i. Industry structure and developments:
Indias sponge iron production in the just-concluded financial
year (2022-23) was recorded at 43.00million tonnes (mnt). Production volumes rose by 12%
compared to 38.60 mnt seen in the previous Financial Year (2021-22). Out of total sponge
iron production, the share of pellet-based DRI (P-DRI) was roughly 65%, while the rest was
produced from iron ore lump. Sponge iron production in the financial year ending March
2023 rose due to higher crude steel production. Indias crude steel production stood
at 125.3 mnt in financial year 2022-23 compared with around 118.2 mnt in the previous
financial year. The COVID-19 pandemic and the subsequent lockdowns in 2020 severely
impacted sponge iron production in FY21. Therefore, sponge iron output increased on
the low base of FY21. Indias annual sponge iron production capacity is
currently assessed at 33.63 mnt. About 20 mnt of capacity expansion proposals have
received government approvals in the form of environment clearance (EC) and consent to
establish (CTE) between January 2021 and March 2022. These projects are expected to be
completed in the next three-four years. Indias sponge iron production is expected to
increase to around 45 mnt in the financial year 2024-25. In the long-term, production is
expected to reach 55 mnt by financial year 2025-26 in line with increasing crude steel
capacities.
The Company operates coal-based Sponge Iron Plant (250,000 TPY), Waste
Energy Recovery based Power Plants (36 MW) and a Billet making Plant (100,000 TPY). Growth
in this sector of the industry has slowed down for the last couple of years due to weak
demand but gradually undergoing a transformation for the better. Sponge Iron is one of the
sources of metallic used for steel making. For better capacity utilization and for desired
quality of Sponge Iron it is important to use the right qualities of raw materials i.e.
iron ore/pellet and coal. Performance of Waste Energy Recovery based Power Plant depends
on capacity utilization of the Sponge Iron Plants. Surplus power is sold generating
revenue
. ii. Opportunities and threats: Opportunities:
The Company was allotted Iron Ore Mines by the Central Government and
the State Government of Odisha. Commencement of mining operations from the mines requires
several approvals, clearances and fulfilment of conditions as specified in the respective
documents. The Company has received all approvals and clearances including Stage I
Clearance from the Ministry of Environment and Forest vide Letter dated 21st September,
2016 and Compliance Certificate under the Scheduled Tribes and Other Traditional Dwellers
(Recognition of Forest Rights Act) 2006 vide Letter dated 23rd June, 2016. The Company has
also received approval under Section 2 (iii) of the Forest Conservation Act, 1980 for
proceeding to execute the Mining Lease. Thereafter the Company has also deposited Rs.
28.96 Crores towards the NPV (Net Present Value) over the forest Land for which forest
license has been accorded. However, the matter has gone to the Court. The Company is
hopeful of getting favourable judgement for execution of mining lease in the near future.
Most recently in May, 2022, an application has been filed before
Honble High Court of Odisha for an early disposal of the Companys Writ
Petition. On May 18, 2022, Honble High Court of Odisha disposed off Companys
application thereby stating that it was not inclined to fix any early date in this matter.
Consequent to which the Company had filed a SLP in the Honble Supreme Court of India
for early disposal of our application. Thereafter, the matter was taken up by the
Honble High Court of Orissa and hearing of the matter is in the advance stage as all
the pleadings have been completed and we are expecting the positive outcome very soon.
Threats:
Cost of iron ore and coal i.e. the basic raw material has a direct
impact on the profitability. Iron Ore price of the required grade has become
un-remunerative and availability has suffered to a great extent due to various
restrictions imposed by the authorities. Coal Indias New Coal Distribution Policy
has disrupted coal linkages forcing producers to procure more e-auction coal and use
imported coal. Coal India has also increased the price of coal substantially. The
situation is expected to change for the better in the near future.
iii. Segment-wise or product-wise performance:
The Companys business activities falls within a single primary
business segment viz. "Iron & Steel" in accordance with the Accounting
Standard 17. Since June 2012, the plant has been shut down due to various difficulties.
Company has incurred expenditure on account of repairing, revamping,
upgrading, and overhauling of the Existing two Number DRI Kiln and captive power plants of
12 MW and 24 MW capacity. The Company is pleased to inform that now the revamping of
Companys manufacturing plant has been concluded and the trial run production has
commenced from the month of October, 2022.
