OCL Iron & Steel Ltd Management Discussions.

ABOUT COMPANY

Steel Plant:

OCL Iron & Steel Ltd. (OISL) is engaged in the process of manufacturing MS Billets from the sponge iron and produces captively through direct reduction iron process and induction furnace in Orissa.

The steel plant is engaged in the process of manufacturing of Sponge Iron, Billets, Power generation (captive use) and Finished Steel (TMT).

The Company is having a operational manufacturing facilities of Sponge Iron , Billets and captive Power at Village- Lamloi, P.O- Garvana, Rajgangpur, Odisha and Rolling Mill (TMT Bar) at Village- Gopalpur, P.O- Badaposi, Dist: Keonjhar, Odisha.

OISL has also set up 2 state of the art plants to cater to the automotive sector, catering to both the domestic and the international markets.The first plant specializes in Profile Rolling (Steel Bar) for automotive Ring Gear market based at Chopanki, Dist.-Alwar, Rajansthan. The second facility is an Automotive Alloy Casting Foundryproducing a variety of critical components like Hub Swivels, Axle Arm , Fly Wheels, Brake Piston Housings, Cylinder Blocks, Master Clutch Housing for Passenger Cars, Tractors, Earth Moving Equipments.A specialized machine shop dedicated for Rail Products has also been set up.

Ardhagram Coal Mine:

OCL Iron & Steel Ltd. (OISL) has also a coal mine which is located in the south eastern part of Raniganj Coalfield on the Southern Bank of the Damodar River which provides full coal security for the integrated Steel & Power Plant of the Company for more than 45 years.

Captive Iron Ore Mine:

The company is also allotted an iron ore mine located at Village-Kundaposi, Block-Barbil, District Keonjhar, (Odisha) by Steel & Mine Department of Government of Odisha.The Companys proposal for grant of forest clearance is under consideration with Forest Advisory Committee (FAC). Iron ore mine is expected to start in Year 2019/20.

1. ECONOMIC OVERVIEW

According to the International Monetary Fund (IMF), the global economy is on the road to recovery and grew by 3.8% in CY17, a 0.6 percentage point increase over CY16. This is the highest rate of global GDP growth after CY11. The growth happened owing to an increase in manufacturing activity, private consumption, investments and global trade. The growth was broad based, with growth increasing in more than half of the worlds economies aided by benign global financing conditions, revival in investment sentiment, accommodative monetary policies and higher commodity prices. The growth was higher as compared to the initial estimates with upside surprises in the second half of 2017 in advanced as well as emerging and developing countries. Two-thirds of countries accounting for about three-fourths of global output experienced faster growth in 2017 vis--vis previous year. The advanced economies performed better than expected with a 0.6% growth in CY17 as compared to the previous year. There was stronger gross fixed capital formation and acceleration in stock building which contributed to the pickup in investment, with accommodative monetary policy, stronger balance sheets, and an improved outlook helping release pent-up demand for capital goods.

On the other hand, emerging economies saw an upswing by 0.4 percentage point, primarily led by private consumption. In economies like India and China, resurgent exports too facilitated growth. The commodity exporting countries were largely benefitted by the global economic upswing during CY17, owing to firming up of prices of commodities.

After two years of uninspiring performance, global trade also picked up pace; and its impact was particularly pronounced in emerging markets. This happened owing to an improvement in investment growth.In terms of commodities, energy prices indices grew by 24%in CY17 (y-o-y) while the non- energy indices grew by 6%.The metal price indices grew by 24%. Accelerated global growth lifted the demand for commodities while a number of commodities faced supply side contractions.The global recovery offers a window of opportunity to strengthen policies and reforms that sustain the current upswing and raise medium-term growth for the benefit of all countries. According to the IMF, such policies should focus on reinforcing the potential for higher and more inclusive growth, building buffers to deal more effectively with future economic head winds and fostering international cooperation.

