Customer Credit Risk: Issues with customers defaulting on payments can affect cash flow and financial stability.

- Rising Imports and Costs: The industry faces challenges from increasing imports, high raw material prices, and geopolitical uncertainties.

High Energy Consumption: The steel industry is energy-intensive, with high specific energy consumption compared to global averages.

- Demand Prediction and Fluctuations: The steel industry faces challenges in predicting demand, which can lead to delayed returns on investment. Demand fluctuations also affect production planning and capacity utilization

III. PRODUCT-WISE PERFORMANCE

Products	Amount (In Rs.)	Percentage of Revenue
GP Pipes	2,71,56,66,465	90.3973679
GI Pipes	1,78,53,914.85	0.5943097
Coil	13,33,34,657	4.43835876
Sheet	8,46,65,998.42	2.81830759
Others	5,26,22,258.59	1.75165608
Total	3,00,41,43,293	100

IV. OUTLOOK

Indias steel industry is poised for robust growth, fueled by government-driven infrastructure initiatives, increasing domestic demand, and a shift towards green steel production. The sector aims to achieve 300 million tonnes per annum capacity by 2030-31, driven by enhanced capacity utilization, technological innovations, and sustainable practices. Government infrastructure investments, rising demand from the automobile and construction sectors, adoption of eco-friendly production methods and integration of digital advancements will propel Indias steel industry towards a sustainable and technologically advanced future.

Indias steel industry is poised for growth, driven by robust domestic demand, supportive government policies, and ongoing investments. With an expected 8% increase in steel demand by 2025, India will be one of the fastest-growing steel markets globally. Infrastructure development, housing and construction, and manufacturing will fuel this growth. While the industry must address global economic uncertainties and environmental concerns, opportunities abound in sustainable steel production and export, leveraging Indias strategic location for easy access to Middle Eastern and European markets.

V. RISK AND CONCERN

- Capital and labour intensive industry: One of the main problems faced by the steel industry in India is that it is highly capital and labour intensive. According to a PwC report, around ^7,000 crore are required to establish a steel plant having a capacity of 1 tonne. As a result, arranging for finances becomes a challenge. Apart from finances, the steel industry is also a labour - intensive industry. While labour is available, labour management becomes another challenge for many steel companies.

- Demand prediction: Yet another challenge of the steel industry is fluctuating demand. As it fluctuates from time to time, it becomes difficult for steel makers to predict the demand and produce accordingly. This results in delayed returns on investment.

- Logistics related challenges: The main raw materials for making steel are iron ore and coking coal. Both these are bulk materials while the finished product i.e., steel is also a bulk material. Meaning, they are not regular goods to be transported and need to be handled differently. Although the National Logistics Policy aims at bringing down the cost, it is still to become a reality.

- Disruptions in raw material supply: Disruption in supply of raw materials is yet another problem faced by the steel industry in India. Key raw materials for steel production include iron ore and coking coal. Though iron ore is available domestically, India needs to import coking coal and it is mainly imported.

- Increasing environment concerns: The steel industry is highly energy-intensive, ranking second after the chemical sector, resulting in a substantial carbon footprint. Growing environmental concerns are diminishing steels popularity, and the industry must adapt to new norms. However, by leveraging modern energy management systems and cutting-edge technologies, the steel industry can transition towards a more eco-friendly and competitive future.

VI. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has a robust and comprehensive Internal Financial Control system commensurate with the size scale and complexity of its operations. The system encompasses the major processes to ensure reliability of financial reporting, compliance with policies, procedures, laws, and regulations, safeguarding of assets and economical and efficient use of resources.

The policies and procedures adopted by the company to ensure the orderly and efficient conduct of its business and adherence to the companys policies, prevention and detection of frauds and errors, accuracy and completeness of the records and the timely preparation of reliable financial information.

The Internal Auditor and the Management continuously monitors the efficacy of the Internal Financial Control system with the objective of providing to the Audit Committee and the Board of Directors, an effectiveness of the organizations risk management with regard to the Internal Financial Control system.

