Orissa Sponge Iron & Steel Ltd Management Discussions.

i) Industry structure and developments:

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 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. Many Sponge Iron Plants are closed or facing the threat of closure due to shortfall in the supply of iron ore and coal as well as high cost of such inputs.

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. 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.

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 India s 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 Company s 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. Efforts are being made to restart the plant operations on commencement of mining operations when iron ore from own mines will be available for captive use.

During the year production of sponge iron, steel billets and power was Nil (Last year Nil) as the Plant as a whole was shut down. During the year the Company has purchased electricity 259800 (last year 496080 units) from NESCO amounting to Rs. 30.33 lakhs (last year Rs. 44.47 lakhs). The Company has neither earned any income nor incurred any expenses in foreign exchange during the year.

iv) Outlook:

Company s 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 one million tonne of steel.

v) Risks and concerns:

Sponge Iron industry is compelled to operate where basic raw material prices i.e. iron ore 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 long products.

Contingent liabilities have been disclosed under Note No.39 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. A Cost Auditor has been appointed for reviewing Cost Accounting records.

vii) Discussions on financial performance with respect to operational performance:

Due to continuing shut down of plant operations since June 2012, the Company suffered loss of Rs. 1416.46 lakhs before tax for the year under review (last year Rs. 17,370.98 lakhs). Total income stood at Rs. 173.03 lakhs (last year Rs. 3972.42 lakhs). Earnings in foreign exchange on sale of technology amounted to Rs. Nil (last year Rs.Nil). Loss after considering deferred tax this year amounted to Rs. 1416.46 lakhs as compared to Rs. 27390.23 lakhs last year. There was neither any production nor sale of power during the year as well as the previous year.

viii) Material developments in Human Resources / Industrial Relations front including number of people employed:

The man power strength of the Company reduced to 186 as on 31.03.20 as compared to 222 employees as on 31.03.2019 due to resignation, retirement, termination and death of some employees. Lockout of the plant declared on 14.10.2012 due to illegal strike by the Workers union was lifted on 30.12.2013 following settlement with them on 27.12.2013.

ix) 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 Company s 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.