Other Global Developments

a) Oil witnessed a sharp increase from the levels of $41 per barrel in 2016 to a four-year high at $54 per barrel in 2017, driven by production cuts administered by OPEC.

b) US monetary measures – US Dollar appreciated on the back of rising Federal Reserve rates from 0.75-1% in March 2017 to 1.50-1.75% in March 2018.

c) Landmark tax reforms in the US, reducing tax rates from 35% to 21% to bolster investment and employment.

Challenges

a) Rising oil prices

b) Increasing protectionism, rising trade barriers

c) Geopolitical risks

d) Escalating global debt and rising interest rates

Outlook

Global growth is on an upswing and is expected to reach3.9% in 2018 supported by strong momentum, favourable market sentiment, accommodative financial conditions and the domestic and international effects of expansionary fiscal policies. The global GDP is expected to increase to $88 trillion. Both advanced economies and emerging markets are expected to see a rise in growth figures in the near term before stabilisation in the medium-term. This growth rate is the outcome of faster economic expansion in the Euro area, Japan, China and the US.Advanced economies are projected to grow at 2.5% in 2018 as compared to 2.3% growth in 2017 primarily driven by improving domestic demand and industrial activities, private investment, moderate inflation and focus on domestic manufacturing activities. In China, growth is projected to soften slightly from 6.9% in 2017 to 6.6% in 2018. Over the medium term, the Chinese economy is projected to continue rebalancing away from investment toward private consumption and from industry to services. Growth in emerging market and developing economies is expected to increase further from 4.8% in 2017 to 4.9% in 2018 due to strong economic performance. These augers well and reflect improved prospects for commodity exporters after three years of weak economic activity. There is also a positive momentum in global trade and it is expected to moderately improve with nominal trade escalation by $2.0 trillion to $19.5 trillion.

INDIAN ECONOMY

During the year, Indias steel sector was impacted by intense competitive pressure with a surge in domestic steel production and elevated level of steel imports at predatory pricing. After a brief period that was dedicated to introducing economic reforms that would further formalize the economy and boost ease of doing business, India has achieved agrowth of 6.7% in FY18 with a 7.1% growth in Q-418. India has bounced back as the fastest growing economy in the world during the third quarter for FY18.

The investment cycle exhibited a growth of 7.6% in FY18 and 14.4% in the Q-418. The FY18 is likely to see an improved growth of 7.5% due to transformative reforms undertaken by the Government.

Indias economic fundamentals continued to improve during the year. The Index of Industrial Production (IIP) touched 4.3% during the FY18 after a robust growth of 6.2% in the Q-418, which was 1.9% in Q-118. Inflation figures are also largely incontrol, with the Consumer Price Inflation reducing to 3.6%in FY18 from a level of 4.5% in FY17, keeping the food prices under control. Through the year, Indias foreign exchange reserves has also increased to more than US$420 billion.

The eight key sectors rose to 3.4% year-on-year in FY18, with cement, coal and electricity registering a growth of 13%, 9% and 6% respectively.

The Government of India has put in place multiple enablers tobolster the countrys consumption demand. Higher spending on social schemes such as NREGA, continued thrust on rural infrastructure projects, raising of minimum support prices, implementation of 7th Pay Commission pay hikes across states and One Rank, One Pension scheme are also likely to lead to robust disposable income leading to higher spendand consumption.

The 2018-19 Union Budget has emphasised on Indias infrastructural requirements and the allocation on roads, railways and rural infrastructure has been significant. The Budget also focussed considerably on health and education sectors, which are instrumental in developing a sustainable economy and society.

Outlook

During FY19, India is likely to record a robust GDP growth of 7.4% (Source: IMF). This growth will be driven by structural and wide ranging reforms such as the Goods and Services Tax (GST) to widen the indirect tax base, Insolvency and Bankruptcy Code to address asset quality of banks and formalisation and digitisation of the economy improving business ecosystem, thrust on infrastructure development, and a liberal FDI regime. Banking reforms through recapitialisation and the Insolvency and Bankruptcy Code are expected to resolve the stressed assets of overleveraged corporates and restore lending support to these sectors.