During the year trial run production of sponge iron was 29,953 Metric
Tonne (Last year Nil) . During the year the Company has purchased electricity from TPNODL
amounting to Rs. 319.12 lakhs (last year Rs. 98.14 lakhs)
. iv. Outlook:
Companys goal is to first do all that is necessary to obtain
mining clearances so that mining operations from captive mines could commence as soon as
possible. On achieving this goal efforts would be made to set up the project for
production of 1 million tons of steel.
In the first phase of expansion, we have also planned to expand
operations of the plant from DRI to steel melting shop (SMS). Further, as a second phase
expansion, we have planned to expand operations from SMS to TMT segment.
v. Risks and concerns:
Sponge Iron industry is compelled to operate where basic raw material
prices i.e. iron ore, pellet and coal are dictated. This totally shatters the cost
effectiveness and the industry operates under a razor thin margin or with no or negative
margin. Price of sponge iron is sensitive to demand supply position of steel scrap and
selling prices of products.
Contingent liabilities have been disclosed under Note No.40 of Notes on
Financial Statements.
vi. Internal control system and its adequacy:
The Company has an adequate system of Internal Control commensurate
with its size and nature of operations. It provides reasonable controls that all assets
are safeguarded; transactions are authorized, recorded and reported properly. Internal
Auditors, a firm of Chartered Accountants, conduct audit on various activities of the
Company and reports to the Audit Committee constituted by the Board which Committee meets
regularly and reviews audit issues and follows up implementation of corrective actions.
vii. Discussions on financial performance with respect to operational
performance:
The plant was closed from June, 2012, the revamping work has started
from FY 2020-21. The Revamped DRI 500TPD and Power Plant 24MW was commissioned in Oct 2022
but remained under trial run due to non-utilisation of the production capacity up to the
optimum level during the year due the various technical reasons. As per the policy of the
company the optimum capacity means production of at least 50% of the installed capacity in
2 consecutive months. The revamped DRI 350TPD and Power Plant of 12MW capacity are yet to
be commenced. Thus, all the related cost of the goods sold out of trial run production and
the sale proceeds have been transferred to the Project, on which company has incurred loss
of Rs 25.42 crore. Company is hopeful for commencing commercial production in FY 2023-24.
viii. Material developments in Human Resources / Industrial
Relations front including number of people employed:
The Company firmly believes that its employees are the key to driving
performance and developing competitive advantage. The emphasis has been on proper
recruitment of talent and empowerment while devoting resources for their continuous
development. The Company takes pride in the commitment, competence and dedication shown by
its employees in all areas of business. Industrial relations in the organization continued
to be cordial during the year under review. As on March 31, 2023, the Company had a strong
team of 59 employees, who are aligned and dedicated towards the Companys goals.
ix. Significant Changes in Key Financial Ratios and Change in Return
on Networth
In compliance with the requirements of Schedule V of the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015, as amended, the details of
significant changes (i.e. change of 25% or more as compared to the immediately previous
financial year) in key financial ratios, along with other key financial ratios and changes
in Return on Networth of the Company (on standalone basis) including detailed explanations
therefor are as under:
Particulars |
2022-23 |
2021-22 |
| Current Ratio |
0.63 |
0.37 |
| Debt-Equity Ratio |
(53.09) |
(10.03) |
| Debt Service Coverage Ratio |
(0.79) |
(0.44) |
| Return on Equity Ratio |
(1.92) |
0.74 |
| Inventory Turnover Ratio |
0.20 |
4.02 |
| Trade Receivable Turnover Ratio |
1.37 |
18.10 |
| Trade Payable Turnover Ratio |
3.41 |
NA |
| Net Capital Turnover ratio |
(1.58) |
(0.10) |
| Net Profit Ratio |
1.22 |
(7.39) |
| Return on Capital Employed |
0.04 |
(0.04) |
Company is in the process of revamping the closed plant for last three
years. There have been several write offs in the books due to damaged capital assets,
inventory, bad debts etc. Net Worth has been eroded to reach the negative levels. Revenue
is zero, Debts are huge. In such a scenario the above ratios are not comparable. Turnover
related ratios are also not applicable.
Change in Return on Networth:
During the FY 2022-23 and FY 2021-22, the Company networth is negative
in both the years.
x. Cautionary Statement:
The Management Discussions and Analysis describing Industry Structure,
Developments, Opportunities, Threats etc. aims at a forward looking approach based on
present applicable Laws & Regulations. Actual Results may differ from such
expectations, projections etc. whether expressed or implied. Important factors that can
influence and can make a difference in Companys operations include effect of demand
and supply leading to price differentials in both domestic and international markets,
changes in the regulations, tax laws and other statutes and other factors like
infrastructure facilities, natural calamities etc. over which the Company do not have a
direct control.
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