nova iron steel ltd share price Management discussions

This report is an integral part of the Board Report. The objective of this report is to convey the Managements 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 2022-23

Industry Structure and Development

Global GDP growth rate in 2022 was 3.4% under the challenging geo-political environment caused in the wake of the Russia-Ukraine war. Indian GDP growth rate in FY 2022-23 was 7.2% which was better than what was estimated earlier. Despite the challenging external environment, India will remain the fastest growing major economy. India remains in a very optimistic position in the global steel demand. After growth of 8.2% in 2022, demand is expected to grow at 7.3% in 2023 backed by consumption-led levers. Having managed in ation well, the Indian economy is on a healthy growth trajectory, with a rising share of investment in GDP, appropriate budget allocations and expenditure by the Government in the infrastructure segment.

Growth rate in 2023 in USA is expected to be 1.6%, while the Eurozone is expected to remain strained at 0.8%. The energy shock, a result of the war in Ukraine, continues to impact the economic activity in Europe. China s economy is set to rebound to 5.2% as mobility and industrial activities pick up after lifting of pandemic restrictions; long-term headwinds to growth include a shrinking population and slowing productivity growth. The factors that drove in ation in 2022 are already reversing. These include increase in commodity prices, expansive scal and monetary policy, and supply chain disruptions. Global in ation is expected to fall from 8.7% in 2022 to 7% in 2023 on the back of lower commodity prices. In ation has already peaked in the US and Europe in early 2023. It is also declining in other major economies including Japan, China and India. The year witnessed very high volatility in raw material, especially coking coal on account of the on-going geopolitical concerns and supply chain bottlenecks impacting steel price across geographies. The recovery momentum of global economy after the pandemic has been affected by persisting in ation, US monetary tightening, China s economic deceleration and continued supply disruptions due to Russia-Ukraine war. High energy prices, rising interest rates, and falling con dence have limited recovery of the steel demand after a dip in 2022.

Over previous year the Company has entered operation and Management Agreement with M/s R.K. Sponge Iron Pvt. Ltd. The performance of said Agreement was satisfactory. The tenure of said operation and management agreement ended on 30/06/2023 and now company is controlling the operation and management. The Company is taking all necessary measures in terms of mitigating the impact of the challenges being faced in the business. It is focused on controlling the xed costs, maintaining liquidity and closely monitoring the supply chain to ensure that the manufacturing facilities operate smoothly.

Opportunity and Threat

India remains in a very optimistic position in the global steel demand. After growth of 8.2% in 2022, demand is expected to grow at 7.3% in 2023 backed by consumption-led levers. Having managed in ation well, the Indian economy is on a healthy growth trajectory, with a rising share of investment in GDP, appropriate budget allocations and expenditure by the Government in the infrastructure segment. The Metals and Mining sector in India is expected to witness a major reform in the next few years, owing to reforms such as Make-in-India Scheme (Atmanirbhar Bharat) Campaign. In the past 10 12 years, Indias steel sector has expanded significantly. Production has increased by 75% since 2008, while domestic steel demand has increased by almost 80%. The capacity for producing steel has grown concurrently, and the rise has been largely organic. In FY23, the production of crude steel and finished steel stood at 125.32 MT and 121.29 MT respectively.

The annual production of steel is anticipated to exceed 300 million tonnes by 2030-31. By 2030-31, crude steel production is projected to reach 255 million tonnes at 85% capacity utilisation achieving 230 million tonnes of finished steel production, assuming a 10% yield loss or a 90% conversion ratio for the conversion of raw steel to finished steel. With net exports of 24 million tonnes, consumption is expected to reach 206 million tonnes by the years 2030 1931. As a result, it is anticipated that per-person steel consumption will grow to 160 kg. "Source of information India Brand Equity Foundation (IBEF) "

The general economic slowdown has a significant impact on major consumers like the automotive, construction, appliance, and industrial industries. China exports a lot of steel at competitive costs. Industry by nature is capital intensive and requires high capital investment. There has been significant increase in levies, duties and regulatory costs in the recent years. The key risks going forward include high in ation, high energy prices, prolonged Russia-Ukraine war, tapering of liquidity by Central Banks and likely increase in interest rates. Rising cost of input coupled with scarcity in supply. Volatility in prices of crude oil in international market. Volatility in foreign exchange currency. Weak rupee against USD. Segment wise performance

The Company is engaged in the manufacturing/trading of Iron & Steel, business which is considered the only business segments. The turnover of the Company is Rs. 698.08 crore during the year.

Outlook

Fiscal-2023 marked the first full year after the end of Covid pandemic. Business activities remained smooth throughout the year, even though some trading sectors& manufacturing units showed suppressed demand as well as poor capacity utilization. Government s robust investment through its agship Scheme of Jal Jeevan Mission both, for Rural and Urban areas. The Company is taking all necessary measures in terms of mitigating the impact of the challenges being faced in the business. Over previous year the Company has entered operation and Management Agreement with M/s R.K. Sponge Iron Pvt. Ltd. The performance of said Agreement was satisfactory. The tenure of said operation and management agreement ended on 30/06/2023 and now company is controlling the operation and management. It is focused on controlling the xed costs, maintaining liquidity and closely monitoring the supply chain to ensure that the manufacturing facilities operate smoothly. In addition, efforts would continue for cost control, and efficient utilization of all our resources.

Company is in the process of increasing the production capacity of Billet from the existing capacity of 250000 to 360000 Ton / Annum(Approx) and is under process. We have started project for 1.0 MTPA Coal Washery with Coal Handling System towards self-dependence to meet our requirement. Company is also in process to start soon for 2 Kilns of 100 TPD each with WHRB based CPP in the year 2023-24 only. Company is in the process of bringing the Railway siding inside the plant premises from Railway Station, Dagori (3.5kms apprx form plant), the process for land acquisition / necessary approvals is going on. For stabilization of plant and further expansion, we are in the process of taking 220 KV connectivity from Chhattisgarh State Power Transmission Company Ltd. (CSPTCL) to our plant and is under progress.

Others:

For Risk and Concern, Inter Control System and their Adequacy, Financial Performance with respect to operation performance, Material Development in Human Resources/Industrial Relations front, including number of people employed please refer to Board Report.

CAUTIONARY STATEMENT

The above Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include external economic conditions affecting demand/supply in uencing price conditions in the market in which the Company operates, changes in Government regulations, tax laws, and other incidental factors.