To make the growth broad based and inclusive, there is a clear budgetary and policy focus on rural development to construct 3.17 lakh km of road, 51 lakh houses, 1.88 crores toilets and provide electricity connections to 1.75 crores new households. Rural employment too, is expected to improve with MNREGA budget expanded by ‘ 7,000 crores to ‘ 55,000 crores Further, the latest IMD forecast predicts a normal monsoon in 2018. Since over 65% of the nation is employed in the agricultural sector, this would boost the consumer expenditure resulting in improved demand prospects. The strengthening global economy is also likely to stimulate exports. The countrys exports are expected to touch US$350 billion during 2018-19. Pick up in capital expenditure done by private corporate sector will also provide the necessary impetus to Indias GDP growth.

2. INDUSTRY OVERVIEW

Global growth is projected to further strengthen to 2.9 percent in 2018-19, in line with previous projections. However, the world economy continues to face a number of downside risks. They include increased protectionism, heightened policy uncertainty, the possibility of financial market turbulence, and, over the longer run, weaker potential growth. These risks highlight the urgency for policymakers in emerging market and developing economies to rebuild macroeconomic policy space and implement policies that support investment and trade

From the Economic Survey 2016-2017 Ministry of Finance, against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments, the passage of the Constitutional amendment, paving the way for implementing the transformational Goods and Services Tax (GST), and the action to demonetize the two highest denomination notes. The GST will create a common Indian market, improve tax compliance and governance, and boost investment and growth; it is also a bold new experiment in the governance of Indias cooperative federalism. Demonetisation has had short-term costs but holds the potential for long term benefits. Follow-up actions to minimize the costs and maximize the benefits include: fast, demand-driven, re-monetisation; further tax reforms, including bringing land and real-estate in to the GST, reducing tax rates and stamp duties; and acting to allay anxieties about over-zealous tax administration. These actions would allow growth to return to trend in 2017-18.

GLOBAL SECTOR

2017 saw an improvement in global steel consumption, which grew 4.7% to 1.59 billion tonnes in the year, after a subdued growth of 1% in 2016. A low base-effect of 2016, along with improved steel consumption in China and investment-led recovery in advanced economies were the key factors driving this momentum. The governments stimulus measures and momentum in construction activities fuelled steel demand in China. Consumption in Europe (other than EU) too gathered pace in the year and grew ~2.5% with other countries like US with 6.4%, Brazil 5.3% Iran 4.5% follow the growth trajectory of rising global steel demand.

Global crude steel production grew by 5.3% or 63 million tonnes in 2017 to 1,691.2 million tonnes, as most economies registered good growth in steel production. Annual production grew between 4% and 6% for major economies of China, India, European Union and USA, among others. Turkey, South America and Brazil witnessed the highest growth in steel production at 13.1%, 8.7% and 9.9%, respectively. China trimmed its capacities by eliminating Basic Oxygen Steel making (BOF) – Electric Arc Furnace (EAF) of 55 million tonnes in 2017. The worlds largest steel producing country also closed 140 million tonnes of in efficient induction furnace capacity. These initiatives uplifted market sentiments and bolstered pricing power and profitability of most steel producers in the World. Overall, steel exports from China fell by 30% to 75 million tonnes in the year.

Global steel prices remained buoyant in 2017 due to:

a) Falling exports from China as it continues to reduce excess capacities;

b) Firm iron ore prices; and

c) Improving demand from China following the upswing in the infrastructure and construction sectors. The global capacity utilisation ratio stood at 69.5% in December 2017 — up 1.8 percentage points, compared to December 2016 level.

In the preceding couple of months, trade actions across economies aggravated to arrest imports, threatening the possibility of trade diversion.

Outlook

World Steel Association estimates suggest that global steel demand is likely to touch 1,616 million tonnes in 2018, a growth of 1.8% vis--vis 2017. Continued strengthening of investments in advanced economies, improving manufacturing climate and recovery in commodity prices are expected to act as key catalysts to drive global steel demand.