The Audit Committee meets regularly to review reports submitted by the Internal Auditors. The Audit Committee also meets the Companys Statutory Auditors to ascertain their views on the financial statement, including the financial reporting system and compliance to accounting policies and procedures followed by the Company.

VII. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The Company has reported total revenue of Rs. 30,416.43 Lakhs for the current year as compared to Rs. 30,016.06 Lakhs in the previous year. The Net Profit for the year under review amounted to Rs. 440.98 Lakhs in the current year as compared to Profit incurred in last year amounting Rs. 426.86 Lakhs.

VIII. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

The Companys human resources philosophy is to establish and build a strong performance and competency driven culture with greater sense of accountability and responsibility. The Company acknowledges that its principal asset is its employees. The expertise of the management team, the professional training provided to the staff, their personal commitment and their spirit of teamwork together enhances the Companys net worth. The Company has taken various steps for strengthening organizational competency through the involvement and development of employees as well as installing effective systems for improving their productivity and accountability at functional levels. Ongoing in-house and external training is provided to employees at all levels to update their knowledge and upgrade their skills and abilities. The effort to rationalize and streamline the workforce is a continuous process. The industrial relations scenario has remained harmonious throughout the year.

IX. DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIO

Ratios	As at 31.03.2 025	As at 31.03.20 24	Variance	Explanation for any change in the ratio by more than 25% as compared to the preceding year.
Current Ratio	3.11	1.42	119.10	The significant increase in the current ratio is primarily attributable to an increase in
				current assets, specifically due to funds held in the IPO
				bank account. This increase in liquid assets has improved the companys short-term liquidity position as of the balance sheet date.
Debt-equity ratio	0.26	1.87	(86.20)	The substantial decline in the debt equity ratio is due to a significant increase in shareholders equity during the year due to the IPO.
Debt service coverage ratio	1.13	1.26	(10.39)	-
Return on equity ratio	0.06	0.11	(48.83)	The decline in the ROE ratio is primarily due to a significant increase in average shareholders equity during the year, following fresh equity through IPO. While net profits have remained stable, the proportionate rise in equity has diluted the return on equity percentage.
Inventory turnover ratio	8.31	7.42	11.98	The improvement in the inventory turnover ratio indicates enhanced sales performance and more efficient inventory management during the year. This suggests the company has been able to
				convert its inventory into sales more frequently, reflecting strong demand and
				streamlined supply chain operations.
Trade receivables turnover ratio	12.97	18.85	(31.21)	The decline in the trade receivables turnover ratio
				indicates that receivables are being collected at a slower pace compared to the
				previous year. This is due to customers requiring longer
				credit periods, leading to higher outstanding receivables.
Trade payables turnover ratio	33.87	21.85	55.01	The increase in the trade payables turnover ratio is primarily due to a reduction in average trade payables. The Company is settling its obligations more quickly than in the previous year.
Net capital turnover ratio	5.58	10.75	(48.07)	The decline in the net capital turnover ratio is due to a significant increase in average working capital due to IPO.
Net profit ratio	0.01	0.01	2.10	-
Operating Profit ratio	2.41	2.68	-10.5	Due to the increase in cost of goods sold at a higher rate than sales, resulting in margin reduction.
Return on capital employed	0.11	0.18	36.62	The decline in ROCE from 18.00% to 11.61%, and further negative at (35.49)%, is mainly due to a significant increase in Capital Employed resulting from the recent Initial Public Offering (IPO).While EBIT remained relatively stable, the substantial rise in Capital Employed diluted the ratio, causing ROCE to decrease.
Return on investment	0.06	0.11	48.83	The decrease in ROI from 11.00% to 5.63% is mainly due to a significant increase in Investment Cost resulting from the recent IPO. Although Profit After Tax remained relatively stable, the larger investment base from the IPO diluted the ROI percentage.
Return on Net Worth	0.06	0.11	48.83	The decline in the ROE ratio is primarily due to a significant increase in average shareholders equity during the year, following fresh equity through IPO. While net profits have remained stable, the proportionate rise in equity has diluted the return on equity percentage.