The following discussion is intended to convey managements perspective on our financial condition and results of operations for the financial years ended March 31, 2023, 2022 and 2021 and ended October 31, 2023. One should read the following discussion and analysis of our financial condition and results of operations in conjunction with our section titled "Financial Statements" and the chapter titled "Financial Statement, as Restated" on page 171 of the Draft Red Herring Prospectus. This discussion contains forward-looking statements and reflects our current views with respect to future events and our financial performance and involves numerous risks and uncertainties, including, but not limited to, those described in the section entitled "Risk Factors" on page 25 of this Draft Red Herring Prospectus. Actual results could differ materially from those contained in any forward-looking statements andfor further details regarding forwardlooking statements, kindly refer the chapter titled "Forward-Looking Statements " on page 17 of this Draft Red Herring Prospectus. Unless otherwise stated, the financial information of our Company used in this section has been derivedfrom the Restated Financial Information. Our financial year ends on March 31 of each year. Accordingly, unless otherwise stated, all references to a particular financial year are to the 12-month period ended March 31 of that year.
In this section, unless the context otherwise requires, any reference to "we", "us" or "our" refers to Newmalayalam Steel Limited, our Company on Standalone Basis. Unless otherwise indicated, financial information included herein are based on our Restated Financial Statements the financial years ended March 31, 2023, 2022, 2021 and on October 31, 2023 is on a standalone basis included in this Draft Red Herring Prospectus beginning on page 171 of this Draft Red Herring Prospectus
BUSINESS OVERVIEW
Our Company was incorporated in 2017, 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 undertaking 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. The amount of the consideration was paid by way of issue of 53,238 Equity Shares of face value of ? 1,000 each to Varghese Vazhappily Davis, the sole proprietor of M/s. Demac Steel. The balance amount of ? 938/- was paid by way of a cheque. Furthermore, pursuant to the Business Transfer Agreement, M/s. Demac Steel agreed to not compete with our Company and subsequent to the transfer would have no rights in the business of our Company.
Our Company operates under the guidance of our Promoters, Vazhappily Davis Varghese, Divyakumar Jain and Ankur Jain. Our Promoter, Vazhappily Davis Varghese with the intention of expanding the business operations of M/s. Demac Steel, incorporated our Company for expanding our portfolio and reach. Our Company is engaged in the business of manufacturing galvanised pipes, tubes, and sheets. Owing to the consistent efforts of our Promoters, we have been able to create a brand presence in Kerala, under the name of ‘Demac Steel.
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 condition. 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.
Key Performance Indicators
In evaluating our business, we consider and use certain key performance indicators that are presented below as supplemental measures to review and assess our operating performance. The presentation of these key performance indicators is not intended to be considered in isolation or as a substitute for the Restated Financial Information included in this Draft Red Herring Prospectus. We present these key performance indicators because they are used by our management to evaluate our operating performance. Further, these key performance indicators may differ from the similar information used by other companies, including peer companies, and hence their comparability may be limited. Therefore, these matrices should not be considered in isolation or construed as an alternative to AS measures of performance or as
an indicator of our operating performance, liquidity, profitability or results of operation. A list of our KPIs for the seven months ended October 31, 2023 and Financial Years ended March 31, 2023, 2022 and 2021 is set out below
(? in lakhs)
| Key Performance Indicators# | October 31, 2023 | March 31, 2023 | March 31, 2022 | March 31, 2021 |
| Revenue from Operations? | 17,910.52 | 35,479.84 | 31,791.72 | 30,004.83 |
| Total Revenue (2) | 18,047.71 | 35,995.71 | 32,360.91 | 30,481.75 |
| Gross Profit? | 997.31 | 1,354.12 | 1,314.93 | 1,495.26 |
| Gross Margin? | 5.57% | 3.82% | 4.14% | 4.98% |
| EBITDA? | 769.80 | 1,223.92 | 1,302.64 | 1,403.04 |
| EBITDA Margin? | 4.27% | 3.40% | 4.03% | 4.60% |
| Profit After Tax for the Year ("PAT") | 403.08 | 600.49 | 673.06 | 763.67 |
| PAT Margin? | 2.23% | 1.67% | 2.08% | 2.51% |
| ROE(7)* | 10.02% | 16.59% | 22.29% | 32.54% |
| ROCE(4)(8) * | 31.06% | 48.51% | 50.73% | 61.88% |
| Net Debt/ EBITDA(9) | 2.91 | 1.74 | 3.77 | 2.59 |
SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST AUDITED FINANCIALS
After the date of last Audited accounts i.e. October 31, 2023, the Directors of our Company confirm that, there have been no significant material developments.
FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Our business is subjected to various risks and uncertainties, including those discussed in the section titled "Risk Factor" beginning on page 25 of this Draft Red Herring Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:
Fluctuating Raw Material Prices: The cost of steel, a key raw material for galvanized pipes, can be subject to volatility due to factors like global demand, trade policies, and geopolitical events. Fluctuations in raw material prices can affect the profitability of businesses in this sector.
Infrastructure and Economic Conditions: The demand for galvanized pipes is closely tied to infrastructure development and economic conditions. Economic downturns, delays in infrastructure projects, or changes in government spending priorities can impact the overall demand for construction-related materials.
Global Economic Factors: The global economic environment, including trade tensions and economic downturns, can affect the export and import dynamics of steel and related products, potentially impacting the galvanized pipes business in India.
Seasonal Impact: Rainy season will have an impact on sales as the sale of GV pipes are dependent on the construction sector.
PRINCIPAL COMPONENTS OF STATEMENT OF PROFIT AND LOSS
Set forth below are the principal components of statement of profit and loss from our continuing operations:
Income
Our total income comprises of (i) revenue from operations and (ii) other income.
Revenue from Operations
Revenue from operations comprises of sale of goods
Other Income
Other income includes miscellaneous income, discount received, dollar difference, interest received etc Expenses
Our expenses comprises of cost of materials consumed, changes in inventories of stock in trade, change in inventory of finished goods, employee benefits expense, finance costs, depreciation and amortization expense and other expenses.
Cost of Materials Consumed
Cost of materials consumed denote the sum of opening stock and purchases of opening stock of raw materials less closing stock of raw materials.
Changes in inventories of stock in trade
Changes in inventories denote the difference between opening and closing balance of stock in trade.
Change in inventory of finished goods
Changes in inventories denote the difference between opening and closing balance of finished goods.
Employee benefits expense
Employee benefits expenses include Salaries and Allowances, Bonus, Contributions to Provident and Other Fund, Employee welfare, Employee insurance, ESIC and gratuity
Finance Cost
Finance cost includes (i) interest on borrowings; (ii) bank charges and (iii) processing fees & other charges. Depreciation and Amortization expenses
Depreciation and amortisation expenses primarily include depreciation expenses on our buildings, plant and machinery, furniture and fixtures and vehicles
RESULTS OF OUR OPERATION
| Particulars | 31-Oct-23 | 31-Mar-23 | 31-Mar-22 | 31-Mar-21 |
| Incomes: | ||||
| Revenue from Operations | 17,910.52 | 35,479.84 | 31,791.72 | 30,004.83 |
| % of total revenue | 99.24% | 98.57% | 98.24% | 98.44% |
| % Increase/(Decrease) | 0.00% | 11.60% | 5.96% | 0.00% |
| Other income | 137.18 | 515.87 | 569.20 | 476.92 |
| % of total revenue | 0.76% | 1.43% | 1.76% | 1.56% |
| % Increase/(Decrease) | 0.00% | (9.37%) | 19.35% | 0.00% |
| Total Revenue | 18047.70 | 35995.70 | 32360.91 | 30481.75 |
| % Increase/(Decrease) | (49.86%) | 11.2 3% | 6.16% | - |
| Expenses: | ||||
| Changes in inventories of finished goods | (372.35) | 125.13 | 269.08 | (249.48) |
| % of total revenue | (2.06%) | 0.35% | 0.83% | (0.82%) |
| % Increase/(Decrease) | - | (53.50%) | (207.85%) | - |
| Cost of material consumed | 17,285.56 | 34,000.58 | 30,207.70 | 28,759.06 |
| % of total revenue | 95.78% | 94.46% | 93.35% | 94.35% |
| % Increase/(Decrease) | - | 12.56% | 5.04% | - |
| Employee Benefit expenses | 212.41 | 444.19 | 352.84 | 335.63 |
| % of total revenue | 1.18% | 1.23% | 1.09% | 1.10% |