A large part of this demand is likely to come from the emerging and developing economies (excluding China) with an estimated increase of 4.9% in steel demand in 2018. In the developed economies, steel demand is likely to grow by 1.8% in the current calendar year. Important downside risks to these estimates comprise rising wave of protectionism in global trade and higher interest rates in the US and the EU. A large part of global steel demand is likely to emanate from the emerging and developing economies (excluding China) with an estimated increase of 4.9% in 2018.

SECTORS DRIVING GROWTH

Oil & Gas

Production cuts announced by the Organization of the Petroleum Exporting Countries (OPEC) in 2017 lent support to crude oil prices and the good show is likely to continue, going forward. Strong demand and possibility of renewed US sanctions on Iran may lead to further escalation in crude oil prices from here on.

Improving prospects of crude oil will augur well for the sector, as it will lead to higher production by upstream oil and gas companies. This, in turn, will benefit downstream companies as well. Higher investments in the sector will positively impact steel demand.

Metals and Mining

Commodity prices trended northwards for large parts of 2017; and the trend is likely to continue in 2018 as well. Higher prices will elevate production growth in the year and strengthen investments and upstream activity in this sector.

Infrastructure

According to a report by Global Infrastructure Hub, every year investment worth US$3.7 trillion is required to be made in worldwide infrastructure to meet the demand of the rising global population. Asian economies will account for more than half of these investments. Thus, the infrastructure sector will continue to play a major role in driving demand for the global steel industry.

Capital Goods

Upswing in commodity prices, broad-based improvement in economic growth and positive outlook for automotive and construction sectors are likely to aid prospects of global capital goods companies. S&P Global Ratings expects the credit metrics of capital goods companies to improve on the strength of rising capital expenditure by private sector companies. Steel is the primary input to manufacture equipment and machinery; and hence stands to benefit from improving prospects of the capital goods sector.

Indian Steel Sector

Indias steel production grew 4.5% to its highest ever level of 102 million tonnes in FY18. The Government of India has been proactive in addressing the issues faced by domestic steel makers. It has taken major steps to stop unfair trade and to safeguard the interests of domestic players.This has been accompanied by recovery in construction activity and shut down of excess capacities in China. China has phased out capacities to the tune of 115 million tonnes in the past two years; and is gearing up for another production cut of 30 million tonnes in 2018. Leading steel makers in India are well poised to benefit from this development.

Riding high on an all-round improvement in the growth of key sectors, namely automobiles, infrastructure, and capital goods, among others, Indias steel demand grew at a high rate of 7.9% to 91 million tonnes in FY18. This pace may accelerate further as domestic steel demand growth is pegged at 8.3% to 98.2 million tonnes in the current fiscal year (Source: JPC). In FY18, Indias per capita steel consumption grew 6.2% to 69 kg, while share of flats improved from 42% to 44%. Indias construction activity, particularly in highways, bridges and metro lines has bolstered the demand for long steel products in recent times. Given their size, long steel Products are relatively difficult to ship and hence most contractors are sourcing them locally. Domestic steel prices have started trending northwards since November 2017, owing to a surge in global prices, healthy recovery in domestic demand, and a weaker rupee.

The prices though still trail international prices and hence there is a scope for further uptick in prices.

Governmental measures such as the National Steel Policy and extension of anti-dumping duty on steel products, imposition of quality standards are key facilitators for the growth of domestic steel sector in India. Additionally, the Government has earmarked ‘ 14.3 lakh crores towards infrastructure spending, which will also enhance steel demand in the domestic market.

INDIAN STEEL INDUSTRY

The key highlights of Indias Steel Industry

• Achieved all-time high crude steel production in FY18

• Third largest crude steel producer in the world in 2017

• Third largest consumer of finished steel in the world in 2017

• Steel consumption grew at a multi-year high in FY18

• Contributes nearly 2% to the countrys GDP

• Producer of world-class steel of all major varieties and grades

Advantage India

The National Steel Policy, 2017 (NSP) aims to make Indiaa self-sufficient steel producing nation by 2030. The Policy will promote the indigenous industry to eliminate steel imports in the country by 2030. Reduction in import dependence for procuring coking coal, emphasis on BF / BOF technology, sharper focus on pelletisation and installation of slurry pipelines and conveyors, promotion of domestically manufactured steel in government procurement and production of value-added steel indigenously are the key goals of this Policy.

