rathi bars Management discussions

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 FY2022-23. This should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in this Integrated Report and Annual Accounts 2022-23. The Companys financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS] complying with the requirements of the Companies Act, 2013, as amended and regulations issued by the Securities.

GLOBAL ECONOMY

Global GDP growth is estimated to fall from 3.4% in 2022 to 2.8% in 2023. The continuing Russia- Ukraine war along with central banks hiking rates to tame inflation continues to weigh on economic activity. Growth in 2022 was dampened due to rapid spread of COVID-19 variants in China and the ongoing war in Ukraine. The concerted sanctions on Russia, which supplies around 10% of the worlds energy, lead to dampening growth and further straining of supply chain. The war worsens the persistent inflation across developed economies. However, the recent re-opening may lead to faster than expected recovery in 2023.

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. Chinas economy is set to rebound to 5.2% as mobility and industrial activity pick up after lifting of pandemic restrictions. The contraction in real estate remains a major headwind. Long-term headwinds to growth include a shrinking population and slowing productivity growth.

INDIAN ECONOMY

GDP growth rate in 2023 is expected to be 5.9%, lower than the 2022 growth of 6.8% due to subdued external demand and tightening monetary policy. However, India will remain the fastest growing major economy.

Brent oil prices are expected to remain rangebound in 2023, given the continuing war in Ukraine and sanctions imposed in response by the USA and European Union. India meets nearly 80% of its oil needs through imports. High oil prices will also have a trickledown effect on the prices paid by consumers for goods and services. Persistent inflation resulted in RBI to increase the repo rate by 250 basis points throughout FY2022-23. Further rate hikes are expected in the coming year, despite no rate hike in the April Monetary Policy Committee meeting.

Capital investment of close to 3.3% of GDP is expected to crowd-in private investment, strengthen job creation and demand, and raise Indias overall growth potential. Focus is expected in the energy sector, with significant capital investments towards energy transition and green hydrogen mission.

Overall, the key steel consuming sectors are expected to perform well in FY2023-24 supported by a rise in infrastructure spend by the Government and gradually improving semiconductor supply. High CAPEX allocation in key steel consuming sectors such as railways, national highways and housing is expected to drive steel consumption.

OPERATIVE VIEW

The operating and financial review is intended to convey the Managements perspective on the financial and operating performance of the Company at the end of Financial Year 2023-24. This report should be read in conjunction with the Companys financial statements, the schedules and notes thereto and the other information included elsewhere in the Integrated Report. The Companys financial statements have been prepared in compliance with the requirements of the Companies Act, 2013, Indian Accounting Standards and the guidelines issued by the Securities and Exchange Board of India [SEBI],

This report is an integral part of the Directors Report. Aspects on industry structure and developments, opportunities and threats, outlook, risks and concerns, internal control systems and their adequacy, material developments in human resources and industrial relations have been covered in the Directors Report.

STEEL INDUSTRY

The recovery momentum of global economy after the pandemic has been affected by persisting inflation, US monetary tightening, Chinas economic deceleration and continued supply disruptions due to Russia-Ukraine war. High energy prices, rising interest rates, and falling confidence have limited recovery of the steel demand after a dip in 2022. However, positive factors like Chinas reopening, Europes resilience during the energy crisis and preliminary easing in supply chain bottleneck will lead to a Y-o-Y rise in global steel demand by 2.3% [—1,822 MnT) in 2023.

The Chinese steel demand is expected to grow by —2% in 2023 after 3.5% decline in 2022. The growth may be attributed to base effect and slight uptick in real estate after decline in 2022 due COVID-19 lockdowns, slump in the property market and continued focus on sustainability. The European steel demand is expected to fall further by 0.4% in 2023 after -8% decline in 2022. Demand in the USA is expected to grow moderately by -1% in 2023 backed by relief in infrastructure segment with 2021 Infrastructure Law and Inflation Reduction Act.

The year witnessed very high volatility in raw material, especially coking coal on account of the ongoing geopolitical concerns and supply chain bottlenecks impacting steel price across geographies.

India remains the bright spot for global steel demand. After growth of 8.2% in 2022, demand is expected to show healthy growth of 7.3% in 2023 backed by consumption led demand. Having managed inflation well, the Indian economy is on a healthy growth track, with a rising share of investment in GDP, appropriate budget allocations and expenditure by the Government in the infrastructure segment. India also faced supply disruptions due to raw material constraints and volatility of prices.

OUTLOOK

We had a strong operational and financial performance in FY 2022-23 amidst the challenges faced due to the pandemic. We continue to focus on controllable factors such as resetting cost base through diverse cost optimization initiatives, disciplined capital investments, working capital initiatives, marketing initiatives and volume with strong control measures to ensure safe operations across businesses within framed government and corporate guidelines amidst the pandemic.

STATUTORY COMPLIANCE

The Managing Director and the Whole Time Director cum CFO (Finance & Corporate] make a declaration at Board Meeting when quarterly/half yearly/yearly financial results are approved, regarding compliance with provisions of various statutes after obtaining confirmation from respective departments of the Company. The Company Secretary ensures compliance with all corporate laws and listing rules applicable to the Company.