| % Increase/(Decrease) | - | 25.89% | 5.13% | - |
| Other Expenses | 152.28 | 201.87 | 228.64 | 233.50 |
| % of total revenue | 0.84% | 0.56% | 0.71% | 0.77% |
| % Increase/(Decrease) | - | (11.71%) | (2.08%) | - |
| Total Expense | 17,277.90 | 34,771.79 | 31,058.27 | 29,078.71 |
| % of total revenue | 95.73% | 96.60% | 95.97% | 95.40% |
| % Increase/(Decrease) | - | 11.96% | 6.81% | - |
| Profit before Interest, Depreciation and Tax | 769.79 | 1,223.91 | 1,302.63 | 1,403.03 |
| % of total revenue | 4.27% | 3.40% | 4.03% | 4.60% |
| Depreciation and amortization Expenses | 90.96 | 145.36 | 131.80 | 126.86 |
| % of total revenue | 0.50% | 0.40% | 0.41% | 0.42% |
| Particulars | 31-Oct-23 | 31-Mar-23 | 31-Mar-22 | 31-Mar-21 |
| % Increase/(Decrease) | - | 10.29% | 3.89% | - |
| Profit before Interest and Tax | 678.83 | 1,078.54 | 1,170.83 | 1,276.17 |
| % of total revenue | 3.76% | 3.00% | 3.62% | 4.19% |
| Financial Charges | 104.97 | 273.47 | 266.36 | 322.05 |
| % of total revenue | 0.58% | 0.76% | 0.82% | 1.06% |
| % Increase/(Decrease) | - | 2.67% | (17.29%) | - |
| Profit before Tax and Extraordinary Expenses | 573.86 | 805.07 | 904.46 | 954.11 |
| % of total revenue | 3.18% | 2.24% | 2.79% | 3.13% |
| Extraordinary Expenses | - | - | - | - |
| % of total revenue | - | - | - | - |
| % Increase/(Decrease) | - | - | - | - |
| Restated Profit/(Loss) before tax | 573.86 | 805.07 | 904.46 | 954.11 |
| % of total revenue | 3.18% | 2.24% | 2.79% | 3.13% |
| % Increase/(Decrease) | - | (10.99%) | (5.20%) | - |
| Tax expenses/(income) | ||||
| Current and prior years Tax (net) | 143.46 | 188.36 | 214.05 | 167.90 |
| Provisions for Deferred Tax | 27.32 | 16.22 | 17.35 | 22.54 |
| Total tax expenses | 170.78 | 204.58 | 231.40 | 190.44 |
| % of total revenue | 0.95% | 0.57% | 0.72% | 0.62% |
| Restated profit/(loss) after Tax | 403.07 | 600.48 | 673.06 | 763.66 |
| % of total revenue | 2.23% | 1.67% | 2.08% | 2.51% |
| % Increase/(Decrease) | - | (10.78%) | (11.8 6%) | - |
| Income from Minority and Associate | ||||
| Profit/(Loss) attributable to owners of the company |
FISCAL YEAR ENDED MARCH 31, 2023 COMPARED WITH THE FISCAL YEAR ENDED MARCH 31, 2022
Income:
Total Income has increased by Rs.3,634.79 Lakhs and by 11.23% , from Rs.32,360.91 in Fiscal Year 2022 to Rs. 35,995.71 Lakhs for the Fiscal Year Ended 2023. The Increase in the revenue is due to increase in sales
Expenditure:
Total expense has increased by Rs.3,713.51 Lakhs and by11.96% from Rs.31,058.27 Lakhs in Fiscal Year 2022 to Rs.34,771.79 Lakhs for the Fiscal Year 2023. The increase in the other expenses is due to increase in the manufacturing cost and employee benefit expense
Cost of Material Consumed:
Cost of Material Consumed has been increased by Rs.3,792.88 Lakhs and by 12.56% from Rs. 30,207.70 Lakhs in Fiscal Year 2022 to Rs.34,000.59 Lakhs in Fiscal year 2023. The Increase in cost of material consumption is due to increase in price of raw material.
Employee Benefit Expenses:
Employee Benefit Expenses in terms of Percentage has increased by 25.89% from Rs.352.84 Lakhs at Fiscal Year 2022 to Rs.444.19 Lakhs for the Fiscal year 2023. The Increase was due to increase in percentage of salaries
Other Expenses
Other expenses has decreased by 11.71% from Rs.228.64 Lakhs for the Fiscal Year 2022 to Rs.201.88 Lakhs for the Fiscal year 2023, due to decrease in the advertising cost and discount allowed.
Net Profit after Tax and Extraordinary items
Net Profit after tax, extraordinary items and Minority interest has decreased by 10.78% from Rs.673.06 Lakhs for the fiscal Year 2022 to Rs.600.49 Lakhs for the Fiscal year 2023, due to increase in employee benefit cost and increase in consumption of raw material.
FISCAL YEAR ENDED MARCH 31, 2022 COMPARED WITH THE FISCAL YEAR ENDED MARCH 31, 2021
Income:
Total Income has increased by 6.16% from Rs. 30,481.75 Lakhs in Fiscal Year 2021 to Rs.32,360.91 Lakhs for the Fiscal Year Ended 2022.The Increase in the revenue is due to increase in sales.