To achieve these targets, some Indian companies have undertaken capacity expansions, which will drive their market shares further in the coming years. The acquisition of debt-laden steel companies will reduce the time for ramping up existing capacities. Investments worth US$210 billion would be required to achieve the targeted steel capacity of 300 million tonnes by 2030. Overall, the NSP will empower domestic steel makers by making them more competitive globally. In the domestic market as well, there are multiple catalysts to drive steel industry growth. Relatively lower per capita steel consumption, healthy prospects of consumption demand on the back of buoyant infrastructure growth and strong growth in the automobile and railways sector being the prominent ones. Against this backdrop, it is expected domestic steel demand would grow by around 5% in the financial year 2018-19.

Union Budget 2018 Impetus

Higher infrastructure spending through various road projects under The Ministry of Road (including NHAI) and Pradhan Mantri Gram Sadak Yojana by 11% over the preceding year Railway allocation increased by 22% with focus on building infrastructure, stepping up safety and improving maintenance Measures aimed at enhancing farm income will bolster demand for automobiles and tractors. Improved prospects of automobile sector to aid domestic steel consumption

Domestic Growth Enablers

Rural Steel Demand

Rural India is expected to reach a per capita consumption from 12.11 kg to 14 kg for finished steel by CY20. The policies like Food for Work Programme (FWP) and Indira Awaas Yojana, Pradhan Mantri Gram Sadak Yojana and Affordable Housing, among others are expected to drive the demand.

Housing Demand

The allocation towards building houses in rural and urban areas under the PMAY scheme stood at ‘ 275 billion in the Union Budget 2018-19. Rising transparency in the real-estate sector following the implementation of The Real Estate (Regulation and Development) Act has bolstered the confidence of both investors and home buyers. In this scenario, housing demand is likely to accelerate going forward, leading to higher steel demand in the domestic market.

Renewable Energy

India aims to generate 275 GW of total renewable energy by CY27. Of the total pie, 72 GW will be from hydro-energy and 15 GW from nuclear energy. Nearly 100 GW is expected to come from ‘other zero emission sources. Both generation and transmission capacities are expected to raise steel demand from the sector.

Automobile

The automobile industry is estimated to grow by US$260- 300 billion by 2026. With increasing capacity addition, steel demand is expected to be robust.

Outlook

According to the World Steel Association, consumption of finished steel products in India is estimated at 92 million tonnes in 2018 – a growth of 5.5% over 2017. Of the total incremental demand of 28.7 million tonnes in 2018 worldwide, India alone is likely to add steel demand of 4.8 million tonnes. Pegged at 5.5%, the domestic steel demand is likely to grow at a faster pace than the global steel demand. Steel demand worldwide is likely to grow by 1.8% in 2018. The nations per capita steel consumption is likely to improve to 72-74 kgs in 2018-19. Clearly, Indian steel players are looking inwards to achieve higher growth. As China continues to trim its excess capacities in 2018 as well, and given the low-cost, higher quality products offered by Indian companies, opportunity to grow exports is also sizeable. Against this backdrop, Indian players having significant capacity expansions on the cards are well poised to tap into these opportunities over the next few years.

3. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an internal control system which monitors compliance to internal processes. It ensures that all transactions are authorised, recorded and reported correctly. The systems are routinely tested and certified by Statutory as well as Internal Auditors and cover all offices, plant facilities and key areas of business. The Internal Auditors independently evaluate the adequacy of internal controls and concurrently audit the majority of the transactions in value terms.

To further strengthen the internal control process, the Risk Management Committee has documented control procedures covering all aspects of key financial and operating functions. The Companys internal control systems provide for:

3 Adherence to applicable accounting standards and policies

3 Accurate recording of transactions with internal checks, prompt reporting and timely action

3 Compliance with applicable statues, policies, listing requirements and management policies and procedures

3 Review of capital investments and long term business plans

3 Periodic review meetings to guide optimum utilization of resources

3 Effective use of resources and safeguarding of assets

The Audit Committee reviews the effectiveness of internal control systems, and also provides timely updates on operating effectiveness and controls to senior management team. A CEO and CFO Certificate, forming part of the Corporate Governance Report, reinforces the effectiveness of internal controls and reiterate their responsibilities to report deficiencies to the Audit Committee and rectify any issues.

The auditors carry out periodic audits as per an agreed internal audit programme. They bring to the notice of management, issues which require their attention and also highlight the severity of the issue. Corrective actions are then set in place. The internal auditors report is reviewed by the Audit Committee and placed before the Board of Directors for their consideration

4. FINANCIAL OVERVIEW

During the period under review, the Companys revenue stood at Rs. 48,884.77 Lakhs compared to Rs. 30,857.29 Lakhs in the previous year. EBITDA stood at Rs. (7,627.59) Lakhs as compared to Rs. (5,910.98) Lakhs in previous year.

The increase in turnover is mainly due to uptrend in steel sectors, the Companys steel divisions performance has turned around with its operations and Increased in Selling Prices of finished goods. The operation of Plant has been gradually increasing its capacity utilization. The capital employed in the business stood at Rs. 1,13,184.54 Lakhs as on 31st March, 2018 as compared to Rs. 1,38,073.72 Lakhs as on 31st March, 2017.

The authorized share capital of the Company as at 31st March 2018 stood at Rs. 10,400 Lakhs divided into 3,400 Lakhs equity shares of Rs. 1/- each and 700 Lakhs Preference shares of Rs.10/- each.

During the year under review, there was no change in the authorised and paid up capital of the Company. As at 31st March, 2018 the reserves and surplus of the Company stood at Rs. (-) 15,145.03 Lakhs and the net worth stood at Rs. (-) 13,803.60 Lakhs.

5. DEBT POSITION

As of 31st March 2018, the Company had a total debt of Rs. 1,56,005.28 Lakhs. This includes long term debt including current maturities of Rs. 1,35,985.91 Lakhs and short term debt of Rs. 4,403.51 Lakhs.

6. HUMAN RESOURCES AND INDUSTRIAL RELATIONS

During the year, the Company delivered value to its customers and investors. This was made possible by the relentless efforts of each and every employee. The Company has developed a robust and diverse talent pipeline which enhances OISLs organizational capabilities for future readiness, further driving greater employee engagement. Our human resource program is focused on attracting the right talent, providing excellent on the job training opportunities, and finally giving them the growth opportunities consistent with their aspirations. In addition, the trust our employees place in us is evident in our ability to retain key employees and senior executives during a challenging FY2018.

OISL has always enjoyed strong industrial relations. The company has a systematic grievance redressal system to further strengthen these relationships. This system encourages employees to share their views and opinion with the management. The Company reflects on this feedback and incorporates relevant changes into the existing policies, systems and processes. During the period under review, the Company maintained a cordial relationship with its workforce. The Directors would like to place on record their appreciation and recognition towards all its employees who continue to exude confidence and commitment toward the Company

7. STATUTORY COMPLIANCE

The Managing Director makes a declaration to the Board of Directors every quarter regarding compliance with provisions of various statutes as applicable. The Company Secretary ensures compliance with the Companies Act, SEBI regulations and provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and compliance with the guidelines on insider trading for prevention of the same.

8. CAUTION STATEMENT

The above mentioned statements are only ‘forward looking statements based on certain assumptions and expectations. The Companys actual performance could differ materially from those expressed/ projected depending upon changes in various factors. The Company does not assume any responsibility to any change(s) in forward looking statements, on the basis of subsequent developments, information or events etc.

Important developments that could affect the Companys operations include a downward trend in the domestic automotive industry, competition, rise in input costs, exchange rate fluctuations, and significant changes in the political and economic environment in India, environmental standards, tax laws, litigation and labour relations.