Total Expenses:
Total expense has increased by 6.81% from Rs.29,078.71 Lakhs in Fiscal Year 2021 to Rs.31,058.27 Lakhs for the Fiscal Year 2022. The increase in the total expenses is due to increase in employees benefits costs, cost of material consumed and change in inventories of finished goods.
Cost of Material Consumed:
Cost of Material Consumed has been increased by 5.04% from Rs.28,759.06 Lakhs in Fiscal Year 2021 to Rs.30,207.70 Lakhs in Fiscal year 2022. The Increase in cost of material consumption is due to increase in sales.
Employee Benefit Expenses:
Employee Benefit Expenses in terms of Percentage has increased by 5.13% from Rs.335.63 Lakhs at Fiscal Year 2021 to Rs.352.84 Lakhs for the Fiscal year 2022. The Increase was due to increase in revenue and Minimum wages.
Other Expenses
Other expenses has decreased by 2.08% from Rs.233.50 Lakhs for the Fiscal Year 2021 to Rs.228.64 Lakhs for the Fiscal year 2022, due to increase in the revenue and other operating cost.
Net Profit after Tax and Extraordinary items
Net Profit after tax, extraordinary items and Minority interest has decreased by 11.86% from Rs.763.66 Lakhs for the fiscal Year 2021 to Rs.673.06 Lakhs for the Fiscal year 2022, due to increase in the cost of material consumed and other operational cost.
Cash Flows
(Rs. in Lakh)
| Particulars | For The Period or Year Ended |
|||
| Period Ended October 31, 2023 | Year Ended March 31, 2023 | Year Ended March 31, 2022 | Year Ended March 31, 2021 | |
| Net Cash from Operating Activities | 57.10 | 3,109.41 | (372.61) | 1,202.73 |
| Net Cash from Investing Activities | (53.20) | (61.82) | (377.70) | (72.27) |
| Net Cash used in Financing Activities | (199.60) | (2,378.31) | 1,013.07 | (1,129.76) |
Cash Flows from Operating Activities
Net cash from operating activities for the seven months ended October 31, 2023 was at Rs.57.10 Lakh as compared to Profit After Tax, Depreciation and Interest Rs.403.07 Lakh, while for fiscal 2023 was at Rs.3,109.41 lakh as compared to Profit After Tax, Depreciation and Interest Rs.600.49 lakh, while for fiscal 2022, net cash from operating activities was at Rs. (372.61) lakh as compared to Profit After Tax, Depreciation and Interest Rs.673.06 lakh. For fiscal 2021, the net cash from operating activities was Rs. 1,202.73 lakh compared to Profit After Tax, Depreciation and Interest Rs.763.67 Lakh
Cash Flows from Investment Activities
Net cash from investing activities for the seven months Ended October 31, 2023 was at Rs.(53.20), fiscal 2023 was at Rs.(61.82) lakh, while for fiscal 2022, net cash from investing activities was at Rs. (377.70) lakh. For fiscal 2021, the net cash from investing activities was Rs.(72.27) lakh.
Cash Flows from Financing Activities
Net cash from financing activities for the seven months ended October 31, 2023 was at Rs.(199.60) Lakh due to interest and repayment of borrowing, for fiscal 2023 was at Rs.(2,378.31) lakh due to higher amount of borrowing, while for fiscal 2022, net cash from financing activities was at Rs.1,013.07 lakh. For fiscal 2021, the net cash from financing activities was Rs (1,129.76) lakh due to repayment of borrowing.
OTHER MATTERS
1. Unusual or infrequent events or transactions
Except as described in this Draft Red Herring Prospectus, during the periods under review there have been no transactions or events, which in our best judgment, would be considered unusual or infrequent.
2. Significant economic changes that materially affected or are likely to affect income from continuing Operations
Other than as described in the Section titled "Financial Information" and chapter titled "Managements Discussion and Analysis of Financial Conditions and Results of Operations", beginning on Page 171 and 217 respectively of this Draft Red Herring Prospectus, to our knowledge there are no significant economic changes that materially affected or are likely to affect income from continuing Operations.
3. Known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.
Other than as described in the chapter titled "Risk Factors" and "Managements Discussion and Analysis of Financial Conditions and Result of Operations", beginning on Page 25 and 217 respectively of this Draft Red Herring Prospectus, best to our knowledge there are no known trends or uncertainties that have or had or are expected to have a material adverse impact on revenues or income of our company from continuing operations.
4. Future relationship between Costs and Income
Other than as described in the chapter titled "Risk Factors" beginning on Page 25 of this Draft Red Herring Prospectus, best to our knowledge there are no factors, which will affect the future relationship between costs and income or which are expected to have a material adverse impact on our operations and finances.
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